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"In my opinion, all three charts in this column are poised to move substantially higher in the years ahead, just like they did in the early 1970s, in the late 1930s and 1940s, and in the late 1910s.  That’s right—it looks like a 30-year cycle and we’re due!"


Cattle Market
Published September 30, 2003

Rushing to Sell Before the Price Increases
       Record highs are motivating cattlemen to rush to the sale barns to dump their calves.  Should they?
       My wife and I raise and market grass-fed beef.  Because we sell more beef than we can raise, we buy grass-fed steers and heifers from other cattlemen.  As our business grows, we’ll need an ever larger supply of 100%, genuine, grass-fed cattle.  Our pricing schedule for beef hanging on the rail is structured to pay producers to keep their critters on grass and nothing but grass and market them at 1,000 pounds or more.  The current “high” market for feeders and fats is no exception.  When fats are $90 a hundred, we pay $1.74 per pound hanging weight for grass-fat, 1,000- to 1,200-pound steers and heifers!
       But what if the market falls?
Times Change and Markets Cycle
       Concern for a market reversal is why most folks don’t want to keep their calves.  The cattle market has been so bad for so long folks can only imagine bad times and more bad times.  Well, times do change and markets do cycle.
       Unbeknownst to most producers, educators, feeders, processors, and editors of livestock publications, the cattle market cycles right along with commodities generally.  This means they don’t see the Big Picture.  So let’s examine the Big Picture.  Commencing in 1971, the constant-dollar CRB Commodity Price Index increased dynamically until its climatic peak in 1974.  Even though the index continued to increase in nominal dollars until 1980, in constant dollars it started falling in 1974 and continued to fall until it bottomed out in 2001.  By then, in constant dollars commodity prices had collapsed 80%!  That is what market technicians (chartists) call a secular bear market.


       On the flip side of secular bear markets there are secular bull markets.  After falling 80% commodities ended up undervalued relative to all other things.  In fact, they’re lower than at any time in the past century.  Therefore, the recent bottom will probably stand the test of time.  So far commodity prices have increased modestly, but the increase has been relentless.  Now we are seeing breakouts in various commodities, and the cattle complex is one of them.  Study the three constant-dollar charts:  the CRB Commodity Index, Live Cattle, and Feeders.  (I used constant-dollar charts because our government is continuously debasing our currency to make us feel richer.  The constant-dollar charts compensate for price inflation.)
       As you can see, the constant-dollar price of cattle virtually mirrors that of commodities generally, and both are very depressed.  Because commodity prices, including cattle prices, appear to be reversing their decades-long downtrends, producers should be very excited because prices may continue up for several years!
Cattle Prices Are Due for a Big Run
       In my opinion, all three charts in this column are poised to move substantially higher in the years ahead, just like they did in the early 1970s, in the late 1930s and 1940s, and in the late 1910s.  That’s right—it looks like a 30-year cycle and we’re due!


       The secular bull market in commodities has little to do with supply and demand.  It has everything to do with relative values.  After falling in value for over a quarter century, commodity values relative to all other things are simply too cheap, especially compared with finished goods, stocks, bonds, and paper money.  So they’re poised to spring back, and eventually that’s what they’ll do.  And before they’re through, if history is any guide, they’ll get too high.
       Cattle are commodities, just like gold, oil, and wheat.  With the nominal dollar cattle price breaking out into all-time new high ground, the cattle complex is signaling that it has launched a secular bull market.  For the next few years, cattle prices are poised to move higher.  If that is true, then holding on to productive cows and growing cattle will in most cases pay a double bonus.  Selling barren cows, old bulls, fat steers and heifers that are grass-fed can bring home a third bonus.
       Here’s the economics for selling a grass-fed steer or heifer on the rail versus selling 750-pound calves on today’s market.
       For the past 25 years the price of 750-pound Feeder Cattle has averaged 10% more than the price of Live Cattle.  If Live Cattle are $0.90 per pound, theoretically Feeders are $0.99 per pound.  Let’s assume our grass-fed finished critter will weigh 1,150 pounds.  We know Feeders weigh 750 pounds.  At $0.99 our Feeder’s theoretical value is $742.50 before subtracting commission, yardage, and insurance.  When we keep our Feeder on pasture it will grow about 1.5 pounds per day.  Therefore, it will take 267 days to put 400 pounds on a Feeder.
       The average weight from Feeder to Grass-Fed Fat is 950 pounds.  The critter eats 3% of its body weight per day of grass, which is 28.5 pounds.  Over 267 days it will eat 7,610 pounds of grass.  Assume grass in the pasture costs 1.5 cents per pound.  The value of the grass consumed is $114.15.  Let’s add a management/risk fee of $20 per critter.  Consequently, our retained Feeder must add a value of $134.15 for us to break even with selling now.
Retaining Feeder Provides 21% Gain
       When we sell our grass-fed steer let’s assume the hanging weight percentage of live weight is 52.5%.  Therefore, our 1,150-pound steer will hang at 604 pounds.  At $1.74 per pound that’s $1,051.  This example provides a 21% gain on our investment for retaining the Feeder another 267 days.
       Obviously, how your cattle hang on the rail affects your rate of return.  How efficient you are with your pastures also comes into play.  In any case, these numbers are real and indicate a substantial advantage to retaining feeders.  In addition, the long-term constant-dollar charts indicate that the bull market in cattle is very young.  The upside potential is tremendous.  The advantage today lies in holding onto cattle and in raising grass-fed beef for the American consumer.  It’s better for them.  It’s better for you.


Copyright 2003, Slanker Productions, Powderly, Texas
Ted E. Slanker, Jr., bulls@slanker.com
R.R. 2, Box 175, Powderly, Texas 75473-9740
903-732-4653 Ofc, 903-732-4151 Fax