Export markets, expanded access critical says CattleFax CEO
By: Katrina Huffstutler
More inventory and bigger cattle mean two things: Fewer imports and an increased importance of exports. That was one of the big stories out of CattleFax CEO Randy Blach’s presentation at the Texas Cattle Feeders Association Convention in San Antonio Nov. 3.
He says 2 million cows have joined the nation’s inventory over the last two years. Additionally, incentives to make feeders big will “continue to be a risk going forward.”
“Let’s be honest with each other,” Blach says, “It is very, very important that we are able to grow these exports and get back to where we are exporting 3 million pounds and not 2.5 million pounds.”
“We must stay focused on getting trade agreements done and getting expanded access. It’s critically important to us as we look at the growth and production we are going to have across all of the meat segments,” he adds.
One of Blach’s slides offered a big dose of perspective.
It showed all of the protein the U.S. exports into key markets: Mexico, Japan, Canada, South Korea and Greater China. At the top of the list is Mexico, to which the U.S. exports 3.8 billion pounds per year, or 30 pounds per person per year. To Canada, it’s 36 pounds per person and Japan gets 15 pounds per person. Combined, Mexico and Canada get 30 to 33 percent of our beef exports.
“But then look at Greater China,” Blach says. “1.4 pounds per person. How much difference would it make if we had expanded access to China? Would that start to change things? Obviously we are going through the grey market there, but that would be a bigger deal. Those are things that start to open up channels that can have an impact on these markets. Keep that in mind as we look down the road and be watching for some movement in some of those areas.”
Also important to trade is the subject of currency values around the world.
Blach points out the places we ship our product to have had a 15 to 20 percent reduction in purchasing power.
“When you think about the export volume we have across the U.S. — and these countries are getting that kind of a haircut because of the loss value of their currency, are they going to buy as much quantity? Absolutely not,” he says.
Here in the U.S., though, the dollar is strong. Blach says the economy continues to do well and he sees a low risk of recession in the next 12 to 18 months.
One indicator the CattleFax team watches closely is the Bloomberg® Consumer Comfort Index.™ The index tracks the public’s economic attitudes each week, assuming that if consumers feel good, they’ll be spending more money and vice versa.
Blach says compared to 2014, consumers feel better and are now spending money. “It looks pretty positive.”
For 2016, Blach’s key take-home projections were:
• El Nino will likely mean a very wet three- to four- months in cattle feeding country. “Obviously that could take a lot of tonnage off these cattle.”
• We’re starting to see some improved traction on variety meats, which will help tremendously. Exports will likely be up 3 to 4 percent next year.
• There will be more of everything in 2016 — beef, pork and poultry increases ahead.
• $200-$220 calves will be the norm from 2016 to 2017.
• 2016 corn prices will remain steady from where they’ve been over the last 12 to 18 months.
• Fewer hogs in China, the top market for bean exports, means softer prices. Blach doesn’t think beans have bottomed out yet.
• Input costs shouldn’t change much over the next year.
• Blach expects us to be up 700 to 800 million pounds in 2016. Most of that will come from mid-summer on.
• The cash market will probably spend a lot of time between $140 and $150 over the next six months.
Blach says he expects a lot of time “chopping a lot of wood” as the market finds its true value.
“These extremes that we have been going through, everybody is tired of them, aren’t they? Up and down the channels. Nobody knows what to do when you have markets moving $5 and $10 a hundred a week. Everybody sits on their advantages.”
He says hopefully we will start to see a little bit of stability come back and those markets should recover some additionally as we move on into the first quarter of the year.
“Put this in perspective: We just came through the most profitable run in the history of our business,” Blach says. “We made 5.5 billion in the fourth quarter of 2013 through 2014. If you will look at where the futures are, right now through the end of the year, we will have given back 4.1 billion of it this year. That is the way it tends to happen every cycle. I have been doing this about 35 years and after every major cycle I have seen, we have given back nearly all of the profits in the first 12 to 18 months after a cycle. This one doesn’t look like it is going to be any different.”