Riding The Wave Vs. The Tsunami Effect

Riding The Wave Vs. The Tsunami Effect

Attending the National Western Stock Show last week and talking to producers was a lot of fun. There’s a whole lot of excitement in the industry these days, as cattle prices continue to set records on seemingly a weekly basis.

Everyone is riding the wave, but that euphoria is also tinged with a bit of caution. I can’t tell you how many people expressed this sentiment in one way or another. After all, it’s difficult to wrap one’s mind around these price levels. At the top end, we’re seeing commercial bred heifers bringing more than $2,000, commercial bulls $8,000, replacement females $1,500, and held-over lightweight calves are grossing $1,250 in today’s market. That’s more than the top end grossed last fall.

Personally, I was amazed when I saw $200/cwt. calves this fall. They were flyweights and in limited numbers, but $2 is now part of our pricing structure.

The downside to higher prices, of course, is higher costs. If you’re buying a bull, you’re likely looking to spend at least $1,000 more than last year, bred heifers at least $400-$500 higher, and hay has doubled in some cases. One producer from Iowa told me he’s looking at making more dollars than he ever has in agriculture, but he’s also at more risk than he’s ever been.

There are a lot of questions to keep folks awake at night. For instance, will some outside force upset the apple cart? Will it keep raining in Texas and Oklahoma, or will the drought extend and move north? Are we truly going to see the prices predicted the next 4-5 years, or are we moving too high too fast?

While we all try to adjust to new price levels as well as higher inputs, we’re also challenged to determine how to best position our operations to take advantage of these price levels the next several years. Owning inventory is the most obvious strategy, but that’s already become a relatively high-risk proposition if one operates in a drought area or in an area without the availability of cheaper feed resources.

Today, those “riding the wave” at risk of like getting hit by a tsunami. You have little time to prepare for it, you want to be on high ground when it arrives, and it has the potential to leave incredible devastation in its wake. You definitely don’t want to be standing in its path.

Another cowboy said this market has a way of humbling a guy. That is, you don’t want to brag about the price you received too long or too loud, because in a month’s time, everyone will know you sold too early. At the same time, we all know the stories about those who missed the highs because they were waiting for the market to go higher.

From a more subjective view, we know we’ll continue to have plenty of numbers through the first quarter but transition into lighter numbers from there. Available feeder-calf supplies outside of feedyards is extremely tight, and cow liquidation because of the drought may be larger than expected.

The Texas and Southwestern Cattle Raisers Association estimates that 30% of the cow base in Texas has moved off the land. That’s significantly higher than what some had anticipated. Still, supplies are going to be tight, export demand is solid and domestic demand continues to exceed expectations for the most part.

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