|
             
|
By David Bowser AMARILLO — Calf and feeder cattle prices should stay profitable for ranchers, in the estimation of a livestock economist addressing the recent Texas Cattle Feeders convention here. Randy Blach, executive vice present of Cattle-Fax, said supplies will remain short, keeping prices up for the immediate future. He said the herd expansion he had predicted last summer didn’t develop, for a combination of reasons. For one thing, Blach noted, drouth has eased in some areas of the U.S. but remains severe in others. That, along with strong feeder cattle prices, has retarded heifer retention. Through September, Blach noted, the market price structure was still pushing heifers into the feeder stream. "This price structure that we have in the feeder market," Blach predicted, "may delay herd expansion over the course of the next 12 to 18 months. It may be delayed further just because of the price we can get out of these feeder heifers in the marketplace." Weather forecasters predict a slow transition from El Niño to La Niña patterns, comparing today's weather with that of the 1950s drouth pattern. If that's the case, the next few years will not see widespread range improvements, Blach said. "Some of the things that worked against us with the lingering drouth impact are likely to continue, at least in several regions of the country," Blach said. Cow slaughter is up seven percent for the year. "The lion's share of that has come out of the dairy industry," Blach said. "There have been tremendous equity losses over on the dairy side. Just here in the last 30 to 60 days, we're starting to see some of the dairy producers make a little bit of money, but it's been nearly 24 months of red ink in that industry." Beef cow slaughter is up about three percent. "We look for the beef cattle inventory to be basically flat next year," Blach said. "We anticipate that we're going to see some herd expansion kick in sometime in 2004. We'll start to see a rebuilding of the nation's cow herd next year through the middle of this decade." Feeder cattle and calf supplies are going to be smaller. "A year ago, they weren't being replaced," Blach said. Placements were down the second half of last year. "This year, our placement weights are at lighter levels than they have been historically," he continued. "We're going to continue with lightweight cattle on feed." The feeder cattle and calf supply outside feedyards is smaller. Blach said he anticipates Mexican imports somewhere between one million and 1.1 million head this year. "We're starting to see a few more Holsteins on feed in some areas compared to where we were three or four years ago," Blach added. He predicted that feedyards will be feeding more of a variety of cattle to keep occupancy levels up. "We're not going to run out of feeder cattle," Blach said, "but we're extremely current in that feeder cattle and calf supply outside the feedlot. We have reached deep into that pile, and it's going to be very difficult to have yearling cattle placed on feed. We're going to have to place more lighter weight cattle here for the next 12 to 18 months." He expects the nation's beef supply to drop over the next year. "Our beef production in the U.S. this year is going to end up being 26.6 to 26.7 billion pounds," Blach said. "Next year it will be somewhere in the 26 to 26.2 billion pound area." He said the country is seeing the biggest year-to-year change in the beef supply it has experienced. On-feed numbers are 98 percent of what they were a year ago. "We'll likely reach out and place more lightweight cattle," Blach said, "and on-feed numbers will exceed those of a year ago in the next couple of months." This year's carryover is well below the five-year average. "Keep in mind, even though that's the case," Blach cautioned, "the carryover makes up a big part of that overall fed cattle supply." That is the reason, Blach said, that it's important to be current in marketing fed cattle. "I think we've found out how important it is to be current in the last 24 months," Blach said. "We're going to stay at a very small supply through the rest of this year and on through the first quarter of next year. We're going to be in pretty good condition from now on through the first quarter of next year." Packers reported record slaughter levels last summer and record beef production. "We borrowed ahead," Blach said. "We were trying to make up for that loss of imported product out of Canada." Blach is projecting slaughter numbers of 625,000 to 640,000 head a week from mid-October through the end of the year. He expects to see 610,000 to 630,000 a week for the first quarter of next year. These numbers will be lower than the beef industry has seen the past several years. Most of the data doesn't reflect a drop in carcass weights. That means production is dropping faster than the data shows. "Carcass weights have been our friend this year instead of being a challenge for us," Blach said. "We've had record large carcass weights. With weights down 30 pounds, that's taken a tremendous amount of tonnage off the overall market. We've seen production levels drop 100 million pounds on a weekly basis from back where they were in the summer." The last few weeks in October the drops have been even more dramatic from a fed cattle price standpoint, Blach said. "If we look at this next year and we look at the next few years," Blach said, "we think we're going to have fed cattle prices that can average in the low to mid $80s, $82 to $84 for an annual average next year." Historically, the fed cattle market has had about a $13 swing in price from high to low within a year. "That would be the normal price range," Blach said, predicting that next year’s range will be wider, perhaps $20 or more. "It's not uncommon when you're looking at it on a percentage basis that we'll have a 20 to 25 percentage point change from highs to lows," Blach explained. "If we're looking at price averages in the $80s, you need to expect more volatility around that range. "From a practical standpoint, ranchers can sell fed cattle from a range of the mid-$70s up to the mid to upper $90s in 2004," he continued. This year will go down as the most profitable year for fed cattle in history, and it's about time, Blach said. "Over the last five years, there has been a tremendous loss of equity," he noted. "It has been a tremendous change. We'll more than likely never see anything like this again." Cattle are making $400 to $500 a head. "We're not likely to ever repeat that," Blach said. The previous 20-year average is seven to eight dollars a head profit. The money, unfortunately, came back to fewer hands than when it went out, he added. "A lot of people weren't in a position to own the inventory that they had previously because of the tremendous loss of equity," Blach explained. "That's an important part of what we've gone through the last five years." Cattlemen aren't the only ones making money, however. Blach said margins at the packer level are also up. "From May 20 on there was an excellent packer margin as well," Blach said. "They peaked at over $2 in cutout a few weeks ago, but it's come back down. Those margins today are well over $100 per head." There are excellent margins at the packer level, excellent margins at feeding, at the stocker level, the backgrounding level and the cow-calf level, Blach said. He contended it never would have happened without demand growth throughout the entire system. "Most of the time, profits would have been taken at the expense of others in the production chain, but that's not happening now," Blach said. Another important part of today's profitability, he pointed out, is the market structure. "Discount futures markets are healthy for us," Blach said. "When we have the board discount, we don't have that carrot out in front of us. It's healthy. We tend to do things better." It doesn't happen often, but when it does, it helps tremendously. "We tend to sell cattle aggressively," Blach noted. "We market them, and we don't build those front-end supplies." But at some point there's going to be a transition. "We're going to go back to a premium board," Blach cautioned. "That's where we need to be careful, because that's when we start to build those front-end supplies and get ourselves in trouble." He said the industry has had a great run on feeder cattle prices. With an average $11 a head profit on an annual basis for summer stocker operations, Blach said stockers have made as much money this year as they have in the last 10 years. "We'll take it," he grinned. "We think we'll have another good year for stocker operators again this year." The calf market looks very similar, he said, but not all the profitability of fed cattle has been pushed back to the cow-calf operator yet. "If you have to buy grazing cattle," Blach advised, "I wouldn't wait until next spring to get that done." He expects to see a significant move in the calf market between now and next spring as profit levels are bid into replacement cattle. "That will happen," Blach predicted. "It always does." He warned stocker operators and feeders to prepare for that all the way through the system. "We going to see better profit levels," Blach said of the cow-calf producers next year. He expects profit levels of more than $100 a head for average cow-calf operations in 2003. Blach is projecting profitability for the next two to three years. "Cow-calf operators should get along extremely well," he said. "There's no expansion going on yet." With no expansion and tight supplies of feeder cattle, prices should hold or rise. "We've still got a discount futures market," Blach said. "Once we transition that, cow-calf producers will still have at least three more solid years." Despite speculation to the contrary, Blach said there is still a cattle cycle, though last year the industry produced a record beef supply with 35 million fewer cattle than when the national herd was at its peak. The cattle cycle is still intact, he said. It's just been delayed. "We haven't seen the normal rush in when the cycle turns up and all the people who want to get into the cow-calf business that we experienced back in the 1960s, 1970s and even the 1980s." Drouth has been one factor, disease another, he said. "FMD scares, BSE scares, 9/11, all of those things, I think, have had an impact on the way we've reacted historically to the cattle cycle," Blach said. "I think the cycle is still there, but not to the degree where we're going to see the big swings in inventory numbers that we have seen historically. We're going to see ups and downs, but we can do so much more with productivity." With the way cattlemen have been able to grow their productivity the last 10 years, how much do they need to expand the nation's cow herd? How much does it really need to grow? "We need to replenish and keep younger animals on the back end, but we do not need to see a real aggressive expansion of the nation's cow herd with the productivity that we have off our inventory today," Blach said. He thinks the inventory will crest over the next couple of years. "There'll be increased feeder production coming behind that," Blach said. "We'll roll back down, but we won't see the big changes in inventory that we've experienced historically." Blach expects feeder cattle prices next year will average from $92 to $94, but he warned there could be some tremendous swings. "Those who are producing feeder cattle, if by late next summer we have the market structure get bullish and we see a premium in the back end, we'll likely to see feeder cattle prices get dangerously high," Blach said. The danger is the high breakevens that will be built in for those who are feeding those cattle. "We think we'll end up with a $92 to $94 year," Blach said. "That may be conservative." He thinks there will be a wider price range on feeder cattle as well as fed cattle. "We all feel good today," Blach said. "We've made some money. We've got a little jingle back in the pocket. But all you have to do is look around the world and see some of the things that have happened. We can't forecast BSE. We can't forecast FMD. We can't forecast the next terrorist attack. "Don't go to sleep," he warned. "Make sure you keep some underlying protection. If the news is already out, it's too late to get that protection in. Don't let your guard down. Even though it's a great time in the industry, don't go to sleep and not get any protection, particularly at these levels. There's a lot of risk. There's a lot of air underneath if something like that were to happen." |
|
 |
|
Questions? Comments? Suggestions? |