At the 10th Annual Hemphill County Beef Conference in Canadian, Texas, Senior Farm and Ranch Broadcaster Ron Hays had the chance to visit with Troy Applehans, Market Specialist at CattleFax, who was speaking at the event.
Applehans discussed the red-hot cattle markets at the time of the conference. “We’re another year deeper into the cycle, and there is an expiration date to these cycles, but none of us know if it is going to be this year or next, but we simply see the market sustaining itself much longer than it did during the last cycle,” he stated.
He pointed out that even those with short memories will remember the 2014 – 2016 cycle and the detriments of prices seen during that period. He doesn’t anticipate the nation’s herd size returning to its previous glory this time, but does expect the higher prices to have a longer lifespan.
According to Applehans, the snail’s pace of herd rebuilding is directly related to the actions of Mother Nature. “There is an opportunity and a desire out there for people to want to restock and even expand their herds, but there’s no place to go with these cattle at this particular time,” he detailed. “It is just too dry around the country.”
He noted that about 60 percent of the nation’s cow herd resides in the area spanning from Montana, into the Dakotas, and south into Texas, and pointed out that all of those states have been pretty dry over the past several years.
He explained the unprecedented demand for beef and how the 26-to-27-pound increases to carcass weights seen last year made up for roughly a million head of fed cattle that didn’t have to be slaughtered without shorting the market.
Hays mentioned the near-record prices of fed cattle seen in the $2.15 to $2.16 range this week, and Applehans thinks they still may not have peaked yet. “Record territory isn’t unusual to see at a time like this in this cycle, but as I mentioned, there is an expiration date, and none of us know exactly where these highs will be. Certainly, there is a lot of data that would indicate that the market can reach that $2.25 or better level on the fed cattle side – none of us know for sure – but if we get to that level, you wonder about the consumer and are they still willing to accept the prices at the retail side.”
Applehans and his team at CattleFax closely examine the state of the economy through unemployment rates, equity markets, consumer psychology, and more, to try to determine where the breaking point will be. He knows pork and poultry are close competitors with beef and that beef is the protein most vulnerable to consumer pullback due to its higher prices, but says that so far, there has been no chinks in the armor regarding consumer demand.
Applehans believes that the constricted numbers of the cow herd, combined with high demand for beef, may mean that cow calf producers will remain in the driver’s seat for an extended period of time.
“We know that these cycles tend to last ten to eleven years in length between a high to a high or a low to a low, and quite frankly, we’re in about the fifth year of this upcycle that we’ve seen,” Applehans explained. “The message that we would like to portray is that we don’t see these prices just falling off. Does that mean that we can forego managing risks? Things can be really, really important to manage risks. Utilizing some form of risk management, whether that be through the LRP side or utilizing the options market or the futures, will be very important here over the next several years.”
He touted the user-friendly aspect of LRP programs and said that it is money well spent. He pointed out that although some producers have purchased it and didn’t need it because their cattle sold well, that is what they should be hoping for – that their insurance isn’t needed. He cautioned that, “going forward, there is a higher probability that it will pay.”
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