Blach issues outlook during Kansas Livestock Association Convention

CattleFax CEO Randy Blach gave cattle producers his thoughts about what current conditions mean for the beef industry and an outlook for 2020 during his session at the Kansas Livestock Association Convention and Trade Show, Dec. 5, in Wichita, Kansas.

“Everybody glad 2019 is behind us?” Blach said. “Was that a bugger or what?”

The weather in 2019 was disastrous in parts of the High Plains, and some areas are still suffering from the results of it. Weather analysts for CattleFax are calling for some improvement in precipitation in some areas going into the new year.

“We’ve been dry in a lot of these areas here recently,” Blach said. “But we are moving back to what we would call just a normal year. We’re not going to have a strong El Nino. We’re not going to have a strong La Nina. It’s going to be an average year, we’re going to get a little precip.”

Blach thinks cattle producers might need their winter jackets for a little while longer, and it could get pretty cold in February and March.

“Not much precip through the feeding areas,” Blach said. “So we do not look for anything like what we had a year ago relative to temperature, precip and impact.”

Looking into 2020, the summer looks “pretty average,” Blach said.

“So nothing of any real significant consequences,” he said.

Moving onto grain prices. Blach said there are large U.S. and global grain supplies, and he predicts there to be more price rallies in the spring. Weather forced prices for about three weeks in early 2019, and then it was done.

“I think we’ll get that chance again this next year. But we don’t really see the grain market breaking out of this trade range it’s been in,” Blach said. “Just too much supply. That’s going to take some kind of a drought event or something along those lines to really break us out of this.”

In the short term, Blach doesn’t see much change with soybeans, as their prices are averaging a little bit higher.

“Honestly, I think we’re a little bit rich in here,” he said. “The reason I think we’re a little bit rich in here is because the demand side.”

About half of the U.S. soybean production is exported with China being the biggest market.

“Sixty percent of our total exports go to China to feed a hog herd that’s no longer there,” Blach said. “I think we’re too strong on export forecasts or on our price forecasts. I’m going to differ a little bit with our grain analysts the when we look at this data.”

On the futures side, for corn and hard red winter wheat in particular, prices have been from about $4 to $6 a bushel for the last several years, and Blach doesn’t see that changing anytime soon. For 2020, he doesn’t see any surprises.

“We basically have the market pretty flat,” he said.

Blach thinks the fed cattle market average will stay about where they thought it would in 2019.

“We think it’s going to be a little bit firmer here in 2020. Mainly supported by what’s going on with swine fever, and this lean beef market,” Blach said.

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In 2019, cow calf producers saw cash prices a little softer. Average breakevens for the industry in total were at about $135.

“So we’re not making a lot of money but we still have margin,” he said. “We still have margin.”

Stocker cattle operators with calves coming off grass have seen a lot of volatility when it comes to prices. There’s been some big ranges in prices, Blach said.

“Again, most of the last several years, we’ve had a range in there that’s been basically $160,” he said. “We’ve been able to hedge him up in the air and the high 50s, the low 60s, and we have breaks back down in here that have taken them down in here somewhere in the $135 to $128 range.”

“I don’t think we’ll get the higher futures—quite as high in 2020 is what we did the year before,” Blach said. “Grain prices, not much change in here. Again, hide and offal values, not a significant change.”

Sustainability story and beef demand

Blach looked back on previous presentations, and when he spoke at KLA last year, he made the remark how the beef industry is becoming more sustainable.

“From a profitability standpoint we’re in we’re making a transition,” he said.

In the 1980s there was little if any profitability in the beef industry.

“We had four industry segments that were basically splitting up 50 bucks a head, maybe 75 bucks a head,” Blach said. “Look where we are today.

For those who lived through the 1980s and 1990s, it’s scary to think the bad times could happen again. Blach agrees. The diet health scare drove beef demand down and people were afraid to eat meat.

“We went through 20 years of that,” he said. “Beef demand was cut in half. It was cut in half from 1979 to 1998 and we were pretty defenseless as an industry.”

Blach said looking forward to 2020, beef producers need to get the sustainability story right.

“We’re headed the right direction. Beef demand is growing,” Blach said. “We just have to stay focused. We have to continue to listen to the consumer. If the consumer says we want it this way, we need to think about that.”

This creates opportunities for some producers—for more niche markets.

“I think of all of the differentiation that we’ve seen in our markets over the course of the last 20 years. It has been the best thing for our business,” he said. “Natural-, grass-fed all of these different choices that we’ve been able to give the consumer whatever it may be, if they want it purple give them purple.”

Blach thinks the mindset of the industry has made huge strides from what it was 30 years ago. Back then the mentality of producers was to give consumers what they had and not give them many choices.

Inventory numbers

Cattle inventory numbers really aren’t changing much, according to Blach. Inventory numbers have grown about 6 million head since the lows of 2014.

“If you look at the beef cow numbers, we basically have them flat, again,” Blach said. “I shared with you a year ago the lion’s share of the expansion is over with.”

Expansion isn’t really the right word any more he said.

“This was all restocking,” Blach said. “All of this from 2014 and 2015 was just restocking back to an inventory. We had demand to support 32 million beef cows. When we went through that big bottom there, we just didn’t have the feed and water to support.”

Blach thinks the cow numbers will flatten out within 300,000 to 400,000 head for the next several years.

“I don’t think we’re going back to this big boom and bust cattle cycle that you see on this chart,” he said. “This is I believe, is a significant change that is taking place in our business.”

Blach thinks this change—going through big ups and downs was because of a supply driving market. There wasn’t really a good demand antenna.

“We didn’t have a good way to make measure that,” he said. “What we do is we just expand when we’re making money. We just expand, expand, expand, expand and would hit the wall and start losing money and we liquidate. I think we have made the transition to a demand driven market.”

That transition to a demand-driven market tells Blach that inventory numbers are going to flatten out.

“We’re not going to see these big moves in their production that we’ve seen historically, unless they’re drought driven, or unless we do a poor job of responding to the consumer, and don’t give them what they want,” he said.

Packer profits

Cow-calf producers were making bank during 2013 to 2015, and the packers were suffering. Now the shoe is on the other foot, Blach said.

“Packers are making big money and there’s been a lot of finger pointing,” he said.

When cow-calf producers were pulling a profit, the packers were struggling. There were a number of plants closed over a 20 to 30 year time period.

“Even though the packers are going to make $20, $30 or $40, a head this year on average, even though they’re going to make that you understand, we don’t have to go find that demand. That demand is already in our system. They’re keeping a little more of that margin, but it is already there.”

As more supply is added into the beef industry, there becomes more balance. Margins will shift over time.

“And this is why I think this scenario is actually pretty darn friendly,” Blach said. “We don’t have to go out here and take more market from pork and poultry, whatever the case may be, it’s already there. So watch this the balance of the year.”

Leverage is real, and over time when the packing plants come back online, there will be more efficiencies.

“I would argue that we actually are going to see a little improvement in leverage in 2020,” he said. “Because we learned that around these plants of levels and we’ve never run them before.”

There’s been a little bit of harvesting capacity expansion as a result of what’s been learned since the Tyson fire.

“We’ve got a couple of more plants that are coming online that are going to be double shifting,” Blach said. “I think that’s also going to help us as well.”


Another CattleFax analyst told Blach the forecast for the overall economy going forward is “we are long overdue for a recession.”

“He thinks by late 2020 and early 2021, we’re going to see a more significant economic slowdown, maybe a recession,” Blach said. “Not a repeat of what we had in 2009 or 2010. None of us want to see that again.”

But a recession wouldn’t just be a U.S. phenomenon.

“We see this going on with other countries around the world,” Blach said. “So I think we do need to have this on our radar screen.”

Another thing that will have a significant impact on the beef industry is the 2020 presidential election.

“We’ve obviously had a lot of policies that have been fairly ag friendly over the last few years,” he said. “Some of those policies if the leadership in our country changes, obviously could be influenced. That is a risk factor, I think as we go into 2021.”

Kylene Scott can be reached at 620-227-1804 or [email protected].