CATTLEFAX TRENDS
RETAINED OWNERSHIP
Risks & Rewards
The IBBA is proud to bring you the CattleFax Trends Publication that is sponsored by Ritchie Industries. Look for this article each month in the Brangus Journal and Frontline. If you would like to learn more about CattleFax, please go to www.cattlefax.com. Bargaining power has a significant influence on price levels in commodity markets, especially when transactions occur between multiple, independent segments within an industry that produces a single product for consumers. Bargaining power shifts between sectors of the beef industry depending on the different phases of the cattle cycle. After the drought that occurred early in the last decade, cow-calf producers clearly had the upper-hand over backgrounders/ stockers and feedyards. During the early stages of expansion, the supply was not large enough to meet the demand to fill yards or grazing programs. Over the last few years leverage has shifted back to calf buyers as supply grew. Even though producers liquidated 375,000 beef cows from 2019 to 2020, bargaining power will still favor buyers over sellers this year. Also, given the current price outlook, additional liquidation will likely occur in 2020 causing more heifer calves to be marketed. One strategy cow-calf producers have utilized in recent years to combat or avoid the poor leverage position altogether, is retaining ownership. Another reason producers might consider retaining ownership are the events that have taken place this year, with the uncertainty from COVID-19. While the impact COVID-19 has had on beef demand is difficult to quantify due to the major supply chain disruptions, it is likely consumer demand was hurt but will improve as the country returns to a more normal environment and recovers economically. This should be supportive to cattle prices and
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August 2020
give them a reason to rebound in the future, assuming no more black swan events adversely affect the markets. The exact timing and magnitude of the recovery is still to be determined. However, retaining ownership will buy producers more time and potentially increase profitability. There are a multitude of directions a producer can go with their calves if the decision is made to own them longer. While there will be some variation around the number of days and target weights, the accompanying diagram displays some of the different options for producers. Assuming calves are not sent straight to a feedyard, retaining ownership gives producers a lot of flexibility when it comes to marketing windows to improve the chance of profitability. For example, the plan is to background calves for 150 days with the intent of sending them to a feedyard after. However, when it’s time to ship to the feedyard the market plunges and a recovery is not expected for at least another several months. Then those calves could be turned out to grass to stretch the marketing period out. This could be done assuming there is available forage. Retaining ownership is a challenge, and not for everyone. Delaying cash flow from this year’s calf crop may not be financially feasible. Also, just like everything else in the cattle business, there are risks associated with owning cattle longer. The example that was just discussed assumed Mother Nature provided ample precipitation for optimal grazing. Right (continued on page 18)
