Randy Blach, a veteran market analyst and CattleFax CEO, gave beef producers the low down at the Beef Industry University segment of the Kansas Livestock Association Convention in Wichita, Kansas, Dec. 2. There’s a couple of matters he suggests keeping on the radar screen.
“One of the first things that I’d share with you is changes in a year that I think we need to be prepared for,” he said. “There’s been a lot of discussion relative to inflation.”
It’s transitory and there’s been a lot of money pumped into the economy but he was skeptical, too.
“You really think they’re going to be able to control it? I don’t think so,” Blach said. “I think you do need to prepare for inflation to be significant and last longer than what a lot of the talking heads are suggesting.”
That means higher energy costs and farmers are already seeing it in their fertilizer prices.
“There’s already a number on the farming side that are making hard decisions today on what (they are) going to plant as (they) go down the road,” he said.
The latest COVID-19 variant to come out may have pushed down oil prices, and there’s been “a pretty good break in oil prices in the last several days.”
“Oil’s back in here trading in the mid $60s (a barrel). I think there’s a good chance we’ll open trade up in here between $0.90 and $1 (a barrel) before 2022,” Blach said.
Blach suggested taking advantage of some of the opportunities to hedge costs on energy needs on your operation—whether it be diesel, natural gas or other fuel needs.
Fed cattle
Moving on to the slaughter side of the industry, harvest capacity has been close to pre-COVID levels of 98,000 to 99,000 cattle a day for fed cattle. Through the summer it was around 92,000 to 94,000 head a day.
“Well, if you’re sitting there 5,000 or 6,000 a day and five days a week, look how many cows you’re not getting harvested and we were in our peak cyclical supply,” Blach said.
It’s really been an unfortunate thing, but the cattle cycle was set up in 2020. It was at its peak, and that supply peak got pushed back in 2021.
“The number of animals that we harvest this year will be nearly identical to the number of animals that we were receiving in 2019,” Blach said. “This has been a long, hard fought battle. There’s been a lot of everybody wishing that we could capture a little more than margin plus.”
Retail beef prices have gone up substantially and the demand has been “out of this world,” according to Blach.
Retail prices have gone up and wholesale prices have gone up. “The cattle prices just haven’t shared in that move up till now because the demand has been for the protein.”
Demand has been very strong for all protein types—not just beef, but pork and poultry as well.
“All the proteins have benefited from this demand push that we’ve experienced,” Blach said.
Sign up for HPJ Insights
Our weekly newsletter delivers the latest news straight to your inbox including breaking news, our exclusive columns and much more.
Fed cattle prices are averaging closer to $1.28 or $1.40 for the next year, and calf prices are close to $2 a pound on average. Blach expects next year feeder cattle prices to trade in the mid-$1.80s in some areas, with others at $1.65 to $1.70 for the year.
So you’re going to see for every segment of the business—we’re going to see prices move significantly higher,” he said. “Wholesale’s already priced it in, retail’s already priced it in so we’re not going to see a lot further price appreciation on those various classes of cattle.”
Quality products
Putting more quality products in the system has been a huge change to the cattle business. During the past 30 years demand growth has continued to grow, and for Blach, that means a couple of opportunities for producers.
“It’s taste, it’s quality. It’s what they wanted and we’re giving it to them and they’ll reward us,” he said.
The way cattle have been marketed has changed too. Grid premiums bring in billions of dollars.
“If we were to take those out of our market today, just at the cattle level, you lose a billion dollars,” Blach said. “Those of you in the cow-calf and stocker business, that’s going to be taken right off your top line.”
Cattle producers need to be careful what they ask for, especially when going into tighter supplies and great demand.
“Things are getting more back into balance and are going to be more back into balance over the course of the next several months,” Blach said.
As the markets make a push Blach sees those cattlemen selling fed cattle in spring 2022 approaching $1.50 a pound at the highest with the prices pushing $1.60 by fall.
“So again, be a little bit patient,” he said. “I know everybody’s patience is wearing thin, but I think things are moving in the right way.”
Looking at the cattle business, Blach reminds producers there are a couple aspects going on in the industry that really tie back to the value based marketing programs—especially since spending for meat protein has doubled in the last 20 years. But there’s still areas that are lacking.
“You’re not putting the right product out there,” Blach said. “The only way that we can get new spending or demand growth in this industry is when the consumer is willing to pay more for a product or buy more of it. We have to remember that if we all continue to do a great job as an industry of giving the consumer what they want.”
Sustainability
Sustainability is important to consumers.
“We have to be able to check that box if we’re going to continue to grow spending,” he said. “More consumers are going to look to invest in our product and put it in front of their families. It’s important to them. So I think we do have to have a seat at that table if we’re going to keep these trends moving in the right direction.”
If the number of Choice and Prime animals continues to grow, are all the premiums going to be squelched for Prime Certified Angus beef or Choice?
“Have we done that? Has the market done that?” Blach said. “Because the way the demand curve is shifting, the demand for Choice or higher product has increased over 70% since the demand lows in 1998.”
What do you think the demand looks like for a Select product? The proof lies in the numbers. It’s not grown at all.
“I think those of you in the state of Kansas had a lot to do with this. You’ve been at the forefront of a lot of these forward looking systems, the premium beef programs that we’ve had in place here for a number of years,” he said. “Again, for those of you in the cow-calf and stocker business that have built cattle around that and you build genetics around you got to have access to those systems if you’re going to get paid.”
Those cattle that are meeting the marks of the grid programs are really hitting a home run, according to Blach.
“I think it is a great story,” he said.
For those producers in the cow-calf business, Blach believes their time for a payday is coming, just by looking at the way the calf market is setting up.
“We’ve got calf prices getting solidly back in here over the next two to three years in the cycle back up in here in the mid $2.50s,” Blach said. “Fed cattle prices as you can see in here moving back up and you’re averaging back on top of $1.60 to $1.65.”
It will not be quite the same price levels as 2014 because that year there was a drop in total meat supply as a result of drought conditions.
“That was the worst thing that could have happened to see a 20-pound drop on fed meat suppliers,” he said. “We priced our way out of the market. We don’t want to see that kind of a overreaction from the supply side.”
Blach again sees a more positive supply situation going down the road.
When it comes to how much money has been made through the entire production system—from cow-calf, stocker, feeder and packer—Blach said his interpretation is a little bit different than other analysts. At one point there was an $800 per head margin in industry profitability, and that kind of money was never sustainable.
“This is really healthy where we are today. We need to be careful. We need to understand we’re in a really, really good position in here as an industry,” Blach said. “We just need to make sure that we’re able to continue to let these markets send the signals where we can react to the banks of the consumers are telling us that they want.”
Blach said the cattle industry is doing something right based on data on the average profitability going back to 1980. From 1980 to 1998 there was basically no profitability. By 1999 to 2009, there was a little bit more. In the 10 years since 2009, the average profitability is more than $400 a head.
“We’re doing something right,” he said. “We got to keep our eye on the target. We have to continue to look forward as an industry, and I think we have a very, very bright future.”
A final matter Blach shared was for producers to remember there’s only 4% of the world’s population in the United States. For the last 20 years there’s been the conversation about focusing on global markets, because that’s where population growth is taking place.
“We have to export a much higher percentage of our total protein supplies,” he said.
Some populations are growing 75 to 80% a year, and their per capita consumption of pork, poultry and beef for that group is growing at 75 to 80 million people a year.
“And we’re the largest beef producer, does that give us an opportunity?” he said. “Don’t forget, we are the largest beef producer on the planet. We’re the largest poultry producer. We’re the third largest pork producer.”
The U.S. exported 19 billion pounds of protein in 2021. Back in 1980, when as an industry, not just beef, but beef, pork and poultry—2% of the total production was being exported.
“We’re now basically exporting 20%—19 billion pounds of our total supply,” Blach said. “So I think that’s a great story.”
To put it in perspective, look at the beef value—both beef and beef byproducts—a couple decades ago it was about $175 per head. In 2021, the value of beef and beef byproducts, including the hide, is $450 per head.
“In less than 20 years it’s more than doubled,” he said. “You should give yourself a hand we’re doing a lot of things right.”
Kylene Scott can be reached at 620-227-1804 or [email protected].
