Blach details condition of cattle industry at KLA Beef Industry University

He knows the data. He trusts it. Same goes for the markets.

Randy Blach, CattleFax chief executive officer, recently gave his assessment on the cattle industry at the 110th Kansas Livestock Association’s convention in Wichita, Kansas.

Blach challenged those in the room to think back during the past three or four years about what has happened in the beef industry. From a fire at the Tyson plant in Holcomb, Kansas, in 2019 to COVID-19 backing up more than a million head of fed cattle.

“We had the biggest inventory that we’ve had in years,” he said. “And we put another million head of cattle on them.”

At the time many were professing the market was broken. Blach said it didn’t function very well as far as price discovery goes, but “we got through it.”

“Was the solution better to let the market sort through it as opposed to invite the government to fix our problem?” he said. “I think that’s why we’re all here at these meetings. I think it’s really important that we remember why we do gather to set policy.”

The cattle have been worked through and looking at the markets during the past 12 months, Blach said not many would have believed him a year ago at KLA if he’d told them cattle market averages would be in the $1.40 to $1.50 per pound range. But the market highs haven’t been without their lows.

“Think about how our world changed when the Russians invaded Ukraine,” he said. “Wheat went up $5 a bushel. Corn went up $3 a bushel. And then we add a little thing called drought on top of it. That has had a tremendous impact.”

In prime cattle feeding areas there’s concerns about the corn basis, and Blach questions whether or not these high prices will ever go away and if there will be enough grain to feed at all.

“It’s going to take some time. We just don’t have enough grain where we need it and this is going to take a tremendous amount of cost,” he said. “So don’t get your hopes up. We’re not going back to normal basis levels anytime over the next several months. I think we’ll have to get all the way through the middle parts this next year.”

Mexico has become a No. 1 meat importer—beef, pork and chicken—from the U.S., by “quite a lick,” according to Blach.

Weather

Meteorologist and atmospheric scientist Matt Makens shared with the CattleFax group, that for the last 6 months there’s been an 80% to 90% probability of being in a La Nina weather pattern. It’ll change going forward Blach said, but probably not as quickly or as wet as some would like it to be.

“He believes that by the time we get into March, April May we will start to see the La Nina weaken. The El Nino and the La Nina will basically be the same probabilities,” Blach said. “So going back to what we call a neutral weather pattern. We’re still going to be dry. Don’t get me wrong.”

There’s more of a likelihood according to Makens that there will be less extreme heat and less extreme dryness.

“It will be more moderate, but it’s still going to be drought conditions,” he said. “He believes as we work through the summer and then finally into the fall we’ll start to move back into a wetter situation.”

Makens wouldn’t say whether or not it would transition back to an El Nino weather pattern, but his benchmarks along the way show temperature changes and wetter weather.

“What he really believes that will be in the fall before we actually started to see that wetter weather patterns starting to kick in,” he said. “We’ve been basically three years in La Nina.”

We’ve also been in a 25-year drought cycle, and Blach believes in three to five years things will start to transition. Makens thinks in the latter half of this decade conditions will move back to a wetter pattern and it could potentially last for 10 to 20 years.

A miss

Blach said one of the biggest single misses analysts had in their outlook last year was the cow slaughter numbers.

“It’s shocking. Look at this number,” he said. “If we’re killing the cows now, what’s that mean to our feeder cattle, calf supplies and ultimately our fed cattle supplies?”

Someone’s going to feed less of them, somebody’s going to harvest less.

He expects fed slaughter numbers to be down 700,000 head. Prices are going to change too. The common denominator in all of it? Drought. But beef demand—enough to support nearly 32 million head of cattle—was there, but the lack of rain and pasture forced many producers to cull their herd.

What the future holds

Looking out over the next several years, Blach is confident in the trends presenting themselves. But there are a couple caveats.

Due to the smaller supply and higher prices there’s going to likely be a significant drop in per capita consumption of beef. He’s expecting about a 2- to 2.5-pound drop on an annual basis. Flat demand could push fed cattle prices a bit higher with the drop in consumption.

“If this economy is better and we don’t want to have some of these headwinds year to year, they aren’t gonna raise their head to the same degree,” he said. “I would tell you these markets work as good today as they ever have, if we can just get some of these outside factors to lay down that weren’t quite black swans.”

The black swan events and other things were an issue for the beef industry because there wasn’t enough slaughter capacity.

“We were out balance—the number of cattle that we had. That’s why we were so vulnerable to those things,” he said. “If we hadn’t been in that environment, we wouldn’t have been nearly vulnerable to some of the black swan events, over the last three or four years. Keep that in mind as we go forward.”

He also believes that drought pressure does not appear to be going away soon.

As for profitability, current beef producers are in a much better place than those who came before them. Even with the added amounts packers were once raking in. The piece of the pie will grow for producers, so remain patient.

“These will recalibrate. They will come back and line,” he said. “The market demand was already there where these markets can respond.”

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