I sat in the sale barn this week and watched a rancher sell his entire calf crop, minus replacements. After commission, he averaged more than $1,200/head on steers and heifers – odds and ends included! It was a historic day; there were a lot of smiles, but also a lot of concern about whether such prices are justified and whether we will price ourselves out of the market.
Those are valid questions, as market share lost is always harder to regain. However, if we consider all price concerns over the next 3-5 years, I think outside disturbances and/or overall macroeconomic concerns are the most likely dangers facing our market. Demand is the key, not price.
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As price goes up, we sell less product. As price goes down, we sell more product. As long as the demand curve doesn’t change, supply determines price. If we’re concerned about pricing ourselves out of the market, the focus should be on increasing numbers.
Right now, the market is sending the signal that the industry contraction wasn’t driven solely by demand and the advent of ethanol. That’s good news. But that doesn’t mean one can’t complain about the record prices when looking to buy bred cows; after all, that is human nature.
All in all, as a cow-calf producer, I like the idea of dealing with prices that are too high rather than prices that are too low. History tells us that those days will come around again. We’ve proven over and over again that if you give the American farmer or rancher the incentive, he’ll eventually out-produce the market.
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