Leaders Talk Health of Beef Industry At Cattle Convention

February 3, 2017 03:13 PM

The annual Cattle Industry Convention and NCBA Trade Show was held Feb. 1-3 in Nashville, Tenn. Industry leaders talk about the health of the overall beef industry.

The cattle market has improved since October lows. Those in the industry say the prices from the past few weeks are better than they expected. The prices of the past are still fresh in producers’ minds.

“We have a lot of great producers in our area. I think they realized when the market was so high that it wasn’t going to last forever,” said Mark Harmon, marketing director for the Joplin Regional Stockyards. “They just didn’t know the adjustment would come this quick.”

Cattle prices have come down from the highs of 2013, but the recent recovery rally from the last couple of months has been better than expected.

“We’ve had a 24 percent rally within five months on the fat board and a 20 percent rally on the feeder board in the past five months,” said Craig VanDyke, risk management specialist with Top Third Ag Marketing. “A lot is driven by cash flow and the tightness. Managed money here now has put a huge long position and nearing record length and net long positions from the funds here. The big question is if they are willing to carry that position moving forward.”

Industry leaders say prices at the beginning of the year lay a better foundation for the market.

“Economists I talk to say 2017 is actually going to be a better year than what they forecast just two months ago,” said Greg Henderson, editorial director of Drovers. “Feed yards are making roughly $250 a head this week according to the Sterling Profit Tracker. That’s a dramatic turnaround than a year ago.”

Analysts say in January, three bearish cattle reports were released.

“We have a lot of feeders placed right now,” said VanDyke. “We have a lot of heifers placed right now. It doesn’t look good for back-month fats. As of right now, when you see the funds that long, managed money getting long, three bearish reports in a row doesn’t look friendly into the next half of the year.”

“The third quarter is really the area where we have the greatest level of concern right now,” said Don Close, cattle analyst with Rabo AgriFinance. “We’re dialing that back, looking for a price range of 90 cents to $1.05 price levels for the third quarter. The fourth quarter [we’re forecasting]  to the $1.05 to $1.10 or $1.15 level for a fourth quarter.”

No matter what price is to come, producers are still working through the equity they lost from the last couple years.

“We’ve seen a great deal off erosion in the beef industry,” said Jud Jesske, beef industry lender with Farm Credit Services of America. “Now we’re trying to build some balance sheets, get some profits back into the operation.”

Jesske deals with cattle operations from Texas to Montana, but most of his base is in the Midwest. He says loan volumes for expansion have decreased.

“The same players in the industry are owning or increasing their herd size in increments,” said Jesske. “That may be 10 percent increments, things of that nature. As far as the loan size, it’s come down from the high prices of 2014.”

It’s a new reality but one without an end in sight.

“Most people who produce cattle, they’re in it for the long haul,” said Harmon. “They understand there will be ups and downs. Right now, they have to produce the best product they can for the guys who came here to buy them.”

There are a lot of unknowns with trade and potential deals. Industry leaders say any type of uncertainty with trade is not good for price, especially with a growing beef herd.

Jesske says the ranchers seem to be in good financial shape because they’ve been able to hold equity together. Ranchers have fared better through the cycle compared to feedlot operators. He says ranchers have been able to hold more equity together. 

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