Brink sees unique time for opportunity
Greeley, Colo. – Tom Brink told nearly 100 beef producers that the cattle industry is in a unique time, and this could be one of the best times cow/calf producers have seen in the last 20 to 25, or maybe even 50, years.
“Cattle supplies are very tight, and cattle numbers and beef production continue to decline,” he said. “Prices are record high for all classes of beef.”
Brink, who is the founder of Brink Consulting and Trading of Brighton, Colo., spoke during Beef Day, held Jan. 28, at the Colorado Farm Show.
Brink said the beef industry is going to be testing consumer demand because cattle prices are pushing retail beef prices even higher.
“We are going to test where demand is at and find out where consumer resistance starts,” he said. “The supply is shrinking, but demand continues to increase. I consider demand the total number of dollars consumers spend on beef.”
There is volatility in the cattle futures market, good profitability in the cow/calf sector and good profitability for at least the first half of 2014 for the feeding sector.
“I think we will see, above cash costs, profits the next few years of $300 to $600 per cow,” Brink stated. “If Mother Nature cooperates, we get some rain, and feed prices continue to come down, this could be a one-in-50-year situation,” he stated.
“The calf market is not done going up,” he continued.
The industry hasn’t reached the point yet where heifers are being pulled out of the feedlot to be retained as replacements. When that starts happening in the next year or two, the beef supply will tighten even more, driving prices higher, he said.
Brink feels it is a good time for producers to build and invest in their operations through infrastructure and genetics.
“It is also a good time to get the younger generation started in the business. We have a golden opportunity to do this, so we still have an industry 20 years from now,” he told producers. “It is a great time for younger people to buy cows. They should try to build some equity as quickly as possible and get established in the industry.”
Brink would like to see young people get excited about the cattle business.
“I think there is the profitability there for that to happen,” he noted.
With all the good things happening in the industry, there are also risks.
Brink said feedlots and packing plants have excess capacity.
In 2000, feeding capacity and the number of feedlot cattle available were evenly matched up. But, in 2008, feedlot capacity grew, and feedlot cattle numbers declined resulting in a 20 percent excess of feedlot capacity. By 2013, that number had grown to 22 percent.
Brink estimates that 22 percent amounts to six million head of feeder cattle.
“It would take 600 feedyards with10,000 head capacity going out of business to bring feedlot capacity and feeder cattle numbers together,” he explained.
Instead, many feedyards around the country are half-sizing their operations.
If they fed 30,000 head before, they are feeding 15,000 head now, he said. Other feedyards are closing their doors, especially the smaller ones. Brink said the most vulnerable area may be in Texas because of the drought, severe reduction in cattle numbers, feeder supply and the water situation from Amarillo south.
However, no area is immune, Brink warned.
“It affects every state where we feed cattle,” he said. “Some areas have just been hit harder than others. When the numbers come back together, we will see a little less demand pull on calf price.”
These issues keep the cattle market quite volatile.
“When the Plainview Cargill plant closed, it was a shock to the market and prices went down,” Brink said. “That didn’t mean they wouldn’t recover later. During the next two years, there will be more packing plants that will be forced to close.”
Brink expects some of those to be mixed plants in the Midwest that process both cows and fed cattle, modest plants and free-standing cow packing plants.
“Cow slaughter numbers are dropping and will continue to drop,” he explained.
“These droughts and how they have affected cow herd numbers have caused us to lose some infrastructure, and we’re to the point where we can’t stop it,” Brink added.