News Update

January 1, 2010

January is named for the Roman god of beginnings and endings. He looked forward and backwards at the same time. I will attempt to do the same as a review of last year and looking forward into 2010.

The last 12 months have been very challenging, to say the least, for all segments of the industry. 2009 will go down as one of the worst in the cattle feeding business, with billions of equity wiped out in the last 18 months. Some profitability was restored in the 4^th quarter of 2009, but margins are still under pressure. Demand for beef is off 10-15%, with a large part of this decline in the hotel/restaurant trade. This market is primarily the high end cuts of beef. When they do not sell or have to be discounted to move, this directly impacts the value of a fat steer.

Feeder cattle values were soft in the first half of the year, and then yearlings had a pretty good bid to them in July. Prices declined into the fall, which created losses on unhedged cattle. Most yearlings off grass made a little money. Not near the margins of the previous 4 years as feedlots where a little more disciplined when buying than in years past.

Calves saw decent strength during the summer video market, and then made their seasonal decline into early October. Calf values steadily increased into the end of the year, which is an encouraging sign if you still have unpriced calves to sell. Most ranchers that I deal with have had a difficult time making a profit in the last 2 years. Exploding operating costs have been the culprit, along with softer prices for calves.

Enough of the rear view mirror, what can we expect in 2010? I am cautiously optimistic for the next 12 months. Some segments will do better than others. Here is how I see this year unfolding.

Fat cattle will follow a seasonal price pattern. Demand is still weak, but tonnage should decline as placements are slightly less than last year. If you feed cattle use basis contracts when available. Understand basis, cash-futures, this price variable has a huge impact on profits. Use futures and options to protect downside price movement; do not bet on the come when buying feeder cattle.

Feeder cattle need to be discussed as warmed up calves and grass yearlings. Right now the warmed up cattle are moving higher on increasing fat cattle prices. I expect these current prices to hold into mid January, and then soften some as supplies increase and fat cattle prices stabilize or decline slightly. If you are not hedged or forward contracted on your feeders, I recommend that you get the cattle sold in the cash, or sell futures at the current levels in the next 15 days.

Grass cattle prices are on fire now. These light calves to make yearlings out of are priced in excess of the current profit potential based on August futures. The yearling market this summer and fall could be disappointing to many. This sector is the only one that has not had significant losses and operators are still willing to buy cattle on the come. Protecting your equity and pricing cattle at a profit should be your number 1 concern if you run yearlings. In costs of grass cattle at this time will not allow for much in the way of black ink in August. If you own your cattle already, be focused on getting a price floor established with options and futures strategies. Your best profit opportunity might be selling the cattle in March and leasing your grass out, or letting it sit this year.

Calves this fall will likely be in a similar price structure as last year. Pricing the calves in the summer for later deliver will still probably be your best opportunity to achieve the top 25% of the price range for the year. Cattle feeders are exhibiting more control when buying feeders, and I do not look for this to change in 2010. The supply of calves will be less than 2009, which is price supportive. If ranchers start to hold more heifers to build cow numbers, calf prices will go higher.

There are a lot of other factors that will influence the prices of all classes of cattle in 2010. Corn, oil, the dollar, unemployment, political issues, international trade, etc.

Have a plan and work the plan. The markets almost always will offer an opportunity to price cattle at a profitable level, you have to be prepared and act.

I can help you create and execute your specific marketing plan. Give me a call.

Monty

December 5, 2009

I hope that you had a good Thanksgiving with those close to you. Christmas is coming and the new year right behind it. This year has been full of challenges for cattle producers at all levels of the production chain.

Lets do a quick review of the markets for the year. Calf markets have held together well considering the economic conditions that we have faced all year. I know it does not feel that good, but calf prices could have been a lot lower than they are.

Yearling operators had a good year with the weather as steers gained real well once they got to grass. The winter weather was tough costing most a lot more to get to grass. Prices for heavy yearlings hit their high in mid July and moved lower into August. Most yearlings made money or at least broke even.

Heavy calves placed into grow yards to come out in Jan/Feb @ 850lbs+ were big losers for the last 2 years. Harsh winter conditions, low fat cattle prices all contributed to the losses. Cattle placed on finish rations lost a tremendous amount of money all year long. I personally know several large cattle feeders that lost millions in the last 12 months. The feedlot sector must start to make some money or there is real risk of much lower feeder cattle prices.

Cattle producers at all levels must manage their market price risk or face elimination from the business. We all long for the days when you could own a set of cattle and make $150-200/hd. This business has changed and will continue to change for the better if you embrace the markets and work within what they offer, not what you want them to be. You need to focus like a laser beam on MARGIN MANAGEMENT. This means knowing your costs of production, the market prices offered daily and then EXECUTING a pricing decision that will allow you to make profit. It is easy to talk about this, but very difficult for most to implement as it takes time and constant effort. The hardest part for most is to make the decision process as unemotional as possible. When markets are going higher it is tough for most to sell. When the market is going lower it is tough for most to sell. If you know your breakeven and profit objective you capture the opportunity when it is presented to you.

I have not worked on a vehicle for years other than change the occasional flat tire. Newer vehicles are computerized, fuel injected, electronic gizmos that require special equipment and highly trained people to repair the vehicle. What does this have to do with cattle markets you ask? I would suggest that the markets have become like your newer vehicle. You need help to fully understand the opportunities and risks the markets offer. The margin for error is zero in marketing cattle today, just like in repairing your vehicle. If it is not done right, neither one will work for you.

As you ponder my message, think about this. Most cattle producers sell one or maybe two sets of calves or feeders a year. This is your entire income that is available to provide for all of your operating expenses, payments and living, yet most leave the price they receive to chance, luck, tradition etc. There is a better way, opportunity is knocking. Are you going to open the door?

Monty