Do high prices equal high profits?

August 29, 2011

If I had to sum up the Feeding Quality Forums we co-hosted last week in a short phrase, it would be, “So much good information.”

I enjoyed all the presentations, and as I’m listening to them I’m always trying to pick out the most useful take home messages for producers. As I discussed the content with my family, market analyst Dan Basse’s came up a lot.

He and his cohorts at AgResource Co. are predicting fed-cattle prices to reach $130 to $135 early next year.

To outsiders that might sound like everything is roses in this business, but insiders know better. Still, it’s easy to get starry-eyed when talking record highs and dollar signs in the same breath.

So today’s post is somewhat cautionary.

Myth—High beef prices=guaranteed profit for cattlemen and women.

Fact—High beef prices=hopefully enough money to cover all the rising input prices.

No matter what segment of the business you’re in, there are a number of factors that will affect your business. From corn and forage prices to weather and beef demand. Basse really stressed the fact that those who are prepared stand the best chance in this business.

Here’s an excerpt from the last few minutes of his presentation:

“We think cash cattle prices could reach record highs in the first quarter of 2012 at $130 to $135, but only those of you that had a vision on feed will make money or hold onto your balance sheet equity. Feed is that important this year, both in terms of forage and grain.

For those of you who are good managers you will be able to go through this year and manage it,but for those of you that aren’t there is going to be consolidation reduction in the U.S. cow herd. U.S. beef export trade will surpass 2003 pre-BSE levels. ‘Margin,margin, margin’ is the new mantra if it hasn’t been for the feedlots.

My point is that feed grain prices stay high, U.S. economy muddles along, world economy is a big concern in Europe and my big issue that I have is making sure you have feed costs put in so that you can somehow see the promised land of record high beef prices in 2012.”

The way I see it, the point for cow-calf producers is feedlots need efficient cattle. They need ones that can do it all. And they need more of them.

Feedlots that have built relationships with customers will have better luck keeping their pens full of cattle, and the right kind at that. They need to contract corn and manage risk.

Everybody needs to focus on inputs and everybody needs to keep an eye on carcass quality. That will spur domestic demand, keep exporters asking for more and keep folks buying beef no matter what price it’s trading at.

That’s a way to ensure record beef prices correlate with record profits, too.

May your bottom line be filled with black ink,

~Miranda

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