Blach sees changes in market fundamentals looking forward
Torrington – Recently, CattleFax’s Randy Blach said the ag economy has overall done well.
“We know the farm economy was excellent from 2008-13, about as good as it gets,” he said. “In the livestock economy, we’ve come off the highs that we had, but we’ve had some consistent profitability year after year in the last several years.”
Blach emphasized, “I think we’re still going to see that profitability. Are we going to $2.50 calves? No. It’s not going to happen.”
While Blach reminisced on the high prices of several years back, he added, “I think prices got too high, too fast, and we killed it, just like happened on the pork side when we took hogs to $1.30.”
During the 2018 Wyoming Agricultural Bankers Conference, held in Torrington May 16-17, Blach provided an overview of things that will impact the ag industry this summer.
Markets
Three weeks ago, August feeders traded at $1.49, said Blach, adding, “This morning, May 17, they’re trading at $1.38. That’s a pretty big move in a short period of time.”
Cash markets have also dropped from $1.20 to $1.12 in two weeks’ time.
“We just went through a $12 move in two weeks’ time,” he said. “In the last several years, the normal move for markets have been $12 to $15. This is a common move in a two- to three-week period coming off a high and going to a low.”
Historically, Blach said the average move was $12 during the course of the year. Today, it’s typical over a two-week period.
“If we think we can do business the same way we did in the 80s, we’re not going to get our customers through this,” he said.
“The number one thing we need to be watching in the corn market is where are the funds,” Blach said.
On Jan. 1, 2018, the commodity funds had the largest short position in the history of the market, but by March 1, the funds had the third-largest long position in history.
“It was just the way the money moves in these markets,” he explained. “Coming into this week, the funds had the second largest short position on feeder cattle in history.”
The reason is because of policy, trade and uncertainty around the North American Free Trade Agreement, Farm Bill and Trans-Pacific Partnership.
“One of the biggest concerns we have is if we lose these trade deals,” he noted. “Loss of access to export markets today drops the value of our calves by $335 a head. Today, calves are bringing $1.60 to $1.70. If we lost export markets, they’d only be bringing a dollar.”
Blach emphasized, “We have to understand how these things come together and how they’re connected.”
Weather
Another factor impact ing calf prices is weather. Art Douglas of CattleFax accurately forecasted the weather over the winter of 2017-18, noting that precipitation in the Southern Plains would be extremely limited.
“The northern half of the country is in great shape,” Blach said. “We’re not worried about drought because we think we’re going to get some relief in our dry areas.”
“The bottom line is, we think they’re going to catch some moisture soon,” he commented.
For June, July and August, the West should expect some warm temperatures, but drought won’t likely develop through much of that same area because of precipitation.
“These areas are going to be in good shape,” Blach said. “Yes, we have areas that will dry out, but that’s pretty normal. Art says we’re going to be back and forth between a weak La Niña and weak El Niño.”
Crop planting
While crop forecasts have showed that farmers intend to plan fewer corn acres this year, Blach said CattleFax believes the impact won’t be as severe as many expect.
“We think we’ll be down about 1 million acres this year,” he noted. “The crop isn’t going to be big, but it’s still going to be adequate. We don’t think we’ll have any real issues.”
Rather than a 15 percent stocks-to-use ratio, Blach told lenders to expect a 12 percent ratio.
“A one percent stocks to use ratio is worth about eight cents,” he explained. “When it’s all said and done, we’re going to end up with corn averaging 12 to 15 cents a bushel higher for corn in the next 12 months than the last 24 months because the stocks number is lower.”
“Grain prices are overall going to be a little bit higher,” Blach said. “We’ve seen the long-term lows.”
Overall, Blach said, “The cost of business is going to continue to get higher.”
Saige Albert is managing editor of the Wyoming Livestock Roundup. Send comments on this article to saige@wylr.net.