Randy Blach, CEO of CattleFax, took the time to meet with the CRMER Risk Management Fellows on the morning of Thursday, March 12. Although several risk management fellows were forced to miss the presentation due to pre-Spring Break midterms, those present engaged in an exciting discussion of future trends in the cattle market. Blach explained the role of CattleFax in the beef industry; provided a cattle market outlook; and left the group with some words of wisdom.
CattleFax serves as an industry leader in market analysis through a vast array of market data and information on the beef industry that dates back several decades. Through their massive data collection and expert analysts, CattleFax provides its members with market reports and forecasts to help them make critical management decisions. Blach emphasized that without over-regulation, the market provides clear signals that make forecasting possible. In Blach’s words, “markets are more predictable than ever because we have more data than ever.” Cattlefax translates this data into meaningful, easy to understand reports that members can act upon.
Anybody following the beef industry knows that 2014 was a record setting year in terms of prices and profit margins for much of the cow/calf and cattle feeding sectors of the industry. However, the higher the market rises, the higher the risk in prices swings. Thus, a sound risk management strategy is crucial, even in the good times.
Cattlefax and many other market analysts now believe that we saw prices peak at the end of 2014. Several factors play into that conclusion. Last year, the markets were out of alignment with normal profit margins and now they are beginning to normalize. Blach also emphasized that markets are beasts of momentum. The cattle market used up its powerful momentum last fall, forcing the market into what Blach describes as a contraseasonal market. In this contraseasonal market, no spring rally is expected. However, Cattlefax believes that increased supply this summer will cause a shift in leverage in favor of packers. This will return the market to its seasonal trends.
Blach also expressed concern over the impact that Avian Influenza may have on the cattle market. As Blach put it, “Markets hate uncertainty.” If the loss of poultry export markets leaves an over-supply of domestically available poultry, the decrease in price of poultry to the U.S. consumer could decrease the domestic demand for beef.
Blach urges that everyone involved in the industry form a disciplined process for making market decisions. Several factors that should be included in this process are supply/demand trends; seasonality; money flow; spreads; and basis. He made it clear to never overlook basis, because that’s what is actually being traded. When looking at seasonality, he rationalized repeating market trends as a result of people repeating themselves in management and practice.
Finally, the Risk Management Fellows were left with some words of advice regarding the development of a good relationship with your banker; because the value of credit in the longevity of a business should never be underestimated. Stepping away from financial advice, Blach urged students to always keep improving their communication skills.
Perhaps most importantly, Blach stressed that in order to reach their full potential people must be teachable, accountable, and willing to bury their ego, regardless of the success they’ve experienced.
Thanks to Randy Blach and Cattlefax for all that they do to support the CRMER and its student fellows.