Randy Blach certainly doesn’t have a crystal ball when it comes to predicting where the cattle markets will go, but he does have a couple of decades under his belt analyzing market conditions. Blach is the CEO of CattleFax and spoke recently at the virtual Certified Angus Beef Feeding Quality Forum.
To think about where the beef industry is headed, one must look back on where we’ve come from, Blach said.
“It’s not been a straight line,” he said. “There were some very, very difficult times that this industry went through from the late 1970s through the late 1990s/early part of the 2000s. I think in order to appreciate where we’re headed as an industry we need to understand some of the mistakes that we made.”
Cattle numbers reached a peak of 132 million head in 1975. Today they are about 94 million, according to the U.S. Department of Agriculture.
“The decade of the ‘80s was an absolute train wreck,” Blach said. “Not only in the cattle industry, but in all of agriculture.”
The cattle business is cyclical, and “basically every 10 to 11 years” it goes through a cycle.
“I believe the reason we’ve done that is because we’re an industry that is now focused on doing the right thing,” Blach said. “Producing the highest quality product that we can, and meeting the changing demands of our consumers.”
High Plains production
When you look at the feeding industry, Blach said it deserves a look of its own. Seventy-five to 80% of the nation’s fed cattle supply is in Nebraska, Kansas, Oklahoma, the Texas Panhandle and northeast Colorado. Those states sit on the Ogallala Aquifer and that’s part of the reason why the feeding industry is so robust in this five-state region.
“There’s a lot of advantages in that region of the country, but the key one has been access to adequate supplies of water, not only to feed the livestock, but to grow more of the crops,” Blach said. “This is something that I think is critical as we look at our industry; if we want to have an industry that can continue to grow and prosper, we have to have water resources that can serve those needs.”
Looking back over time, there’s also an opportunity to see how productive the beef industry has been.
“About 75% of the decline in cow numbers that we’ve experienced over time have been offset with increasing weights,” he said. “And what I mean by that is increasing carcass weights. Weights have increased at a rate of about 5 pounds a year now.”
In the late 1970s and early ‘80s producers were focusing on certain traits in their beef animals. Eventually high quality genetics became part of cattle feeding because of the consumer’s desire to have a high quality product.
“We’ve seen these weights continue to increase and, quite frankly, we think they’ll continue to increase,” he said. “They may not increase at the same pace that they have historically, but I do see further growth down the road.”
The reason for that is there’s an opportunity to bring up the lower end of the cattle within the production mix today that will allow these trends continue to express themselves, Blach said.
Drought impact
Beef cow numbers have been declining in recent years, and Blach believes they might be down further with drought conditions in some areas.
“Going into 2021, we’ve gone through a two- to three-year contraction of the nation’s beef cow herd and a lot of that just goes back to there’s just not enough profitability out there today with the increase in cost,” Blach said. “Obviously, we’re making a little bit of money but we’re not making enough money in here across the industry in total.”
The productivity increases have been pretty pronounced, and he thinks what’s been seen over a long period of time will likely continue.
Looking at slaughter numbers, during 2000, the largest fed cattle slaughter number—30.2 million head—was at its peak. Of course there were substantially more numbers in the ‘80s than we have now, but there wasn’t more fed cattle numbers or non-fed slaughter cattle in the system. Cattle tended to stay out on grass longer and found other outlets.
“Again we had more outside cattle that worked through the system,” Blach said.
Over time however, from 30 million head in 2000, numbers declined steadily to 23 million slaughtered in 2015.
“Well, think about what that means if we had 7 million fewer cattle to harvest,” Blach said. “That means we’re going to have some packing plants to close up, and that’s what we’re dealing with today.”
As a result of this, the slaughter capacity on a weekly basis has declined about 70,000 head a week from where it was back in the 2000 to 2005 time period.
Need for harvest capacity
Packing capacity has increased slightly, but it’s really a bottleneck in the industry, Blach said.
“As we all know, the April-May harvest levels were sharply reduced because of COVID-19,” he said.
Back in 2005 during a 40-hour-a-week harvest capacity, estimates of harvested cattle were around 568,000. In the low-end harvest capacity in 2016 it was about 465,000.
“We actually went through 100,000 head a week decline in harvest capacity as we came through,” he said. “Now we’ve increased a little bit.”
Blach said cow-calf producers or stocker operators don’t see this on a daily basis like feed yard operators who have to deal with the backlogs a halt in harvest causes. The packers were incentivized to run the plants aggressively not only Monday through Friday but also on Saturdays.
“This is the bottleneck in our industry today—we just don’t have enough harvest capacity, quite frankly,” he said. “My opinion, we won’t grow the nation’s cow herd until we really are able to increase our harvest capacity some to alleviate some of this bottleneck.”
There are some tremendous opportunities out there in the beef industry, according to Blach, and if producers are willing and able to take advantage of them, he sees nothing but success. However, there are a few things he’d change.
“Again the cow-calf producer needs to be more profitable,” he said. “The good thing is the profitability is in our industry, but we need a little more harvest capacity to balance who’s getting what share and that’ll sort itself out in here over the next few years.”
He sees cattle numbers contracting a little bit, and producers have already experienced that in 2020. There is some additional packing capacity coming on line in the next 12 to 24 months and that should help at the end of the production chain. And what comes out of the chain is so very important.
“The U.S. produces 75% to 80% of all the grain-fed beef on the planet,” Blach said. “I’m talking about high quality grain-fed beef. Not animals that are just being fed a little bit of corn for 60 or 90 days. I’m talking about high quality grain-fed beef production, and the taste and quality in our opinion, that is the number one for consumers.”
Consumers crave beef
Consumers are why there’s been growth in demand for beef and consequently there’s been increased spending.
“That’s why the beef industry has gained 6% to 7% market share against pork and poultry from a spending standpoint here in the last 20 years,” Blach said. “We can’t play the commodity game, we have to continue to focus on these high quality products.”
Those high quality products have attributes—traceability, source verified, food safety, sustainability—that are all part of the value equation.
“I like to look at the value equation in this manner; value equals benefits, divided by cost,” he said. “I think a lot of you have found that that value equation has been very, very successful for you as you focus on quality.”
Some of those attributes won’t all be the same going down the road, but beef producers must continue to listen to the consumer.
“These are things that, I think, we have to think about as an industry,” he said. “If we go back to selling all these cattle on averages, do we lose the accountability and incentive to produce what the consumers really want and desire?”
That’s a hard pill to swallow when it comes to value discovery.
“I think we will come up with a solution for that,” Blach said. “Where we have adequate price discovery on a weekly basis. Where we can move the industry forward.”
Export market differentiation is coming and it’s going to become even more important over the next 10 to 20 years as a higher percentage of the quantity of beef and value is exported.
“We think there’s going to be more cost pricing, cost plus pricing niches develop with in the industry,” he said. “There will be opportunities for many of the producers out here and maybe even more of the niche packers.”
Those niche packers will add some additional capacity into the industry with plants that could process 1,500 to 2,500 head a day and respond to the added opportunities.
“We think there’ll be more outside capital and foreign capital come in and invest in the U.S. industries because we do have the highest quality product on the planet,” Blach said. “We’ve got the safest product quality on the planet. And again, I think we’ve got a proven track record of being able to trade and have everything in place to be able to be a reliable supplier as we look down the road.”
Blach is excited for the beef industry.
“We think we’ve got a very bright future as we look at the history of the beef industry in the U.S. protein industry,” he said.
Kylene Scott can be reached at 620-227-1804 or [email protected].
