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Among The Market Gyrations, Opportunity Lurks

Article-Among The Market Gyrations, Opportunity Lurks

For the Chinese, 2008 was the year of the rat. For the average U.S. cattle feeder, it will be remembered

For the Chinese, 2008 was the year of the rat. For the average U.S. cattle feeder, it will be remembered as a year of…well, maybe it’s best not to go there. Suffice it to say that cattle feeders won’t look back on 2008 with much fondness as they recall those 12 months of among the worst, if not the worst ever, periods of sustained and significant losses.

And what about 2009? In the Chinese calendar, it is the year of the ox. A good omen perhaps, at least for cattle feeders, as any number of crystal balls prognosticate a better year for the profit side of the ledger.

That will mainly come about, says Bill Mies, from an ability to better predict and manage costs. “I think the opportunity we have here is to be able to lock in some of our input costs. That will allow us to be able to manage risk as we go through ’09.”

Mies, a past feedyard manager, college professor and now an industry consultant, says the real problems cattle feeders had in ’08 were not necessarily due to the price they sold their fed cattle for. In fact, cash prices in ’08 were, on the surface at least, very strong on average.

“The real problems we suffered in ’08 were from the uncertainty of market movement. Corn doubling in price, fuel more than doubling in price, fertilizer tripling or quadrupling, all those things,” he says.

Those input costs, of course, have done an abrupt and savage about-face, with feed and fuel both near historic lows. Mies says there is a window of opportunity for feed yards to lock in corn costs for a number of months ahead of them.

“That will allow us to have a more stable platform on which to purchase feeder cattle. That will allow us to do more risk management in terms of fed cattle into the packer, and that facilitates placements and a steady supply of cattle.”

While Mies would like to think that cattle feeders will take the profit opportunities handed them in ’09 and heal up a little, he’s been around the industry long enough to know better than that.

“As I’ve watched the market up and down all these years, our modus operandi has been to be cautious at first, then when the competitive bidding warms up, try to get those strings of cattle we really want.”

Given that, he says feeder cattle prices will be steady to strong in ’09. “I don’t think they’re going back up to the historic highs. Input costs will keep them down. But I think (cow-calf producers) will have a willing buyer when they get ready to sell the cattle off the ranch.”

And with corn hovering between $3 and $4 and likely to stay there for the moment at least, Mies says there will be less pressure to put grass gain on calves. “As we look at breakevens, we don’t have to push 850- to 900-lb. steers into the feedyard. We can go back and look at 550 to 6 weights and make some sense out of them for a little longer-term fed cattle.”

Another optimistic glimmer arising from the economic ashes is demand, both globally and domestically. “I think the world will continue to use our product,” he says. Perhaps not as aggressively as in the past, given the strength of the dollar, “but we’ll certainly sell a lot of export product.”

Likewise, he thinks domestic demand will remain steady. Mies has been a player in the modern cattle-feeding game since its early years and has seen his share of economic downturns. Through those fluctuations, the beef industry doesn’t suffer like other segments, he says.

“By that, I mean that people, when you restrict their income and cut back on their earning power and they can’t go buy the new car or trade up to a newer house, they treat themselves by eating really well at home. So I think we’ll see retail sales probably gain on the away-from-home beef sales,” he explains.

That will allow consumption to stay about where it is, he believes. “Consumers will have made adjustments in several other places in their lifestyle and (beef consumption) is the last place they’ll make an adjustment. They will resist that and, in fact, will treat themselves a little better to compensate for some of the other things they’ve done. To me, that gives us a lot of hope going into 2009.”