Speaking to producers at the 2016 CIC in San Diego on Jan. 28, Blach said the markets built $5.5 billion in profitability between mid-2013 to the end of 2014. That momentum then reversed, as the industry lost $5.1 billion in profits from late 2014 to the end of 2015.
“That was the third-largest rally in history with 37 percent growth in 15 months,” Blach said of the 2013-2014 run. “Then we turned around and hit the third-largest break in history, with 32 percent [lost] in the past 15 months.”
That was felt by some producers going from $500-per-head profits down to $500- to $600-per-head losses in 2015.
Blach said that volatility was defined by a perfect storm of supply shortages a year ago, to the price shock of abundant supplies in the past year. July to October of 2015 created a slowdown gap of all protein demands combined.
Now the worst of the price shock of 2015 – with higher supplies across all protein sources – has worked its way through the industry. But volatility in the markets could be a constant over the next year or two.
Softened global demand – fueled by a higher dollar and a port shutdown early last year – didn’t help the market. Exports were expected to be down 600 million pounds; in the end, it was 1.5 billion pounds less exported.
The trend has been seen before, Blach explained, following similar markets from the ’70s and other expansion periods.
“This cycle is no different than what we’ve seen historically. Typically within the first 12 to 18 months of when a market tops, we’ve given back all the equity we’ve made, assuming that we weren’t hedged. This one ain’t any different.”
Blach said as leverages for the cow-calf sector tighten in 2016, the packing side should start to see leverage build on its side and should “be in a more profitable run, a more consistent run as we increase supplies.”
“We’re going to see more utilization rate of these packing plants. Along with that, they’ll have a little more leverage as we move forward. Packing margins should stay more positive. That’s because we lost a lot of currentness and bargaining power, and they have more margins.”
Markets will continue to see some volatility, Blach said, calling the current market “the second-most volatile market in history,” including more volatile than the BSE crisis of 2003-2004. The industry is seeing $15 dollar moves on calf prices every 15 days, created by several factors.
Blach also pointed to two regions – the North and Central that have cash price discovery at a time when the cash market is shrinking elsewhere.
Other trends noted by Blach:
Global demand will remain soft in the early half of 2016, but should grow back into the 3 percent range for the year with surges in the second half.
The domestic demand for beef will range from 3 to 5 percent lower, although the economy is expected to grow modestly and stay away from recession.
The grain supply remains healthy with prices similar to 2015. Large U.S. and global supplies of oil and energy with weaker demand should keep fuel costs low.
Blach said the repeal of mandatory country of origin labeling (COOL) laws in the U.S. came at a crucial period, as cattle producers wrestle with higher supplies. If COOL had not been repealed, he said, it would have cost producers another $10 to $12 per hundredweight.
Commodity prices for beef declined 31 percent in the past year, Blach said, but it wasn’t nearly as bad as the 50 to 60 percent lost in other commodities and the 71 percent decline in gasoline commodities.
Check back for additional CattleFax outlook stories from the NCBA at Progressive Cattleman’s news section.
PHOTO: Randy Blach, CEO of CattleFax, addresses cattle producers at the NCBA Cattle Industry Convention. Staff photo.
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