Randy Blach: The cattle market situation and outlook | TSLN.com

Randy Blach: The cattle market situation and outlook

Photo by Amanda Radke"The market is going to continue to be volatile, so have a plan and be disciplined," said Randy Blach, CattleFax CEO.

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CattleFax is a resource many ranchers use to dissect the many market signals occurring around the world that impact the cattle business. Although it’s a member-used service, cattle feeders were offered a glimpse of what those members receive on a daily basis when Randy Blach, CattleFax CEO, spoke at a Cargill Nutrition cattle feeders meeting on March 9, 2011 in Sioux Center, IA. Blach spoke about the current cattle market situation and predicted his outlook for the upcoming months and years.

“This market is wild, just wild,” opened Blach with a grin. “Our fundamentals aren’t as bullish today as they were in 2008. Producers must manage both cost and price risk. Focus on the margin; don’t guess on the market.”

Looking at current cattle prices, Blach said the cow-calf producer is in the driver’s seat, with a commodity in short supply that cattle feeders need.

“It’s good when you all own a lot of cattle going into a market like this, but if you’re short and need to buy cattle, how comfortable are you when buying feeder calves at $1.15?” asked Blach. “What happens when we come off this high? I predict that in the next four to five years, we will be trading anywhere from $95 per hundredweight to $120 per hundredweight. And, that’s probably a conservative estimate.”

Blach explained that when looking at the cattle markets and the short supply of calves, the focus needs to be placed on the U.S. per capita beef supply.

“The U.S. per capita beef supply, I expect, will continue to decline,” warned Blach. “It prices out demand where it hurts everybody – consumers, producers and everyone in between. Unfortunately, that’s going to have to happen. There has to be some squeezing, and that’s what’s going on right now.”

This issue isn’t just limited to the U.S. either.

“World supplies continue to creep down, too,” said Blach. “This is the fourth straight year of declines. The U.S. population will grow to 27 million by 2020, and we will add another 700 million people to the globe in the next 10 years.”

So, how do farmers and ranchers meet that demand? How do producers encourage consumers to choose beef over other proteins?

“Remember, this is a global market, and the rules of the game constantly change,” added Blach. “The beef-to-pork ration isn’t out of line, but the beef-to-poultry ratio is extreme. If there is a cheaper substitute in enough quantities, people will replace beef with it. Although the price of chicken is much lower than beef, poultry production is only up by 1.5 percent. Beef is high relative to poultry, and this is stalling the beef market advance.”

Other key points Blach made related to the volatility of the markets, corn prices, risk management and agriculture lending.

“The market is going to continue to be volatile, so have a plan and be disciplined,” recommended Blach. “It’s going to be easy to be wrong. Record high prices don’t mean record high profits. The amount of risk is intensifying. I advise producers to have a great working relationship with their lenders; it’s going to take more capital than ever.”

On that note, input costs will continue to rise, and producers must anticipate those increased costs.

“Ag land values will continue to move higher, and gross farm income will pull more acres from livestock production to grain production,” predicted Blach. “I don’t think our corn market has topped. We need to make sure we buy a minimum of 4 million acres. Frankly, I don’t think this is enough; I would like to see 5 million acres. Unfortunately, I see a lot of acres in the South going back to cotton, and that’s going to impact corn crop numbers.”

At the conclusion of his presentation, Blach encouraged producers to make an effort to share the beef production story with consumers.

“One of the best things we can do when we grill a steak is make a video of it and put it on YouTube,” said Blach. “Everyone has their favorite rubs or marinades, and consumers want to hear from you. They want to see a rancher grilling a steak. If you don’t want to do it, get your kids to help you out.”

That’s solid advice from a market analyst who knows beef demand will be key to capturing dollars in the cattle business. Managing for risk, keeping an eye on market signals and promoting beef to consumers are all key components to being successful in cattle feeding.

editor’s note: for more information, visit http://www.cattlefax.com.

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