At this year’s Kansas Livestock Association Beef Industry University, CattleFax Chief Executive Officer Randy Blach reminisced about last year’s meeting. In 2022, he told attendees about seeing $1.60 per pound for feeder cattle. He was impressed with how the prices had gotten to those levels and even higher in 2023.
“It’s been a rodeo ever since, hasn’t it,” he said.
A year ago, the cost of corn going into the bunk was between $8.50 and $9 a bushel. Corn futures in late November were trading around $4.50 at basis levels, he said. A significant change in grain prices has helped the cost of gains for cattle feeders.
Cow-calf producers the past seven or eight years have been missing out on the profits, Blach said.
“Small little margins of profitability but $50 to $100 a head for cow-calf producers doesn’t get it done. Does it?” he said. “Doesn’t pay any bills? So that’s been one of the things that I think we’ve been missing as we as we think about this.”
One of the big conversations in the beef industry currently is expansion.
“Why aren’t we expanding?” he said.
Significant portions of the country are still suffering from the affects of the drought, with Kansas right on the borderline. Some areas received some good rains, but then the rains stopped. In Oklahoma, Missouri and Texas—where Blach said the highest percentage of the nation’s beef cow herd resides—the drought hasn’t been broken.
“Expansion has been a long way away from people’s lips in the southern region just because there hasn’t been enough moisture,” he said. “That’s not just rain to grow grass. I think the thing you need to keep in mind as you’re watching these weather patterns here over the course of the next several months is—are we going to be able to run any stock water? That’s going to be a real critical situation, particularly as we get into a lot of the vast areas in Texas.”
Blach said Cattle Fax recently had its outlook and strategy session, and CattleFax’s Atmospheric Scientist Matt Makens told attendees it has been hard to break out of the long-term drought cycle
“Matt’s comment is that El Nino is already peaked and it’s going to weaken as we go through the spring and summer,” he said. “And the question is, are we going to move back into a full fledge La Nina, which is drought in this region of the country, or can we actually be in more of what we call a neutral weather pattern?”
Blach said we’ve been in the fourth strongest El Nino since 1980.
“One of the things that Matt shared with us the other day was the difference between what we have going on in the atmosphere and what we have going on at sea surface,” he said. “They’re not in unison. They’re not giving us the same signals.”
Bottom line for Blach when it comes to weather is preparation.
“I think you need to be prepared for these weather patterns,” he said. “Not that we’re going back into another major drought, but we’re not going to be wet, wet, wet, wet, wet, like we would expect when we hear the word El Nino.”
Herd expansion on hold
Blach said as the cattle supplies get tighter, the margins will narrow and producers will see more of the market swings.
“This is going to become more commonplace plus or minus 10% around these averages,” he said. “But we got a market that’s going to average $1.80 or $1.85 plus or minus 10%.”
Obviously, there’s no expansion taking place yet, and Blach is confident that we’re a long way from the highest supplies.
“We’re a long way away from them,” he said. “We won’t be at our tightest supplies until we start retaining heifers. We’re not seeing the first heifers retained yet other than regionally in the northern markets.”
There was too much expansion building going into the late summer and fall and the markets were pricing as if there was a more accelerated expansion.
“It didn’t happen. And so we’ve had to recalibrate,” he said. “I think that’s what we’re basically going through it here right now.”
But Blach also doesn’t believe the cattle cycle has topped either, simply because the expansion hasn’t happened yet.
Blach said there was a million and a half head increase in slaughter from 2015 to 2016 and expects the cow herd low and fed slaughter to occur in 2026. Last year he thought it’d be 2025, but since there’s been no expansion, it’ll take longer.
He expects it to decline going forward, as it is what drives the supply of cattle outside of the feedlots and what drives the placements of cattle in the yards. We’re still two to three years away from the smallest slaughter levels that we’re likely going to see.
The markets do work, but packers need to be incentivized to harvest through the big backlog and supply the market.
“Look where the margins are back to today. Packers have basically been at a breakeven for the most part over the last six months,” Blach said. “I think it’s important that we understand this. Again, the market did what it needed to do.”
These sorts of things tend to sort themselves out, and the packing system is in better shape than before.
The tightest supplies are still two or three years down the road, and Blach said producers need to see some sustained profitability. A more prolonged profit cycle for cow-calf producers can help get another generation of producers out on the land.
“We need to get more people that are willing to do it,” he said. “You’ve got to incentivize.”
Making $100 a head on 600 cows isn’t very much, Blach said.
“We really have to think rethink, reimagine what kind of profitability we need back in that segment of the industry if we’re going to have something that is sustainable in the long run,” he said. “I think we’re on the right path.”
Kylene Scott can be reached at 620-227-1804 or [email protected].
