Cattle traders over the last 18 months saw just about every surprise, headline and market move, in both directions, that anybody could ever imagine.
For much of that time, simply having physical ownership of any kind of animal likely resulted in some sort of profit. We all knew at some point that it was going to end, and whenever that time arrived, it was likely to be ugly. I am not writing this today to tell you that I think it is all downhill from here, but the current state of the cattle complex is problematic for most sectors of the beef industry.
The cow-calf operator is still looking at these calves dollaring up ok when it comes time to sell, but those prices likely will be a far cry from where we have been. The backgrounders and cattle feeders are struggling to buy cattle that pencil any sort of a profit, especially with feed costs escalating at a fairly rapid pace right now (with corn futures rallying and basis in much of feedlot country significantly stronger than levels cattle feeders have enjoyed for the last year or more).
We have all heard about packers struggling with margins, likely to the point where I think everyone is pretty much tired of it. The reality, however, is packers need to be able to sell meat out the back door at levels that allow them to pay more for our cattle coming in the front — and that has been a struggle as of late. The Tyson plant closure announcement last week rocked these markets, but we did get a bit of good news this week with Fort Morgan workers agreeing to a new contract and kills set to resume there in early September. In theory, that brings back more capacity than we lost with the Tyson mess last week.
As if all that wasn’t enough, we will see the Mexican border open to imports on Aug. 24, next Monday. Much speculation is going on and will continue regarding just how this reopening looks as far as how many cattle will be ready to cross initially, how big most of those cattle will be and what the quality will look like. You name it, we can argue about it when it comes to this topic. In the end, it is just one more variable in what has become a very complicated equation for these markets, both cash and futures.
Bottomline for cattle producers
So, what does all this mean for the cattle producer? That will depend heavily on which segment you operate in, but the risk remains extremely elevated across the board. It is quite easy to bury your head in the sand when most of the news and headlines are negative, and futures are trading near or into lows for the year. That approach may work part of the time or might have worked for you in the past. However, I think the key right now for many may be to focus on capital/equity preservation as we work through some of these current issues. With a variety of tools available, risk management can be approached from several directions. Will any of them allow you to protect a profit right now? In many cases probably not, but that doesn’t mean you should simply ignore it altogether.
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