“We’ll get through this,” Randy Blach told the crowd at the 2009 CattleFax Outlook Conference, “and those who do a better job of managing their risk will get through a little better than the rest of us.”
Blach, executive vice president for CattleFax, and a group of analysts described tough times and future opportunities during the conference and in a stocker-specific Cattlemen’s College session at the Beef Industry Convention in
Producers who manage risk and protect their equity can position themselves to capitalize on higher prices down the road.
CattleFax analysts project that some profitability will return to the cattle-feeding sector later this year and excess feeding capacity will continue to support demand for feeder cattle. The stocker segment will generally have positive returns for 2009, although profits will lag behind those of the past few years.
Corn prices have declined considerably since last summer’s highs, and CattleFax projects 2009 spot corn futures prices to trade in a range of $3.25 to $4.85. That’s an average about $3.90 per bushel, down 26 percent from last year’s average of $5.27. Lower corn prices generally suggest higher values for calves and feeder cattle. CattleFax analysts note, however, that a different trend has emerged in recent months. Declining corn prices have, since last summer, correlated with lower fed-cattle prices, and the “back end” of the live-cattle futures market has become a key driver of feeder-cattle values.
Those deferred futures relate to projected margins for cattle placed in feedyards, and when the back end of the market offered big premiums during late 2007 and early 2008, feeder prices benefited.
CattleFax expects that premiums in deferred live-cattle futures over cash will be smaller this year, which will limit prices feedyards pay for replacement cattle. Stocker operators, the analysts say, should watch the trends in deferred live-cattle, corn futures, and basis, and take advantage of premiums at the back end of the market to hedge or forward-price cattle.