Blach discusses cattle markets during Beef Industry University at KLA convention 

It’s likely cattle producers have seen the bulk of the cyclical price increases in the markets. The same goes for the lows in the cowherd and fed cattle numbers. But what does Randy Blach see ahead for producers? 

Blach, CattleFax chief executive officer, told attendees at the Kansas Livestock Association’s convention in Manhattan, Kansas, Nov. 21, that they need to look back at the markets to see where they have come from over the course of the last decade. In 2020, the fed cattle numbers were backed up with no “shackle space” in processing plants, he said.  

“There wasn’t a lot of optimism in this room, was there, as we went through that?” Blach said. “We understood that there was a lot of margin in the business. It was a matter of when we could get that front end supply cleaned up and that these markets could respond.” 

Looking at margins and how the market has shifted, Blach believes it’s important to understand how demand growth affects the industry.  

“When you see the demand growth that we’ve experienced in this industry over the course of the last 20 years, it’s incredible,” he said.  

Weather front

From a market standpoint, producers have been in a 25-year drought cycle. Looking back at the cattle numbers in 2008, 2012-14 and today, it looks similar. Over the last three weeks, many areas suffering from the effect of drought have been getting some “tremendous rains,” and producers are feeling a little bit of relief.  

Blach said CattleFax’s weather analysts believe the La Nina drought cycle is still here, and he thinks it’s going to stick around.  

Drought cycles tend to last 25 to 30 years, but he sees an end in sight.  

“We’re on the tail end of it, but we’re not through it yet,” he said. “I think we still have another 12 to 24 months, we’ll be dealing with the same basic kind of weather patterns that you have over the last several years.” 

Grain prices have been a roller coaster ride, too, since 2009, and there’s been some pretty big moves producers have gone through. Corn has been as high as $8 to $9 a bushel, but it’s back down in the $3.50 to $4.50 a bushel range. 

Blach doesn’t see corn going above $5 a bushel in the next year and expects it to be anywhere from $3.75 to almost $5 a bushel. 

Beef production and prices

Beef production numbers in the previous decade were expected to peak in 2020, but that didn’t really happen until 2022. Now the cowherd is at its lowest number in many years. 

“I want you just to put in perspective how much these markets have changed. We’re all feeling pretty good if you’re in the cow-calf business,” he said. 

Calf prices are around $3 a pound, and feeder cattle have been around $250 per hundredweight for months. Fed cattle prices were around $95/cwt in 2020, and this past July they were $195/cwt. 

“What’s my message? My message is the bulk of the of the price increase in the cycle is already taking place,” Blach said. 

He expects tighter supplies for the next 12 to 18 months, which producers need to keep in mind. 

Blach cautioned this is not a time in the year—with these kind of price levels—to lose “our course.” 

“We need to stay focused in here, make sure we continue to do some risk management, because you’re paying record high prices for your cattle, and these markets still tend to move,” he said. “If you look at them on an annual basis, we typically see an 8 to 10% swing around that annual average.” 

Fed cattle could average around $190 to $205, and since many producers have borrowed money, that increases risk. 

Producers will need to monitor their costs in the next 12 to 24 months, Blach said.  

Demand picture

While the supply side is noticeable, demand is the clearest picture for most producers, especially over the last three or four months, he said. Supply and demand are critical to keep in mind. 

“The bottom line is the bulk of the price increases taking place,” he said. “I think that’s important for you all to keep in mind as we go forward.” 

There’s been a decline in the non-fed cow slaughter, both beef and dairy. It was a big driver in the market. Fed slaughter was only down 100,000 to 150,000 head for the year. 

“We’re down nearly a million head in non-fed slaughter,” he said. “So, keep that in mind again, we’ve gone through a big adjustment there. The cow inventory has come down. We think we’ll be at the low in the cow inventory on Jan. 1.” 

There’s not been a rapid expansion of the cow herd yet, but the significant reduction of beef cow slaughter has set the stage for the profitability of cow-calf operators.  

“We’ll start to see a little more heifer retention take place over the course of the next six months or so,” Blach said. “The bottom line is I think we are at the low end of the cow numbers. We can start to see a slow rebuild, (a) totally different cattle cycle than what we had previously.” 

Blach cautioned, the last cycle was one of the fastest expansions in the history of the beef industry. This expansion won’t have the same personality and will be much slower. 

“We should be able to sustain these price levels longer than what we did in the previous cycle,” he said. 

The cow-calf operator is the only fixed cost operator in the markets, according to Blach. 

“Everybody else works on the buy and sell,” he said. “So, it all starts here. They’ve got to be profitable. There hadn’t been enough profitability in this market segment when you look at it historically.” 

From a big picture standpoint, Blach believes there is profitability in the beef industry.  

“When that supply comes back in balance, these markets are going to move very quickly,” he said. “Most of these margins have normalized. We’re back to much more normal packer margins, more normal margins all the way through the system.” 

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