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Attitude is Greatest Challenge































Angus Productions Inc.
Copyright © 2009
Angus Productions Inc.

Attitude is Greatest Challenge


PHOENIX, Ariz. (Jan. 29, 2009) — “The thing I’d like to challenge you with is our attitudes,” Cattle-Fax Chief Executive Officer (CEO) Randy Blach said as he opened the long-term outlook portion of the Cattle-Fax Outlook Seminar Thursday during the 2009 Cattle Industry Annual Convention in Phoenix. “We’ve had hard times before. This is a difficult time, but we’ll get through it.


Randy BlachRandy Blach“The lion’s share of the factors are really quite friendly,” Blach continued. Packer and retail margins are actually quite good today, he explained. Production costs, while remaining elevated in 2009, will moderate compared to last year. Long-term, prices are testing the uptrend, and a decline in meat supply in 2008 should support higher prices.


Fed-cattle prices are expected to average in the low 90s in 2009, ranging from the low 80s to near $100 per hundredweight (cwt.) by late in the year. Stocker profitability is expected to remain positive in 2009. Calf prices have snapped back up from their December lows. Now at $100-$105 per cwt., Blach said he doesn’t think they’ll go any cheaper.

Blach was quick to point out that demand is the real wild card of 2009-2010. He projected demand to remain soft in 2009. If the price uptrend fails to hold, downside risk is very possible, he said, which would indicate beef demand is contracting further. However, he said opportunities exist to increase demand by expanding access to export markets.


Blach said expanding Japanese market access could increase prices by up to $50-$60 per head. “If we had a single issue we were focusing on as an industry, that’d be my pick,” he said.

He added that Mexico and Canada are two of the largest export customers of U.S. beef, which makes mandatory country-of-origin labeling (mCOOL) a concern as it functions as a nontariff trade barrier. Maintaining access to Mexico and Canada, as well as expanding access in Japan, are key to the success of the U.S. beef industry.

“We are in extremely dynamic times,” Blach said. “Global markets open up opportunities, but also present changes.” He advised producers to remain adaptable.

“The markets have changed,” Blach said, citing as an example that feeder prices are no longer tied to corn prices the way they once were. “If you’re still using the old playbook from 10 to 15 years ago, you’re going to be frustrated,” Blach stressed.


In 2008, average fed-cattle losses neared $130
per head.
No doubt today’s economic recession is on the top of most people’s minds when they think of changing markets. A loss of U.S. household equity of $800 million has been tremendous, Blach said, especially for those who haven’t been managing risk. The packing industry has downsized, but it’s still overbuilt. The feedlot sector is overbuilt as well, and that excess capacity, aggravated by other factors, is what has led to the current situation of the most severe feeding losses in more than 30 years. In 2008, average fed-cattle losses neared $130 per head.

Long term, fewer feeding companies will finish a higher percentage of cattle, and the average size of operations will continue to grow, Blach said. He encouraged producers to ask themselves what they need to do in order to remain competitive.

“Are you making changes in business practices to ensure you can survive?” Blach asked.

Index, hedge and managed funds are going to continue to be part of the agriculture commodity market, he noted.

Assuming no hedging, cattle tend to make money when basis is strong and lose money when basis is weak. When the cash market is trading above futures, cattle are bought at breakeven levels that are much more attractive compared to weak basis times. While Blach said the basis move of 2008 — with record-large premiums in futures above cash — won’t be seen again, it provides a good example of opportunity for success for those people willing to focus on the margin.

“Too many people worry about picking highs and lows on the market instead of focusing on the margin,” Blach said. “Maintaining that concentration is imperative, because, as we’ve seen, so much can change so fast.”

Ending on a positive note, Blach projected that the recession is more than halfway through. He said he hopes to see the economy begin to turn around by mid-2009 and expects it should certainly happen by the end of the year. Producers who manage risk and focus on the margins set themselves up to make it out of the recession just like they’ve made it through hard times in the past.

Editor’s Note: This article was written under contract or by staff of Angus Productions Inc. (API), which claims copyright to this article. It may not be published or distributed without the express permission of Angus Productions Inc. To request reprint permission and guidelines, contact Shauna Rose Hermel, editor, at (816) 383-5270.