Challenges for Cattle Producers

(Jamie) Welcome to Farm Factor at the KLA Annual Meeting in Wichita. Today Kyle Bauer visits first with Randy Blach about the challenges that faced the livestock industry over the past few years.
(Kyle) Randy, you’re probably as qualified as anyone in the nation to talk about the cattle market. It’s been on quite a roller coaster over the last year. (Randy) Oh, it’s been a roller coaster over the last couple years Kyle. You know, you think about 2000, a transition from 2013 to 2014 we had the third biggest price increase in the history of our industry. And then from ’14 to ’15, we had the third biggest price decline in the history of our business. So, a year ago we recognized at this time the market was in the process of making the cycle highs but I have to admit I’ve been surprised at the rate of decline, how fast we’ve gone down especially here in the course of the last few months. (Kyle) You know it surprises me that a lot of the cycles that we saw in the past, we see a similar sort of thing this time with, we saw people feeding cattle to really, really heavy weights. And when I was a kid in ’75 we saw the same thing. (Randy) Well some things don’t change, you know when you go back and you look at the economics of the business, we have some rules that we follow in our office. We call them the three cardinal rules. If we have premium boards, we have a poor swap on feeder cattle, and we’ve got cattle losing money, we’ve had all three of those things in play in here over the course of the last several months. And typically when you see that we end up with a market that you are uncurrent on the front end, too many heavy weight cattle, too many yield grade fours and yield grade fives and it just seems like it takes forever to get through that front end supply. So, you’re spot on. This is the same thing that’s happened back in the ’70s, a couple of times in the ’80s, the ’90s and even in the previous decades. So, you get one of these every five or six years. This one was aggravated by a number of other things. We’ve had a major slowdown in the U.S. export markets because of the strength of the dollar. So, the slowdown in these export markets has pushed an incredible increase in the amount of tonnage back on the U.S. beef market. I should, let me qualify that, not the U.S. beef market, the U.S. protein market. So, we’ve seen pork exports are basically flat for the year. Typically we export 25 percent of all of our pork production. They’re flat on an eight percent increase in pork production. Poultry exports are down 14 percent. Beef exports are down 14 percent. Those are numbers that we expected would be a little bit higher for the year. So, those are major, major changes in what domestic supply looks like. (Kyle) Truly though as we look at the history, as we look at the price of feed grains right now, and the price of beef that we’re getting right now, historically it’s really not too bad of pricing. (Randy) No, it’s not. It’s not too bad of pricing, but it’s relative when we have the highest break-even in the history of industry for our margin operators. So, the cattle that are coming out of our feedyards, most of those cattle would have break-evens that are in the high 50s to the high 60s. Stocker operators, break-evens in here at two to 220. And we’ve got feeder cattle prices trading in here from 160 to 180. So, you know you’re sitting in here with the margins being really compressed in here with the first cost on these cattle. (Kyle) We’re visiting with Randy Blach, he’s CEO of CattleFax. After this break we’ll be right back and visit more with Randy.
(Jamie) Folks, stay with us – Kyle will be back with Randy after these words from our sponsors.

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