Cattle-Fax Rep Anticipates Two More Years Of Good Calf Prices
By David Bowser
RENO — Randy Blach with Cattle-Fax says ranchers should have about two more years of good calf prices.
Blach says he expects fed cattle prices will continue to find support in the $77 to $78 range and resistance in the low to mid-$90s.
Blach thinks the lows are in for the year.
"We should see some price recovery," Blach says. "We could get the market back up with a high $89 or $90 as we head into the fourth quarter of the year."
The problem is, he says, some people may not be making any money on $90 cattle because of the high prices they paid for those cattle going into the feedyard.
As for feeder cattle prices, the projections had been that feeder cattle prices would be two to three dollars per hundredweight lower than a year ago.
"These cattle have some of the largest premiums that we've ever seen in the October, December and February futures markets," Blach says.
Seasonally, he says feeder cattle prices have remained high.
"Don't be surprised if they tend to peak early this year because of the premiums we got in the back end," Blach says.
He sees no big changes in calf prices from last year.
"We've got calves trading at the $1.25 and $1.35 area," Blach says.
There are some good contracting opportunities, he adds.
There are going to be more feeder cattle available in the fall.
"I expect a very normal seasonal pattern," Blach says.
The bottom line for cow-calf producers has generally been profitable for the last several years, he says. Drouth will play a part in that and cow-calf producers in drouth-stricken regions are going to suffer.
Paying $100 or $150 for hay cuts deeply into any profits, he admits.
"If we look across the entire country," Blach says, "I would suggest to you that we've still got two more years of these profits for the cow-calf operator."
Prices are still high enough for cow-calf producers to be profitable into 2007 and 2008, he says.
"We've had a tremendous amount of volatility for the first half of this year," Blach says. "We've seen fed cattle prices trading in a $20 range."
He says feeder cattle prices have also been in a similarly wide range and grain prices have fluctuated widely.
For the first half of the year, steer beef production is up 8.5 percent.
"Pretty good increase," Blach opines.
Most of those increases have either come from the steer side or the cow side through the first half of the year, he says.
Cow prices are up six percent. Heifer prices are up 3.5 percent.
Total beef production through the first half of the year is up 6.5 percent.
Back in January, Blach predicted that beef production was going to be between five and six percent for the year.
"I wouldn't change that at all," Blach says. "I think those numbers are still in line with what we anticipated."
Despite the volatility in the market, average beef cutout prices are basically flat, Blach says.
They are down about 15 cents.
Fed cattle prices are about $3.31 cwt. lower than a year ago. Feeder cattle prices are about $1.21 lower.
"Calf prices are a little bit higher," Blach says.
They're up $1.68.
The calf market in January and February was higher than it was the year before. In March, April, May and June, the cattle market has been a few dollars cheaper than it was in 2005.
The biggest difference this year is the utility slaughter cow price. It's down $7.97.
"In some of these areas that have been hard hit by the drouth situation," Blach says, "some of these prices have been softer than we've expected."
The drouth has impacted cows more in some areas than in others.
Texas, Oklahoma, New Mexico and Arizona have been particularly hard hit by drouth.
In January, the really dry areas were concentrated in the South Central Plains region of the country, Blach says. That's where about a third of the nation's cowherd is.
The drouth started in October in the northern Cornbelt, and it was starting to get dry from Central to Northeast Texas.
By January, dry conditions spread across Texas into Oklahoma.
Through the first quarter of the year, the drouth spread across the Central and Southern Plains region.
By July, the drouth had spread to Arizona and New Mexico, he says.
"There's been improvement in some of these areas," Blach says, "but the drouth has moved farther north."
It now includes Eastern Colorado, but a lot of the area from Colorado through Kansas and down to the Oklahoma and Texas panhandles and Northeastern New Mexico had two to four inches of rain in early July.
He doesn't think, however, that much will change overall for the next month.
"We're still under this longer term dry pattern," Blach says.
There should be some improvement over Arizona and New Mexico over the next 60 to 90 days.
Through the first half of the year, production levels have been close to what had been anticipated.
"There's been really no surprises," Blach says.
From a price standpoint, he says, the market got cheaper in March and April than he expected.
"The futures market went to $72 on the June board and the August futures went to $74.50," Blach says.
August futures bounced back to the mid-$80 range.
Blach says he didn't expect to see that volatility.
The market was cheaper earlier, he says, but it's gotten higher now.
"When you look at it on average, if averages do you any good," Blach says, "it's been about where it should be."
The nation's herd is still expanding despite drouth in some areas.
"To date, the drouth that we've had, particularly in the center part of the country, has not stopped herd expansion," Blach says. "We have not stopped expansion. Expansion is still going on today. I don't believe we've stopped expansion of the nation's cowherd. Maybe we've moderated it a little, but I don't believe we've stopped it."
The impact of the drouth, he says, can be seen in the beef cow slaughter, which has increased.
"It's up about six percent," Blach says.
It's increased on the Southern Plains.
For the first half of the year, steer slaughter is up six percent, heifer slaughter is up one percent, dairy cow slaughter is down one percent, and beef cow slaughter is up 11 percent.
Total cow slaughter is up six percent.
"I would suggest to you that we've moderated our rate of expansion a little bit," Blach says.
By Jan. 1, he expects the nation's cowherd to be up 500,000 to 700,000 head.
"Demand has been an interesting piece of the puzzle over the course of the last six months," Blach says.
Demand can be measured at the retail level, wholesale level or the fed cattle level.
"Through the first half of the year," Blach says, "demand has actually been pretty good."
It was a little soft early in the year, he says, because of cheap poultry and pork, competing protein sources.
"Remember how much cheap poultry we had out here?" Blach says.
It was trading in the teens.
"We had 14, 15, 16-cent leg quarter prices," he says. "Chicken breast prices were under a dollar."
He says that's hard to compete against, but those prices have bounced back. Leg quarter prices are back at 30 cents, and chicken breasts are above a dollar.
Pork prices have also improved.
"That's actually helped us here in the second quarter," Blach says.
Beef demand at the wholesale level through the first half of the year was up four percent.
"June demand was the best demand we've ever seen," Blach says.
The Choice-Select spread has been $22 to $23.
"Who would have thought the Choice-Select spread would be $22 to $23 when the industry was slaughtering 705,000 to 710,000 cattle a week?" Blach says. "Nobody thought that would happen."
The market got too cheap too early, he believes.
"That allowed us to do a lot more out-front sales," Blach says. "We had very aggressive out-front sales in the second quarter of the year."
The market moved a large supply of cattle. Retailers featured beef and sold a lot.
"Consequently, the market is in pretty good shape," Blach says.
Retail prices are going to be down a little bit for the year.
"We've got 300 million people in the U.S. who are spending $75 more for our product than they were back in 2000," Blach says. "That's the reason we've continued to enjoy the success."
Still, the Choice-Select spread bothers him.
Choice is down two percent relative to what it was a year ago, Blach says. The percentage of Choice hasn't changed significantly over the last decade.
"It really hasn't changed," Blach says. "We haven't had the incentive to respond to the economic signals. The signals haven't been strong enough. We're still not at these levels we were at in the early part of the decade, in 2000, 2002, 2003."
Demand for Choice has grown, he says.
"Our supplies are still not back to the levels where they were earlier in the decade," he says.
When things begin to balance out, Blach says he expects to see the spreads begin to narrow.
There has been a 13 percent increase in Select beef.
"Maybe the reason the spread is so wide is because Select is so huge," Blach says. "We are seeing an increase in both, but the lion's share of the increase is in Select."
The spread averaged $15.50 through the first half of the year, he says.
"The widest Choice-Select spread that we've ever seen," Blach adds.
As he looks at the data, Blach says he suspects much of it is seasonal, but it's at a much higher level.
"It's a much higher level than what we've seen historically," Blach says.
He expects to see the spread narrow over the next 60 days.
Blach says he still worries about international beef trade.
"Long term, we have to regain our lost market share," Blach says. "With the production levels that we're going to see over the next three or four years, we have to regain this lost export market share."
Import volumes have been seven percent smaller. Imports were down in February, March and April.
Exports are up 75 percent. Mexico has become our largest export market.
"Exports to Mexico could be at record levels this year," Blach says. "That's a very, very positive trend."
For producers, that means the net trade is worth three dollars per hundredweight to the overall market through the first half of the year.
"That's the difference of a market making a low of $78 and making a low of $75," Blach says. "Just that one factor. Obviously, we need to get Japan, Korea and some of these other markets back to where we can really start moving some increased tonnage levels. That's going to be especially important in 2007 and 2008 and 2009, as our overall production levels continue to increase."
Despite the need for volume sales, he says, the bottom line is still value.
"We sometimes forget that when we're getting along okay," he says.
Another concern he has is the price of corn.
Ethanol production is booming.
"I can't believe how many discussions are going on with this ethanol situation," Blach says.
Ethanol plants are going up all over the country, and there are another 40 to 80 more on the drawing board.
Some 3.5 to four billion bushels of corn are going to ethanol plants over the next two or three years.
"What's that going to do to the price of corn?" Blach asks.
Farmers grow an 11 or 12 million bushel corn crop year in and year out.
"We've gotten used to corn prices down around two to three dollars," Blach says. "What happens when prices increase to four dollars? That's what we need to keep in mind when we plan ahead."
Corn prices are a little higher than they were a year ago, he says, but they should reach their seasonal high in July.
"The western Cornbelt is dry, but the eastern Cornbelt is in pretty good shape," he says. "We'll likely see the corn harvest soften up some as we go into the fall market, but we're still going to see it at higher levels than we've seen the last two years."
He also expects the price of corn to be more volatile than it's been in the past.
One thing that doesn't seem to bother Blach is placements in the feedyard.
"We saw huge placement in the first quarter of the year," Blach says.
Then it dropped off in the second quarter.
Blach says what he found interesting was that looking at the combined placements for the two quarters, the industry has the same number as it did a year ago.
The drouth caused the movement of all the cattle out early. The placement of heavier cattle is down. The placement of lightweight cattle in the second quarter is up more than 20 percent.
Heavyweights, over 800 pounds, are down 15 percent.
In January, outside supplies of feeder cattle were up about two percent.
"That number hasn't changed much," Blach says.
He says that is the result of a larger calf crop because of the larger cowherd the nation has.
"We're working on feeding them," Blach says. "Now during this July, August and early September time period, if we continue to market cattle in a very orderly fashion, we're going to be in pretty good shape."
He says the supply side is right where he expected it to be.
The big change has been in slaughter numbers.
"The packers finally had an incentive to increase slaughter in April, May and June," Blach says. "The larger supplies allowed the packers to maintain aggressive slaughter levels. We've been harvesting 660,000 or 670,000 cattle a week."
Everything lined up, he says. The packers had incentives to increase slaughter.
"They were finally making some money," Blach says. "They had a hole, however, that they had to dig themselves out of. They finally saw their margins improve enough that they responded to an increase in slaughter, particularly at fed cattle levels."
Blach says he wouldn't be surprised in the late third quarter through the fourth quarter and into the first quarter of next year to see feeder cattle exported to Canada.
"It's not just a one-way street," Blach says. "If we let the market work, the market will sort it out."
The question remains about consumption.
"Our consumption has been flat," Blach says.
For the last 15 years, he says, U.S. consumption has consistently been between 65 and 67 pounds of beef per person per year.
That's why exports are so important, he says. Exports account for 12 to 15 percent of total demand.
By David Bowser
RENO — Randy Blach with Cattle-Fax says ranchers should have about two more years of good calf prices.
Blach says he expects fed cattle prices will continue to find support in the $77 to $78 range and resistance in the low to mid-$90s.
Blach thinks the lows are in for the year.
"We should see some price recovery," Blach says. "We could get the market back up with a high $89 or $90 as we head into the fourth quarter of the year."
The problem is, he says, some people may not be making any money on $90 cattle because of the high prices they paid for those cattle going into the feedyard.
As for feeder cattle prices, the projections had been that feeder cattle prices would be two to three dollars per hundredweight lower than a year ago.
"These cattle have some of the largest premiums that we've ever seen in the October, December and February futures markets," Blach says.
Seasonally, he says feeder cattle prices have remained high.
"Don't be surprised if they tend to peak early this year because of the premiums we got in the back end," Blach says.
He sees no big changes in calf prices from last year.
"We've got calves trading at the $1.25 and $1.35 area," Blach says.
There are some good contracting opportunities, he adds.
There are going to be more feeder cattle available in the fall.
"I expect a very normal seasonal pattern," Blach says.
The bottom line for cow-calf producers has generally been profitable for the last several years, he says. Drouth will play a part in that and cow-calf producers in drouth-stricken regions are going to suffer.
Paying $100 or $150 for hay cuts deeply into any profits, he admits.
"If we look across the entire country," Blach says, "I would suggest to you that we've still got two more years of these profits for the cow-calf operator."
Prices are still high enough for cow-calf producers to be profitable into 2007 and 2008, he says.
"We've had a tremendous amount of volatility for the first half of this year," Blach says. "We've seen fed cattle prices trading in a $20 range."
He says feeder cattle prices have also been in a similarly wide range and grain prices have fluctuated widely.
For the first half of the year, steer beef production is up 8.5 percent.
"Pretty good increase," Blach opines.
Most of those increases have either come from the steer side or the cow side through the first half of the year, he says.
Cow prices are up six percent. Heifer prices are up 3.5 percent.
Total beef production through the first half of the year is up 6.5 percent.
Back in January, Blach predicted that beef production was going to be between five and six percent for the year.
"I wouldn't change that at all," Blach says. "I think those numbers are still in line with what we anticipated."
Despite the volatility in the market, average beef cutout prices are basically flat, Blach says.
They are down about 15 cents.
Fed cattle prices are about $3.31 cwt. lower than a year ago. Feeder cattle prices are about $1.21 lower.
"Calf prices are a little bit higher," Blach says.
They're up $1.68.
The calf market in January and February was higher than it was the year before. In March, April, May and June, the cattle market has been a few dollars cheaper than it was in 2005.
The biggest difference this year is the utility slaughter cow price. It's down $7.97.
"In some of these areas that have been hard hit by the drouth situation," Blach says, "some of these prices have been softer than we've expected."
The drouth has impacted cows more in some areas than in others.
Texas, Oklahoma, New Mexico and Arizona have been particularly hard hit by drouth.
In January, the really dry areas were concentrated in the South Central Plains region of the country, Blach says. That's where about a third of the nation's cowherd is.
The drouth started in October in the northern Cornbelt, and it was starting to get dry from Central to Northeast Texas.
By January, dry conditions spread across Texas into Oklahoma.
Through the first quarter of the year, the drouth spread across the Central and Southern Plains region.
By July, the drouth had spread to Arizona and New Mexico, he says.
"There's been improvement in some of these areas," Blach says, "but the drouth has moved farther north."
It now includes Eastern Colorado, but a lot of the area from Colorado through Kansas and down to the Oklahoma and Texas panhandles and Northeastern New Mexico had two to four inches of rain in early July.
He doesn't think, however, that much will change overall for the next month.
"We're still under this longer term dry pattern," Blach says.
There should be some improvement over Arizona and New Mexico over the next 60 to 90 days.
Through the first half of the year, production levels have been close to what had been anticipated.
"There's been really no surprises," Blach says.
From a price standpoint, he says, the market got cheaper in March and April than he expected.
"The futures market went to $72 on the June board and the August futures went to $74.50," Blach says.
August futures bounced back to the mid-$80 range.
Blach says he didn't expect to see that volatility.
The market was cheaper earlier, he says, but it's gotten higher now.
"When you look at it on average, if averages do you any good," Blach says, "it's been about where it should be."
The nation's herd is still expanding despite drouth in some areas.
"To date, the drouth that we've had, particularly in the center part of the country, has not stopped herd expansion," Blach says. "We have not stopped expansion. Expansion is still going on today. I don't believe we've stopped expansion of the nation's cowherd. Maybe we've moderated it a little, but I don't believe we've stopped it."
The impact of the drouth, he says, can be seen in the beef cow slaughter, which has increased.
"It's up about six percent," Blach says.
It's increased on the Southern Plains.
For the first half of the year, steer slaughter is up six percent, heifer slaughter is up one percent, dairy cow slaughter is down one percent, and beef cow slaughter is up 11 percent.
Total cow slaughter is up six percent.
"I would suggest to you that we've moderated our rate of expansion a little bit," Blach says.
By Jan. 1, he expects the nation's cowherd to be up 500,000 to 700,000 head.
"Demand has been an interesting piece of the puzzle over the course of the last six months," Blach says.
Demand can be measured at the retail level, wholesale level or the fed cattle level.
"Through the first half of the year," Blach says, "demand has actually been pretty good."
It was a little soft early in the year, he says, because of cheap poultry and pork, competing protein sources.
"Remember how much cheap poultry we had out here?" Blach says.
It was trading in the teens.
"We had 14, 15, 16-cent leg quarter prices," he says. "Chicken breast prices were under a dollar."
He says that's hard to compete against, but those prices have bounced back. Leg quarter prices are back at 30 cents, and chicken breasts are above a dollar.
Pork prices have also improved.
"That's actually helped us here in the second quarter," Blach says.
Beef demand at the wholesale level through the first half of the year was up four percent.
"June demand was the best demand we've ever seen," Blach says.
The Choice-Select spread has been $22 to $23.
"Who would have thought the Choice-Select spread would be $22 to $23 when the industry was slaughtering 705,000 to 710,000 cattle a week?" Blach says. "Nobody thought that would happen."
The market got too cheap too early, he believes.
"That allowed us to do a lot more out-front sales," Blach says. "We had very aggressive out-front sales in the second quarter of the year."
The market moved a large supply of cattle. Retailers featured beef and sold a lot.
"Consequently, the market is in pretty good shape," Blach says.
Retail prices are going to be down a little bit for the year.
"We've got 300 million people in the U.S. who are spending $75 more for our product than they were back in 2000," Blach says. "That's the reason we've continued to enjoy the success."
Still, the Choice-Select spread bothers him.
Choice is down two percent relative to what it was a year ago, Blach says. The percentage of Choice hasn't changed significantly over the last decade.
"It really hasn't changed," Blach says. "We haven't had the incentive to respond to the economic signals. The signals haven't been strong enough. We're still not at these levels we were at in the early part of the decade, in 2000, 2002, 2003."
Demand for Choice has grown, he says.
"Our supplies are still not back to the levels where they were earlier in the decade," he says.
When things begin to balance out, Blach says he expects to see the spreads begin to narrow.
There has been a 13 percent increase in Select beef.
"Maybe the reason the spread is so wide is because Select is so huge," Blach says. "We are seeing an increase in both, but the lion's share of the increase is in Select."
The spread averaged $15.50 through the first half of the year, he says.
"The widest Choice-Select spread that we've ever seen," Blach adds.
As he looks at the data, Blach says he suspects much of it is seasonal, but it's at a much higher level.
"It's a much higher level than what we've seen historically," Blach says.
He expects to see the spread narrow over the next 60 days.
Blach says he still worries about international beef trade.
"Long term, we have to regain our lost market share," Blach says. "With the production levels that we're going to see over the next three or four years, we have to regain this lost export market share."
Import volumes have been seven percent smaller. Imports were down in February, March and April.
Exports are up 75 percent. Mexico has become our largest export market.
"Exports to Mexico could be at record levels this year," Blach says. "That's a very, very positive trend."
For producers, that means the net trade is worth three dollars per hundredweight to the overall market through the first half of the year.
"That's the difference of a market making a low of $78 and making a low of $75," Blach says. "Just that one factor. Obviously, we need to get Japan, Korea and some of these other markets back to where we can really start moving some increased tonnage levels. That's going to be especially important in 2007 and 2008 and 2009, as our overall production levels continue to increase."
Despite the need for volume sales, he says, the bottom line is still value.
"We sometimes forget that when we're getting along okay," he says.
Another concern he has is the price of corn.
Ethanol production is booming.
"I can't believe how many discussions are going on with this ethanol situation," Blach says.
Ethanol plants are going up all over the country, and there are another 40 to 80 more on the drawing board.
Some 3.5 to four billion bushels of corn are going to ethanol plants over the next two or three years.
"What's that going to do to the price of corn?" Blach asks.
Farmers grow an 11 or 12 million bushel corn crop year in and year out.
"We've gotten used to corn prices down around two to three dollars," Blach says. "What happens when prices increase to four dollars? That's what we need to keep in mind when we plan ahead."
Corn prices are a little higher than they were a year ago, he says, but they should reach their seasonal high in July.
"The western Cornbelt is dry, but the eastern Cornbelt is in pretty good shape," he says. "We'll likely see the corn harvest soften up some as we go into the fall market, but we're still going to see it at higher levels than we've seen the last two years."
He also expects the price of corn to be more volatile than it's been in the past.
One thing that doesn't seem to bother Blach is placements in the feedyard.
"We saw huge placement in the first quarter of the year," Blach says.
Then it dropped off in the second quarter.
Blach says what he found interesting was that looking at the combined placements for the two quarters, the industry has the same number as it did a year ago.
The drouth caused the movement of all the cattle out early. The placement of heavier cattle is down. The placement of lightweight cattle in the second quarter is up more than 20 percent.
Heavyweights, over 800 pounds, are down 15 percent.
In January, outside supplies of feeder cattle were up about two percent.
"That number hasn't changed much," Blach says.
He says that is the result of a larger calf crop because of the larger cowherd the nation has.
"We're working on feeding them," Blach says. "Now during this July, August and early September time period, if we continue to market cattle in a very orderly fashion, we're going to be in pretty good shape."
He says the supply side is right where he expected it to be.
The big change has been in slaughter numbers.
"The packers finally had an incentive to increase slaughter in April, May and June," Blach says. "The larger supplies allowed the packers to maintain aggressive slaughter levels. We've been harvesting 660,000 or 670,000 cattle a week."
Everything lined up, he says. The packers had incentives to increase slaughter.
"They were finally making some money," Blach says. "They had a hole, however, that they had to dig themselves out of. They finally saw their margins improve enough that they responded to an increase in slaughter, particularly at fed cattle levels."
Blach says he wouldn't be surprised in the late third quarter through the fourth quarter and into the first quarter of next year to see feeder cattle exported to Canada.
"It's not just a one-way street," Blach says. "If we let the market work, the market will sort it out."
The question remains about consumption.
"Our consumption has been flat," Blach says.
For the last 15 years, he says, U.S. consumption has consistently been between 65 and 67 pounds of beef per person per year.
That's why exports are so important, he says. Exports account for 12 to 15 percent of total demand.
