I subscribe to a weekly market summary put out by The Cattle Range every Saturday morning. These weekly updates always begin with a 10-Day Market Trendline and a 30-Day Market Trendline. These give me a quick overview of our markets and where they might be headed.
The Trendlines are indicators of overall cattle/beef market strength and are based on daily market factors. Each daily factor is the aggregate weighted total of the Gain/(Loss) for 12 market indicators compared to the previous trading day. The angle indicates direction and velocity of the trend.
For much of 2015 and 2016… the market trendlines were headed downward. The trendlines made an accelerated decline through September and most of October last fall. You will remember most cow-calf producers were very concerned about their future – as they should have been.
I asked Craig Purvines, from The Cattle Range, to create a Market Trendline for the time period beginning on November 1, 2016 to the present – knowing the trendlines had been headed upward for most of that time period. Below is the 137-Day Market Trendline, beginning November 1, 2016. Compared to most of 2015 and 2016, this trendline looks very encouraging. You should be smiling!
Have we seen the bottom in this cycle? That’s a good question. Remember, the last time we saw a true bottom in the cattle cycle was 1996 – which was over 20 years ago. I sincerely hope we saw the bottom of this cycle in October of 2016 – but my gut feeling tells me we have not yet seen the bottom. What do you think? In my mind, there is reason to believe cattle prices may go lower this coming fall than they were last fall. Time will tell.
Whether we have seen the bottom or not does not matter much – except to those who are about to be foreclosed on. There have already been several foreclosures – and there will be more. However, no matter how far cattle prices fall, they will eventually rebound and start heading for new highs. I anticipate we will see new record-high prices around 2020 or 2021. Will you be able to hold on that long? I’m afraid many status quo producers will go out of business before then.
Today’s cattle prices are very good. The only reason so many cow-calf producers are struggling is because their cost of production is too high. They do not have enough income to cover their expenses. According to the Livestock Marketing Information Center, the average cost of producing a calf has increased from $384 in 2000 to $883 in 2014. WOW… it way more than doubled in just 14 years. Keep in mind, though, that this is an average cost of production. Some cow-calf producers have a much higher cost of production, while others have a much lower cost of production.
I discussed cost of production with several long-time PCC customers at our three fall bull sales. It did not surprise me to learn that nearly all of those customers have a cost of production that is less than half what the national average is. It’s no wonder these producers have a positive outlook! They have a distinct competitive advantage over everyone else in the cow-calf business. Even if calf prices fall substantially, they will continue to be profitable.
Unless you are selling beef directly to the end consumer, you have no control over the markets and the prices you receive. The only two things you do have control over is your production per acre and your cost of production (expenses). What are you doing to increase your production per acre and/or to reduce your expenses?
NOTE: We still believe there will be more opportunities for you and your family operation to advance in the next two or three years than there have been in the last 20 years. We encourage you to keep your thinker thinkin’ – and your eyes open. Unfortunately, many of the upcoming opportunities will come at the expense of others. That’s a little sad – but I don’t have much sympathy for people who are too lazy and/or too afraid to think for themselves.
If you’d like to read more from Kit Pharo, sign up for his PCC updates and newsletter at his website (just scroll to the bottom of the page, and click on the “Sign Up” button.)
Thanks for posting the article Kit!
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