Randy Blach came to CattleFax in 1981 and served as Director of Market Analysis for 15 years. He was promoted to CEO in January of 2001, a role that he continues to serve in today. During his tenure, the company has enjoyed significant growth and has continues to lead the industry with timely market information, in-depth analysis and forecasts on cattle, protein and grain markets in the United States and globally. Blach has been a keynote speaker at thousands of cattle, beef and related business meetings, seminars and conventions.
A Colorado native, Randy Blach and his family remain actively involved in the cattle business and farming. He was raised on his family’s ranch in Yuma, Colorado and graduated from Colorado State University with a degree in animal science. Blach received the Honor Alumni award from its College of Agricultural Sciences in 2004 and the Livestock Leader Award in 2011. In 2016, he was awarded the Industry Leadership Award through the Cattle Feeders Hall of Fame.
Randy and his wife Karen have been married for 33 years. She is a retired school teacher. Their son, Ty, plays for the San Francisco Giants baseball team, and daughter, Haylee, attends Creighton University in Omaha and competes in soccer. Randy and his family enjoy spending time together at sporting events and at the ranch in eastern Colorado
Article from Industry Achievement Award - The Cattle Market Teacher - CAB Cattle
Thanks for tuning in to episode 47 of practically ranching. I'm your host, Matt Perrier. Happy new year from all of our family at Dale banks, Angus. I don't know how your Christmas went, but we were blessed with about as perfect of a gift as anyone could have asked for. We were fortunate to get full ponds and streams around Greenwood county, Kansas by Christmas morning. Uh, just can't. Thank God enough. Uh, he is certainly good and his timing is always perfect. We continue to pray for those of you who still may be affected by the drought and other wet weather challenges across the Midwest in so many other areas. So this week's episode was one that I have looked forward to for months. I was so excited to visit with Randy block that I forgot to click the. Little echo off button on my recording app. So my portion of the podcast sounded about like, I was sitting in the bottom of a well somewhere. And you'll heAr some odd sound effects as we jumped back and forth between Randy and me. And I apologize in advance. And thank you for your understanding. I clearly am still learning to be a podcaster, but I appreciate your patience. Randy block came to cattle facts in 1981. He served as director market analysis for 15 years. And he was then promoted to CEO of cattle facts in January of 2001. And he continues to serve in that role today. Randy and his family remained actively involved in the cattle business and farming. He was raised on his family's ranch in Yuma, Colorado, graduated from Colorado state university in animal science. And then went to work at cattle facts. Now I have pulled a few ex excerpts from an articles that sort of Angus beef wrote after he won their industry achievement award a year or two ago, when I've put those into this info or into this intro, I've also included a link to that article because it's a really good one about Randy and his life. In the show notes. In 1980 with an open mind and heart Randy block took his Colorado state university animal science degree to cattle facts, CEO, topper, Thorpe, and Jerry bone. Then director of market analysis asked him to join the team. It was a roll that block figured would eventually lead back to the family ranch near Yuma. I thought this would be a perfect opportunity for me to spend a couple of years learning. He says, but honestly, I just fell in love with the work. And the rest is history. As the second youngest of nine children born into a Catholic ranching, family block credits his parents and older siblings for imparting a strong work ethic, honesty and integrity. We were blessed to come from a family that knew how to work and knew how to pray. Randy said, because it took a combination of those things to keep our operation going and sustained. He gives much of the credit. To his support system at home. It's why Randy takes time to watch his son pitch for the Colorado Rockies. Yes. He sired a major league baseball player. And catch up with his daughter, Hailey. On her work for Catholic charities, he takes walks with his wife, Karen almost every evening. What's truly important about Randy is that he's a teacher able to share his knowledge and help future generations. Understand what it's going to take to be successful in the world. They're living in. Karen says. That quote by Randy's wife. Says it all in my opinion. And I think that's why I've always been a fan of Randy block. R his market predictions always dead on. Perfect. Heck, no. But he's a student of the industry. He's passionate about the industry. He loves the people involved in this industry. And he wants us all to get better. Those are the kind of people that I like to associate with and learn from. Those are the kinds of people that I like to have on this podcast. And I think that you are really going to enjoy this conversation with Randy block. Even with the awkward sound effects on your hosts and as always, thanks for listening to practically ranching.
Well welcOme, Randy. We appreciate you joining us today. Enjoyed getting to your market outlook and kind of a recap of what we've seen. Over the last year or two. And what we're seeing coming down the pike there at the Kansas livestock association meetings a few weeks ago. We're not going to make you rehash that whole outlook, but I know that we've a lot of that into some of our discussions that I'd like to have today. I think one thing that's on a lot of our minds. Is when is this cattle cycle going to go ahead and make that move toward some type of herd expansion and heifer retention and, and, uh, what are you seeing and hearing out there as you look at the data and talk with some of your, cattle facts members.squadcaster-9730_2_12-21-2023_100611:
Well, that's a great question in here, Matt. I, I think when you go back and you look at the current cattle cycle that we're in, and we compare it to the last, you know, that's where everybody continues to compare back to. And I think that's where a lot of the fears come from. That, you know, it would start and it, it would roll and they'd be over and we'd be headed back down. Well, we have not kept first heifer yet nationwide. We just have not got into herd expansion. We're still harvesting more cows than we need to relative to being able to stay, stabilize the nation's cow herd. And even though we see some restocking activity in the northern plains areas across the Dakotas of Montana, that's exactly what it is. It's restocking, it's not expansion. So, uh, it, it's not happened yet. I think we've kicked the can down the road at least another 12 to 18 months before we're at our smallest numbers. nation's beef cow herd will be 2% smaller on January one of this year than it was a year ago. Uh, the number of heifers that are continue to be on feed is hovering up in here around, uh, 40% of the total on feed numbers are heifers. That number will need to decline back into the 33, 30 4%, uh, heifers on feed to be into, uh, an expansion phase. So we got a long ways to go yet Matt, uh, before we really see the herd, turn the corner and start to rebuild as we, as we're coming out of this drought.
So, I think you mentioned there last month during KLA and your comments there about one of the differences between this point. In the cattle cycle compared to the cattle cycle in 2014, which would be the last time that we saw a drought induced, maybe a market induced decrease in cow herd size, and you called it a V bottom back then compared to a saucer bottom this time. Tell us about that chart. And just how wide or how distant you see that longer-term saucer bottom being this time around.squadcaster-9730_2_12-21-2023_100611:
Great question. I think that's, uh, you described it very well. I mean, you go through the last cycle that we went through. Just to remind the, all the listeners out here, we'd gone through a 3 million head reduction in the nation's beef cow herd from 2010 to 2014 15. And when we started re when we started the expansion trend there in, in 14, we were, we were retaining a record number of heifers. Uh, if you remember back in that time period, it was the fastest expansion in the history of the industry. So not only were we we keeping record numbers of heifers, we were also not harvesting cows. Any of the cows that we, we could still breed and they still had some productive life left, they were being exposed. This one's totally different. I mean, we're still sitting in here. As I mentioned a, a minute ago, that we're still sitting in here with over 40% of the on feed, or nearly 40% of the on feed numbers is being heifers at the absolute lows. In, in heifer placements in, in that 2014 15 window, the percent heifer on feed number dropped to 31 to 32%.Track 1:
Now, we were only there for two or three months, but I, I'm trying to give you all a vision of just how slow this is. That one was fast. The smallest slaughter in 2015, uh, was 23 million head of fed cattle. That was the smallest slaughter that we, we've had any time since. Uh, if you go back, just to give everybody a context, in 25 years, that's a lot further back than that. But by 2016, slaughter was already a million and a half head larger because of the rate of expansion. That's not gonna happen here. I mean, we probably aren't gonna see our, our smallest fed cattle slaughter until 2026. It's probably gonna be the smallest fed cattle slaughter lease will be 2025 and 2026 won't be much bigger if it's not the low. So, uh, again, we, we have kicked the can down the road, a much, much more prolonged cycle this time, which basically says. For the cow calf producers in the audience out here. What this means is gonna have a little more prolonged, more sustainable, higher price market for several more years than we did in the last cattle cycle. We all remember from 2000 and and 14 to 2016, the prices, all classes of cattle were cut in half, weren't they?Track 1:
I mean from, and that actually happened from the summer of 15 to the fall of 16. That's how fast it happened. We don't see anything like that happening in this cycle. Based on the rate of expansion today, it's just not gonna be the same. I don't think it's comparable,
so regardless of the region, I think nearly every part of this country has been touched by drought in some way, the last couple, three years. Is that the sole driver of this longer? Expansion mode or what else? What else do you think that's making it? A little more hesitant or making us a little more hesitant for herd expansion actually began.squadcaster-9730_2_12-21-2023_100611:
Well, I think, I think drought is obviously a part of it, but I don't think it's all of it by a long, long stretch. And again, if we go back and we think about from 2016 through 2022, the cow calf producer really hadn't made any money.Track 1:
He really hasn't made any money. We went 16, 17, 18, 19, 20, 21, 22. I mean, there wasn't enough money made by cow calf producers in on average for'em to buy lunch. It was just, it was that skinny. And you know, anybody that went through drought or some of those tough winters, high priced hay, all of those things, we all had, we all had, uh, accumulated more debt as we came through that time period. So I think that's part of the reason the expansion is so slow. I mean, everybody had some debt to retire in here that they've been carrying as we've come through this, this rough weather time period. Most of these ranches have been 20, 30, 40% less stock than normal because of the drought conditions we've been in. So we haven't had the productivity off these ranches that we'd expect Interest rates in the last cattle cycle were not a factor worthy. They were absolutely not a factor. Well, if you got a$3,000 cow today and you got 10% interest, I think we can all do that math on what it costs on an annual basis to, to carry a cow that wasn't a factor in the last cycle. other thing that I think Matt is, is playing a role in here is it's just difficult to find enough. Help. I mean, most of these ranches we talk to, a lot of'em all across the country, and labor is a major, major factor for, for so many of'em. So they're getting older that can't get the help again. How bad do they want to expand in here? Um, with those kind of things going on. Now, I'm not trying to poo poo the impact of the drought because it's been real, and the, if we think about it, the heaviest drought conditions that we had in 2023, the year we're just finishing here was Texas, Arkansas, Oklahoma, Missouri, Kansas, New Mexico, right through that Louisiana. I'd throw into that as well. So that circle there, what I'd call the, the South Center South Plains region, that's where the heaviest concentration of beef cows is, uh, across the United States by a long way. So. We had a lot of cows, a lot of beef cows that were impacted. And if you go look at cow slaughter, it's, it's very clear. I mean, the cow slaughter is, has been massive again this year. It's really been big this fall with the number of open cows we've had.
Yeah, I would agree. And I think. I think there's a lot more factors than just drought. Um, but probably the primary one. And I've. I've had this conversation with other producers around. I think right or wrong folks, my age and younger have learned to maybe make some considerations and push the pencil to it. They've listened to you and other economists talk about opportunity costs and. Looking at what their resources are, both labor natural and what their interests are. And passions are. Some of them have flat said, you know what? I don't need to be running cows and they've turned to short season grazing or yearling operations. And the question I have is who in the world is going to own these cows and run these cows. I think there's an immense amount of consolidation that's happening right now at the cow calf level, uh, during this turn of the cattle cycle and, and, um, generational. Change that we're seeing from one generation to the next, some of it's drought induced, some of it's financial induced and some of it's just this whole notion of work-life balance. And, um, There's a lot of folks younger than me that say, I don't necessarily want to work that hard for 12 months of every year.squadcaster-9730_2_12-21-2023_100611:
You know, Matt, I think that's a, that is really a great insight that you're, that you've laid out there. We, we hear all of those things that you're talking about. The, the issue I think we've had over time is we haven't been able to, to keep that cow calf producer profitable enough to make it worth its time. I mean, if they were, if they were making real money more consistently, I think we would entice, uh, a little more, a little more optimism on people to get involved in that, that segment of the industry. But gen in general, there just hasn't been enough profitability. Yeah, we made, we made good money in, in 2000 13, 14, 15, well, three years out, 10, I mean, uh, that dog doesn't hunt, does it? I mean, it just doesn't, doesn't pay the bills. And if you're running a cow herd of, of, uh, 500 mama cows and you're doing everything right, and you make$200 ahead, whoop. Do you do, I mean, that's not very much money, is it? When you think about everything else it takes to, to, keep these operations going? We need to, I think we need to have a vision as an industry that these cow calf producers can have. Real profitability if we're gonna be able to sustain our stocker backgrounder, feeding, packing, uh, beef production segments, uh, all across this industry. I mean, the demand signals there, it's been pretty clear. I mean, beef demand's been at a 30 to 33 year high. It's off a little bit this year because of, I mean, when you go, when you have production down 5%, Matt, it's tough for prices to go up, uh, uh, penny for Penny with what we're going down from a production standpoint. But it's still one of the best demand years that we've had anytime in the last 30 years. And more of that needs to flow back to the producer segments, I think, uh, over time. And I think it will. I think it will. And this may be where it actually happens because that cow herd's gonna get tight enough that. Yeah, everybody's gonna have to look at and say, well, we've, we've built all these hooks in the packing plants. We've built all these new feed yard pins. There isn't gonna be enough cattle to, satisfy everybody's appetite up and down our, our production systems.
So let's talk a little. On that piece of consistent profit that you mentioned. I think the majority of folks listening to this podcast would be a. Rabid capitalists. And they, they know that markets have to work unfettered and that you let the market work and you stay out of its way as best you can from a government intervention. Things like that standpoint, but there are some programs out there that probably opened the door for a little more consistent profit at the cow calf level. One of them that jumps to my mind is livestock risk protection, or LRP. We've had a conversation or two about that on the podcast over the last six months or so. I know others have looked into it even deeper than I have. Is LRP away for the commercial cow calf producer, regardless of their size, especially ones that are small enough, they wouldn't be able to just step out and lay off risk with a. Full. Contract long short, whichever the case may be the market. Um, is that a way that we can add some consistent profit or are there too many risks associated with that on down the road in terms of not letting that market work?squadcaster-9730_2_12-21-2023_100611:
Another great question. I mean, I think the answer is, is yes. We need more producers that are, are managing more of the risk in these businesses. These markets move so much during the course of a year. I mean, it is, it's staggering what these ranges are like. Think about 2023. The price range on feeder cattle for the year, from the low week to the high week this year was$77, a hundred on, on an eight weight steer. It was$80, a hundred on a five and a half weight steer. The fed cattle market from the lows to the highs was$33 a hundred. So you think about that, if we look at it from a fed cattle market standpoint, we've got markets that are moving between four and$500 ahead a year from the highest to the lowest. Well, that same pendulum is swing is impacting what feeder cattle, what you pay for feeder cattle are pay for calves. So I think that by itself tells you we have to manage more of the risk. LRPI think is a great example. Yes, I think we need that product in the industry. I think we needed the. Rainfall insurance product in the industry. I think that's been critical for so many producers to help us navigate through so many of these. Uh, last decade when we've, remember we've been in a 25 year drought cycle. We've had some wet years in it, but it's been a 25 year drought cycle. We've been in La Nino a lot more consistently than we've been in El Nino, and it looks like we're moving back to La Nino again, at least for the next, uh, 12 to 24 months once we get into the middle of the year. So the Livestock Risk Protection Program, definitely we've seen a major increase in the number of cow calf and stocker operators that are using that product. I think the issue we've had with it is, as we've seen the uptick in that, I'm not sure that our markets, I. And I'm talking about our other risk management tools out here, our options and futures markets that so many of our larger producers use. I'm not sure we've had enough liquidity to, to, uh, be able to take all this on. And I think that really came to light here over the course of the last, uh, 60 to 90 days. I, we had a liquidity problem in our markets with expanded limits. The funds with all the uncertainty. Again, the funds have got one of the smallest long positions in the cattle market. They have, they've done the same in a number of these other commodity markets. They've downsized how much risk they're willing to take on. Therefore, who's going to, who do we sell this risk off to? I mean, it's not been there. And that's part of the reason our markets have, have, have broke the clip that they have. I think You'll see recovery in here. But this is something I think we're gonna have to continue to dig into and, and do more analysis around once we get a little bit further away from this. Uh, this situation we've been in the last several weeks here, I think it's gonna become more clear. We did have a liquidity problem and, uh, we, we just didn't have anybody willing to take off that risk.
And so if the markets find that balance and find that liquidity to offset the increase in basically put options, it's cow calf producers. Are going to be taking. Do we find ourselves in the same predicament that would. Say, Hey, you know what? Crop insurance has done this same thing to farmers, and that is we've encouraged over production. And taken marginal farm ground. In this case of crop insurance to raise corn beans and wheat, or in LRPs case to overstock and show your shoulders to any. Drought risk or market risk that the, that the. Market is telling us and go too far the. other way. Like we tend to do in a lot of commodity markets and overproduction.squadcaster-9730_2_12-21-2023_100611:
i, I would say long term, that's possible. I would say short term, not likely because you have, again, these tools are new enough that the adaption rate wise, it's been pretty rapid over the last, uh, 24 to 36 months. It's really picked up in here over the course of the, when the market had the big run up in here, August, September into that time period, there was enough profitability that was a big enough profit signal sent to producers, stockers, backgrounders to bring cattle to the market. And they either can bring cattle physically to the market or they go use the risk management tools to lay off that risk. So. That big bubble we had there in in September, I think attracted a lot of supply and it attracted not only domestic supplies from the US to the marketplace, but it attracted more supply from regions like Mexico. I mean, we're gonna end up importing another 400,000 head of, uh, Mexican feeder cattle and calves this year than we did a year ago. We typically will bring in 800 to 800,000 to 1.4 million outta Mexico. We're gonna be closer to the 1.35 million this year when it's all said and done. So to your point, the market worked. The market sent a signal that, hey, we are short on inventory, and the market responded. We attracted more supply. The thing though, that I think we have to look beyond is where are you gonna pull that next term?Track 1:
I mean, you got a, you got a calf crop that's down a million head. I mean, we, we aren't going to be able to continue to fill these voids in supply, uh, with our domestic, uh, calf crop down in, uh, a million head smaller than it was a year ago. So we are going to go through a significant transition in here over the next 12 to 18 months with, with even more, larger year over year declines in cattle on feed numbers and larger year over year declines in in placement numbers. And that has actually started, you'll have a cattle on feed report out tomorrow. Placements will be below a year ago December. Placements are running down about 10%, uh, through yesterday. So. December placements are gonna be smaller. And with the, with the grazing conditions that we've got out here, I would guess that we'll have smaller placements for at least the next three months, uh, after December, just based on, you know, nobody's gonna bring one to town in here. If we've got that kind of, uh, grazing conditions and we can put that gain cost on it. Uh, those lower levels,
So we have 40% of the feed, yard inventory being heifers. We have an aging population of producers that I've heard time. And again, from folks not much older than I saying. You know, with prices, this good. I'm not keeping heifers, I'm going to sell everything. I don't have anybody that wants to come back. I'm going to cross that bridge and eight or 10 years, and just let these cows do everything they can for me in the meantime. I'm hearing all kinds of rumors. And you mentioned before. About the, um, number of open cows is fall through, especially through the Sandhills, Nebraska through the Dakotas. How wild could this replacement female market bred cows bred, heifers, open heifers, whatever the case may be. In 20 25, 20, 26, and two, he ended up crashing and burning simply because we kicked the can down the road too far.squadcaster-9730_2_12-21-2023_100611:
Well, It'll, I I think we will definitely, we're gonna have to cross that bridge, Matt, I don't know how high they may get. Uh, but you, you sure aren't gonna be surprised to see'em get up in here at least 3000 to 3,500, somewhere in that neighborhood. Maybe they'll get higher than that. But I mean, the reality is, is, is at some point we will, the economic signal will be strong enough and people are gonna retain efforts. right. I mean, that's, that's will happen. I think though, with 10% interest rates, it's still gonna happen at a slower, slower pace than what we saw in the last cycle. As we've looked at this, we've gone back and we've looked at these time periods and it's really interesting, I think for some of y'all on the, that are listening today. Uh, my team here at AX went back and looked at all the cattle cycles through from the 1970s to current, and you look at all these factors that drive cycles and attitudes and behavior. The one that's really interesting that has some comparability with what we're in today is the cycle in the 1980s. Now, we were in a totally different demand scenario in the eighties compared to what we're at today, but we did have high interest rates then. We had a situation that even when we got past the low in the cattle cycle was in 1985, and then we had the dairy termination program on April Fool's day of 1986, which took the market into new lows. But we came through that and by September of 1986, the market had bought and then started up and we got into a very prolonged, I mean, it was a classic bull market where 1987, all the cattle that sold throughout the industry were profitable. We did it again in 1988. We still weren't really re, we still really weren't expanding. We didn't expand much until we got all the way up to 1990, and that cycle peaked in 1991. So. That one is, is a little bit similar to what we're in now, Matt, because of some of the headwinds that we have on the rate of expansion. There's several things that aren't the same because of of the demand structure, but again, that's one that jumps out at me. We really didn't retain many efforts for several years there, even though we were starting to see profitability.
And. Of course, we think that eight to 10% interest rates are. Too high and yet a few dangled, those eight to 10% interest rates in front of somebody in 1985, they would have taken all the money they could get because relatively speaking, it was pretty cheap money back then.squadcaster-9730_2_12-21-2023_100611:
It was cheap money then. But, uh, you know, the big difference we had is we had so many people that got caught. So if we looked at the financial health of. Agriculture in, in total 1980 versus 2023. The financial health across all of agriculture today is, is actually fantastic. I think in agriculture, whether we're looking at farming or livestock in general, we're in as good a shape as we've come through here as, as any time we've been over the last 20 or 25 years. If you look at the early 1980s, we weren't, we weren't very good shape. We really didn't have export markets that were very good then. We weren't exporting that much. We were in, we were in a difficult time with interest rates. Um, I mean, demand was going straight down for protein, for red meats. I mean, it was going straight down. We lost 5 million head of, of beef cows in the decade of the eighties. We lost About 16 million had of cattle out of our inventory in that decade, maybe the thing I would, I would stress the most as we go back and we look at that, is we lost 12% of all people in Agricul culture in the decade of the eighties, 12%. So the bankruptcies and liquidations and workouts. I mean, uh, for a number of the bankers that are on the, this call, uh, that if they were working in those time periods, most of'em spent the early part of their careers doing nothing but workouts. I don't see this as being comparable to that. I, I mean, it's a totally different time period, so I, I don't think we're in that kind of a situation. We just earned so much better financial health as an agriculture, uh, enterprise than what we were in those time periods.
So Randy, you mentioned the demand portion there in the 1980s. What we saw in terms of, of lost beef demand. I guess my question is how important. Has what we've seen in the man growth since that low and the beef demand nine. Uh, since that low and the beef demand index 1996, up until now. How, how, how important has that been and what do we need to do to make sure that we don't give any of that demand back?squadcaster-9730_2_12-21-2023_100611:
Well, Uh, as I go back and I think about that time period, I mean, it was, it was an interesting time period. And, and I, I think when you, when you look at the segments of our industry, if you all will allow me just to step back a little bit from the specific question, remember, we have so many segments in our industry that we all think we're doing this, this is the business we're in, and, and that was really the case back in the seventies and eighties. If you were in the cow calf business, you thought that's the business you were in. If you were in the stock or background business, that was the business you're in. If you were feeding cattle or finishing cattle, that was the business you were in. None of us looked at it, I'd say as an industry that, that the real business we're in is producing high quality beef. And quite frankly, in the 1980s and in the nineties, we were just, we were in the cattle business and we didn't make the connection as producers of producing something that the consumer really, really wanted. I mean, we were putting it out there and said, here it is. Take it or leave it. That was our mentality. And again, I'm not, I mean, I was heavily involved in that time period, was working here at Calif Facts all the way through the eighties and nineties, and beef demand was going down. It went down 53% from 1979 to 1998. It was terrible. But the industry in total finally figured out, and again, I'm, I'll, uh, send kudos to the, to the Beef Checkoff. Without the beef checkoff. I do not believe the industry would've had the data, the analysis. and the insights that came out of all the research work that was done to understand what it was the consumer really wanted. All of those quality audits that were taking place in the eighties and nineties, they were the key to give us a benchmark of where we were for an industry. And if you go back and read those, some of those quality audits back in those time periods, what we were trying to do in the beef industry, same thing that happened in the pork industry. We took all of the quality outta the cattle. I mean, we'd gone to a very, very heavy continental breed influence in our cattle herd. Uh, we were wanting them long, tall, and lean. I mean, I was on judging teams in the late seventies and eighties, and we never talked about quality. We never talked about muscle. It was long, tall, lean, and hell, you could have put a saddle on most of'em. So the is changed so much and it's all been for the better. Because we got focused on, the consumer was willing to pay more for quality and in the 19, late nineties and early two thousands, about 50% of the nation's cattle, a flip of the coin we're grading choice of prime. Today that number is 83% of the cattle are grading choice in prime. That's where we've been the last three to four years, 83% choice in prime and the consumer. You think about our spreads, think about our choice, select spread. Think about our, our prime to choice spread. Those spreads have been at record large levels, even though we've had record large production of prime record, large production of upper two thirds choice certified Angus beef or or choice product. So. That's, that's what's transformed our industry. If you look at the overall profitability in our industry this year, there's going to be between 900 and a thousand dollars a head profit for, for the, from the cow calf, stocker backgrounder, cattle feeder packer, for those four industry segments to share, it's gonna be the second biggest profit number in the history of our industry. The biggest number is in 2014. The reason that's there is there's, there's been demand growth. The demand growth is driven. All of that, I just said that was 900 to a thousand dollars ahead. If I take you back, Matt, to 1980 to 1998, in that 20 year time period, the average profitability in that time period was 32 bucks ahead.Track 1:
I mean, it's no wonder that the, that. Our industry was decimated, and now we've turned a corner. The profitability has just continued to march higher. Again, it's not been, when we look at, when we look at that profitability, it's, it's still not been good enough yet at the cow calf level, but it is in the industry. So that's been very positive for us in total. And this year was excellent. Next year will be very strong again. The cow calf producer will get a higher percentage of that total profit number next year. Because the cattle supply is shrinking, the, the cattle feeders are gonna have to bid harder to keep their feed yards full. And the backgrounders and stocker operators are gonna bid on a smaller available supply to keep their grazing lands full. So the beneficiary of that is gonna be the, is gonna be the nation's cower beef cow operators
Back on growing that pie. I've quoted him before on here, but I'll bring him up again. I think it was John Sticka that I first heard, say that. The only true source of new money into the beef industry is from that consumer. And for years and years, the only way we were profitable as a segment within the beef industry was to Rob a profit from the guy or gal. Up or down the chain from us. We were just trading the same money for decades. We've finally injected millions of dollars into. And hopefully we'll figure out the most effective way to split that 900 or a thousand bucks, total profit per head that you said that all segments were were. Bringing in right now instead of the 32 or three, like we had done for years.squadcaster-9730_2_12-21-2023_100611:
You know, Matt, I, I think John was spot on on that. I mean, that is the only way that you can get new money into the system. It's from that consumer demand, and it's not only our domestic consumer, it's our global consumer. we think about what kind of market share we've had in Japan, market share we've had in South Korea market share in China. Uh, those have all been key markets for us. Again, those consumers value what we're producing as well. And we have to remember in the US beef industry, we dominate the grain fed, high quality beef market globally. I mean, we really don't compete with a lot of these other suppliers on, on grass fed beef. That's not what we do. And so we're really in a, in a bit different market. Uh, I think we've got a, we, we've built a franchise around USDA, high quality prime and choice beef. Those brands are very powerful for us. Now if you look at a grid premium, if you look at what the, what we've been able to get paid, for example, this year, our fed cattle market's going to average, uh, about a$176. Uh, uh, a pound is what we're gonna average or$176. A hundred weight is what we'll average. We'll have a full range this year from 1 55 to 180 9. The average grid premium for cattle that are grading over 80% choice for on the 12 month basis is gonna be between 80 and$90. A head grid premium, if we looked at it at times of the year, you know, there were times of the year we were seeing where the prime spread was really out, we were seeing 150 to$200 a head grid premiums. So we have to understand when we, when we go through these time periods, there's. The industry goes through issues that we have to work through on price discovery, and obviously it's important that we have a, a viable price discovery system where we can establish prices on a weekly basis, on a monthly basis, et cetera, but we don't want to take away those incentives for people to stay focused on producing these high quality animals that our consumers are telling us day in and day out. I will pay you more for those. So that that's where we get really vulnerable as an industry. If we were to move away from that and mandate that all these cattle have to sell on an average. I mean, we're gonna take billions of dollars out of producer pockets if we do something like that.
Yeah, it's been a while, but, uh, we've, we've talked about that exact thing on this podcast and. And I've asked, I've asked a lot of folks on here. And I'll ask you is in your opinion. Is there a way that we better establish that market base and still allow value-based marketing to work effectively. You know, we're basing most of these grids and formulas. It's alternative marketing agreements, whatever you want to call them. On some sort of a regional price market, top market average. Um, And that's a significant, significantly smaller percentage of cattle than when we were selling them all cash prior to 1990. With today's technology. With retail price information that is so readily available. Is there a better mouse trap as I've called it before? In setting that base. Than simply the. Live cattle market in Western Kansas, or wherever you might be based in those grids from.squadcaster-9730_2_12-21-2023_100611:
I'd say today. We still have adequate number of cattle that are selling in the cash market to establish a base. About 20% of the cattle that will, that will move on a weekly basis are, are selling into cash market. A higher percentage of those cattle would be in our northern regions, in, in Nebraska, South Dakota, Iowa, a higher percentage of'em there. Uh, a very small percentage of the cattle that trade in the state of Texas would be in the cash market. Kansas would be a 10 to 15%. So what we've seen is, in general, I would say the cattle that are selling in the, in the cash markets, in the central southern plains regions, they would tend to be maybe some of the, the, cattle that would be average to maybe slightly below average on, on a quality basis. But that's why it's so important to have these grid premiums that send a signal. It.Track 1:
So the big uptick we've seen over the last three years has been the number of cattle that actually sell on a negotiated grid. That's been the big change in the industry is negotiated grid. So they'll establish the base price, then they get, catch the, the grid premium on a, on a weekly basis based on the, the carcass characteristics that, uh, each of those animals has. So that the industry has moved more that way. It's a negotiated price, uh, no negotiated grid situation. So today, I think it's, the system is still working. Eventually, I think we'll have to find something. I do not believe the answer is at retail. I do not believe the answer is, is necessarily at wholesale. I think we'll, we'll, we'll figure it out, but I don't know what the answer is today.
Yeah. When I brought that up one time to someone. Within the meat industry and the beef merchandising industry. It. It was a, this was at a KLA meeting, um, 20, 15, 20 16, somewhere in there. And we were talking about this exact topic. And I said, why can't we just take retail scan data? Piece that carcass back together and truly find out what it was worth to the consumer, because we've got barcodes and all kinds of technology today that we didn't have before. And the cat laughed. He said, Do you love volatility in your beef industry? And I said, well, not, not if I can't manage it. And he said, well, you absolutely do not want to tie your live cattle price. To anything at the retailer, even wholesale beef market. Because you want to see some wild swings buddy. That's where you're going to see them, especially when you figure in featuring and the way that retailers are priced and beef today. Would would you see in concur with that?squadcaster-9730_2_12-21-2023_100611:
that? Oh Yeah, absolutely. I mean, think about, think about it, even on a wholesale basis, you know, we always are measuring what percentage of the wholesale market, the cattle feeders getting. Well, when you go through these time periods, I mean, it's very common that the range around the Fed prices, a percent of the wholesale market is gonna be four to 5% in a common year. That's a lot of volatility around that, isn't it? If we look at around retail, the percent, the fed cattle price has a percent of the retail value that can have as much as a three to 4% range during the course of the year. So even from a, the packer to the retailer, depending on the seasonality of the market, again, a normal range will be 36 to 42%Track 1:
the, what the packer gets relative to the retail market. It so there is a there you would be introducing plenty of volatility in that market. No doubt about it. And we got plenty as it is today. I mean it's getting these kinda ranges. When you think about this, and I might just share this with your listeners, Matt, I think this is important for everybody to think about. How much risk are you willing to take? If I look at our markets today and if, if you're asking me, well Randy, you know, what kinda range are we gonna have next year? I'm gonna tell you, we are gonna see a market that trades plus or minus 10% around our annual average, plus or minus 10% around the annual average. Well, if we got a market that's gonna average in the mid one eighties, I mean, think about that. That says we could have our market range that is from the upper sixties to somewhere in the low two hundreds, isn't it?Track 1:
somewhere between four and$500 ahead. I mean, I, that's the reality. If we're seeing that at the fed cattle level, we're gonna see that all the way back into these other levels as well.Microphone (Yeti Stereo Microphone)-1:
Yup. So speaking of something that has a little volatility through the decades, uh, exports. You touched on them a few minutes ago. Let's talk a little trade and what you see going forth. Uh, both ex exports and imports. We love to tout these exports and in times, like, I think we're about to see. Of higher priced beef, lower cattle numbers. Um, it's maybe the imports. That's going to be a topic of discussion over the next few years, we call it trade for a reason. And I think trade has to go both ways. It's both imports and exports and you go over a long enough time span. You probably see fairly similar amounts yet. It's the imports that seem to take the arrows as we look. At times and the cattle cycle, like we're about to see whether it be Mexican feeder, cattle coming in or beef going. In to go with our trim. What are you seeing as, as far as both. Imports and exports as we, uh, as we go forth over the next couple of years.squadcaster-9730_2_12-21-2023_100611:
I think you, you laid it out very nicely. I think the trade market has been phenomenal for our industry over time. Remember, only 4% of the US pop of the world population lives in the US 4%. So when we look at the long term, obviously we've got. Global population growth is an opportunity for producers, whether we're in the beef business, the pork business, or the poultry business. So just to give everybody a perspective in here of how important trade is, we will export about, let's just call it 25 to 27% of all the pork we produce is exported. And that's been a little volatile here more recently because of China, you know, deciding, you know how much they want and going through African swine fever and you know, that number got up to 30% and then it fell off. But just call it 25% of all the poultry we produce, we're exporting year in, year out, 17 to 19% of all the poultry we we produce and we're exporting 12 to 14% of all the beef we produce. You roll all that together. Of all the protein we produce in the United States, about 18% of all of the protein we produce is exported. That would be 18 to 19 billion pounds on an annual basis. Well, if you put that in perspective, that's another that would be 45 pounds on our, on a per per person basis that we would either have to consume domestically or we wouldn't produce it. Right. I mean,Track 1:
again, I'm just trying to give everybody a perspective of how big that number is. The global market wants what we produce. Why does it want what we produce? Because it's the highest quality and it's the safest. They trust our product. They trust our systems, they trust our, our production protocols across all of these, uh, across all of these international markets. The same thing is happening in dairy. I mean, so much of what we've seen with the growth in, in dairy exports is for these same reasons. I mean, con consumers didn't trust Chinese production, did they? On dairy products. And that's why we saw so much growth in, in imports of dairy products going into China, whether it was dried milk or, or, uh, you know, whole milk, whatever the case may be. So if you put all this in perspective, I wanna remind y'all that the US is the largest beef producer on the planet. We are the largest poultry producer on the planet, and we are the third largest pork producer.Track 1:
I mean, we got 4% of the world's population. So. I, I think if you think about what our role is in the global marketplaces, it really is pretty phenomenal when you really just step back and put some of that in perspective. When we zero in on the US beef industry. Over the last several years, we've basically have been importing and exporting within a hundred million pounds of each other. The tonnage has basically been offsetting. We've been importing and exporting about three to three and a half billion pounds of product on an annual basis. The difference is, is though what we get paid for our, the product we export versus the product we import, and that value difference be on a per pound basis will range anywhere from 20 to 60 cents a pound. I haven't looked at that for a while, but I believe it's running close to 50 cents a pound. In 2023. So every pound we export is bringing about 50 cents a pound more than than what we import. So we still have a net trade value. And of course, the thing that is important for us all to remember is we don't eat a lot of variety meats, do we?Track 1:
If we, so a lot of the variety meats, you know, the intervals market, that type of stuff would end up in rendering if we weren't able to send it to Japan, South Korea, China, wherever it may, may end up going, Egypt with, with livers and, and a number of those type of countries, that'll, that'll buy a lot of the intro meat. So that adds a tremendous value because again, render or export. So we gotta keep that in mind as well at this stage of the cycle. Matt, I think you're clear on what you said. our product, our product supplies were down five pound or 5% this year, a five pound drop. We're gonna be down another four pound next year. Prices were up$30 a hundred on fed cattle prices this year. Lemme just tell you this, so y'all remember this. I've got this data at my fingertips. MaybeTrack 1:
I am just impressed that you've gone 53 minutes in this interview and all the questions I've asked you and all the numbers you've sped. This is the first time you actually had to Had to look something up, Randy.squadcaster-9730_2_12-21-2023_100611:
Well, I just wanted to, I wanted to give y'all a perspective in here, the cutout, the US cutout this year. We averaged last year,$2 and 60 cents on the cutout. This year is gonna average 2 96. So let's just call it$40. A hundred. The cutout's gone up, our supply went down five pounds or 5% and the value went up$40 on the cutout.Track 1:
So I mean, we can all do math. Are we gonna export less? Yes,Track 1:
sure. I mean, we're gonna export less. We had a strong dollar. It's finally softened a little bit, but we've had a strong dollar, so it made it even more expensive for a number of producers or a number of consumers around the globe. So all of those things do take into, go into effect here. We've sent a signal with the strong dollar and the price spread at US price is relative to the global market to send us more meat. And we've really seen that. I mean, we expected we would get a large increase out of, out of Australia and New Zealand. Australia's production's up 25% this year coming out of the drought. Just exactly what we thought it would be, but we actually got a higher percentage of it because the price spread that the US market was over the Australian market for three months. It was 40 to 50 cents a pound. Our market was that much higher than the Ossie New Zealand market.Track 1:
Where are you gonna send it? You're gonna send it to the biggest bidder, aren't you? Now that spread is narrowed. It's narrowed, or it's only about 10 cents a pound. So you're gonna see the imports start to, to stabilize in here. But in general, over the next two to three years, as we go through these, increase in, in, uh, expansion, less production, smaller slaughter, et cetera, we're gonna produce less. We are going to need to rely on some of our global trade partners to send us more of the lean. I mean, we gotta have more lean. Remember, over 50% of our beef consumption in the US is in form of ground beef. I mean, we've, we've built big franchises around high quality ground beef markets. Uh, we, we produce a tremendous number of 50 and 60% liens. Look what our carcass weights have done. I mean, carcass weights have gone up five pounds a year for 40 years, guys. So we are producing a pile of 50 and 60% lean. I mean, that has no value. It's bringing 50 55 cents right now. It has no value if we can't blend that with a 90 or 95% lean product that, uh, we may be sourcing from Australia to give us a 80% lean burger or whatever it is that the franchise is trying to produce.Microphone (Yeti Stereo Microphone)-2:
So that is pretty illustrative. I think of just how complex and interconnected the beef industry today is and how those markets. Assigned value and how we go out and, and find the product or our buyers go out and find the product that they need. And. Attempt to meet those consumers demand. You talked about what value based marketing and increases in product quality and beef consistency and the BQA program, what the checkoff did for showing us what it was that that consumer wanted. And all those steps that we made through the mid nineties and early two thousands to get us to where we are today from a consumer. Demand standpoint. And it hit me, as you were saying, this. Just how ironic it is that we went from trading that 32 or$3 amongst the entire. Industry. Per head 32 bucks of, of profitability and spreading that over the four or five different segments within the beef industry for decades. And today we're trading 900 or a thousand dollars per carcass amongst all those different segments. Almost simply because of that demand growth. And getting a consumer focus and building a pricing structure that incentivize that production. And yet in the same 30 years time. I'd say some days there's even more animosity toward the different segments. Uh, then there was back in 1996, maybe I'm just older and more cynical and notice it more. But, uh, it's just shocking to me that we've added total value into the beef industry chain. Probably are healthier as an industry. And yet we've still got tons of people, especially a year to two years ago that are saying it's all the corporate feeder or the Packers fault that I'm not making any money. Do you see the same thing? Or am I just getting cynical in my old age?squadcaster-9730_2_12-21-2023_100611:
Well, I think, I think there's a lot of that out there. I don't know if there's more today than there was. Um,Track 1:
I was probably just youngersquadcaster-9730_2_12-21-2023_100611:
two decades, three decades. I, I've got a file here in my office. I can look back at every cattle cycle since I've been here in the 1980s. And we always have, in every cycle, we always have these same conversations. It just the way it's been historically, and I suspect that will continue. I, I would say in general that the, you know, one of the things that has changed has been social media. I mean, that's, that's really has changed it in the way, uh, you know, things can get pretty elevated, get pretty heated, you know, they can take on a, a life of their own, uh, on Twitter or wherever it may be. Uh, in pretty short order. So, uh, that's changed. But I think, I think a lot of the conversations of the, in general, I think when you look at the industry, remember back in those days we had 1.2 million producers. Now we have 700,000.Track 1:
So we've gone through a lot of consolidation in the industry, the average size of operations is increased substantially. We have more people that are, are associated with more than one segment. So that's changed, Matt. I mean, we have more producers that are cow calf producers that are retaining ownership of stalkers and even more that are retaining ownership into the feeding phase to where they're able to capture more of these higher quality genetics that they've bred into these cattle, that they're able to capture more of that. So. I think that's been good. I think it's been good that people are able to see the industry in a much bigger fashion than maybe we did when we were really segmentize back into 1970s and eighties. So we're making progress. I mean, I'm, I'm proud of our industry that we've stayed focused on producing this high quality product. I mean, this has been phenomenal to be able to sustain these high quality products, these premiums and the consumers just continue to come back. If you look at our grid premiums, I just pulled these this morning. I'll just give you all a quick update on, on what these look like is they're, they really are pretty amazing what our grid premiums have done in spite of the increase in, in supply that we've gone through here. So let's just focus on, let's focus on your market in Kansas, Matt, just to, just to pick one. So the average grade in Kansas, this is the prime choice production. In Kansas, in 2005, 46% of the cattle we we're producing were choice of prime. In 2005, by 2010, it was 63%. Interesting. By 2015, it was 76% choice of prime, and in 20 23, 80 3% of the cattle we produce in the state of Kansas or choice in prime. So we've gone from 46% grading cattle in Kansas to 83% choice in prime grading cattle. Now,Track 1:
now that wouldn't, that didn't just happen. That didn't happen if it wasn't intentional.Track 1:
I mean, people are, people are seeing if they're doing the right thing and they're hitting those signals and they're listening to what the consumer really wants. That's why that's happening is because they have been incentivized to produce'em, whether it's their calves or selling that are bringing an extra 20 bucks, a hundred, or they're feeder cattle that are bringing$15, a hundred more for an eight and a half weight steer or a fed steer that they're, that they're selling that is generating$125 a head grid premium. So I, these markets really do work. I'm just thrilled that we have, we've had an industry that has stayed focused on these, these signals that has been sent. I believe we've got an incredible future for livestock cattle, in particular, cattle and beef production. I think we have a very, very bright future if we'll just continue to, to listen. Listen and, and respond to those e economic signals that it really have been very clear from our consumers. we didn't have that pipeline getting that data, if we weren't doing the benchmark, and if we weren't getting the research that we're getting today out of the groups that are doing a lot of the market research as a result of the, the beef checkoff, I think we'd be lost. We'd be like a buoy in the ocean. But with all of that information and data we have today, I think we've got a bright, bright future that we won't make as many mistakes as an industry or as producers within this industry. And, uh, we'll be able to respond and, and get paid more handsomely for that.Microphone (Yeti Stereo Microphone)-3:
Well, I would concur and nearly every time I hear you present, whether it be at an event or on an interview like this, or whatever the case may be, you talk about staying plugged in. And I think that's more important today than ever whether it's industry news or improvements to our day-to-day management or issues on a political landscape or. Price standpoint. I mean, everybody wants to sit in on one of those outlook seminars and hear you tell us. What's El Nino going to do for rainfall in the Midwest. What's the weather going to be? What our corn price is going to be going forth, what our cattle price is going to do. I sit through those events or read. Something that your team has published in the newsletter, cattle, facts, trends, or whatever the case may be. I want to know what got us to today. Why did what has just happened happened over the last six months or six years leading up to that. You know, explain that to me. And, and you and your team do a phenomenal job of that because, you know, Your crystal ball isn't any shinier than anybody else's you don't know for certain what's about to come. But. You can help us by staying plugged in yourselves and relaying that information from a historical standpoint, near term longterm, and, and explain why, what has just led up to this point. What happened, and then we can figure that out. We can figure out what level of risk we're willing to take based off that information. And I just applaud you and the team you've put around you there at cattle facts. It's a great group of folks and I would encourage anybody that's listening. Who's not already a cattle facts member. There are tons of different stages and different levels, whether you're. Large feed yard, or whether you're a small cow, calf producer or anything in between. There's various different levels that somebody can, can get that information. Pretty digestible format. And make some of those decisions going forth.squadcaster-9730_2_12-21-2023_100611:
Thank you, Matt. I appreciate that. And I am proud of our team. I mean, we've. we've pulled together a tremendous team. They're very well educated. They know this industry inside, out and backwards. And, and they're passionate about what they do. They know, they know that they know the data. They're great Analysts. I mean, you said it very well. We, we, we will give you our best estimates on how things, how we think things are gonna happen. But as I've said many times from the stage, the market has a paddle big enough for everybody's butt. And, uh, uh, we're gonna miss things. I mean, we're gonna miss things in here that will miscalculate it on how we think this is gonna unfold. But, uh, again, it's not intentional. We're trying to put the information and analysis out there to where our customers are able to be informed and then they can have more confidence in making their final decisions as they go down the road. So. I appreciate that. We appreciate the opportunity to be a, a part of this podcast today and, and, uh, hope y'all have a tremendous, uh, 2024. I think we've got a lot of good things are gonna happen in 2024 and 25 and 26. I mean, I think we've got a nice run in front of us in here to where, where, uh, we'll see more pro profitability back at the producer level. It's gonna get a little skinny in here for our margin operators. There's not gonna be enough cattle to go around, so we all have to remember that. But, uh, for the producer segment, I think, uh, they're gonna get along pretty well.Microphone (Yeti Stereo Microphone)-4:
Randy, we appreciate those comments and everything that you do for the industry. You're a great partner for all of us to utilize and. Sure appreciate you being on here today.squadcaster-9730_2_12-21-2023_100611:
My pleasure. Best to y'all. Alright,Track 1:
Thanks a bunch,squadcaster-9730_2_12-21-2023_100611:
Thank much Randy. Bye-Bye. You too.