Originally from: lina
                        
Turn out the lights the party's over

By: Paul Hitch
Hitch Enterprises, Inc.

What story can compare to the wild ride the cattle
market has been during the past few weeks? This has
just been spectacular. No one knows what to make of
it. It sort of reminds me of what the old
cartographers would put on their maps when they came
to the edge of the known world – "Here be dragons."
What we had was a runaway bull market. While it was
fun for the sellers, it was also exciting and a bit
dangerous. When you get into uncharted territory as we
did, you don't know exactly what you'll find. Might be
dragons. Might be angels. No one knows.

Now, the cattle sellers have been making tons of money
on the cattle sold recently, and they deserve it. They
lost tons of money in the preceding 18 months or so.
What is interesting is that the packer also made tons
of money during the same time period. Good for them.
You can't sell very well to someone who is losing
money. However, I predict that the party is over, at
least for awhile.

It needs to be over for awhile. We sold cattle for
$1.10 per pound. I know of other cattle that brought
more, up north. It would be nice to contemplate
markets that go up and up forever, and never come
down, but that is not reality. The reality is that
consumers are going to sharply scale back their
purchases of beef when these very high cattle prices
get fully priced into the retail counter.

Now, we in the cattle industry have spent years
rebuilding the demand for beef. That demand is one
reason the market has stayed so good for so long. But
we can lose the demand quickly if the public feels it
is being gouged at the counter. Here be dragons. At
any rate, I don't believe we can sustain a market over
$1.00 per pound on fat cattle because I don't believe
the public will continue to purchase the beef in
sufficient quantities at those resulting prices. That,
however, does not mean that prices for cattle have to
go into the tank.

The renewed demand is real. We will probably establish
a new trading range for fat cattle, now that we've bro
ken out of the old one. For years, fat cattle traded
mostly between $60 and $75 per cwt, with occasional
trips above $80 and slippages into the mid $50s. If we
cattle sellers can maintain some market discipline,
and the demand continues to improve, we can move the
trading range up a notch. How about, say, trading
cattle mostly between $75 and $90, with an occasional
trip up to $95, or down to $70. It could happen, and
it should happen. Here be angels.

Someone is going to probably be left holding a heavy
bag in this deal. The possibilities are endless. The
retailer could end up with meat he sells at a loss. Or
the packer could face the same problem. And these
recently placed feeder cattle! We're talking mid 80s
just to hold your money together!

So, the times when everyone makes a profit are an
aberration. I can guarantee you that won't last.
Perhaps when enough packers or cattle owners get
whipped around often, we can get to a more rational
way of valuing and pricing finished cattle. That's my
hope. I'm tired of feast followed by famine, followed
(hopefully) by more feast. It's hard for anyone to
build and sustain a demand for a product that goes up
and down in price like cattle (and beef) have done.

My hope would be to move the pricing point for cattle
closer to the retail counter. The best place would be
to move it all the way to retail. A good intermediate
stopping point would be pricing cattle off the beef
cutout values, but ultimately, we should price cattle
based on what beef sells for at the retail counter.
The money paid at retail is the money that the
retailer, packer, feeder and rancher have to live on.
It makes all kinds of sense to price live cattle based
on what that meat sells for, because it gives me the
incentive to produce the kind of cattle that makes the
beef that sells for a premium, rather than meat that
must be discounted to move it.

The USDA is beginning to get some good data from
retailers based on the scanner data collected as
people bu y their products. This is better information
than the surveys they did previously, because volume
is included, as well as price. You will probably see
the published retail prices go down because of that
volume weighting of the data. After all, you do sell
more product when you lower the price. But the data
would be more accurate. I can live with that.

But (I can almost hear some of you shouting) if we had
had that sort of system to price cattle recently, we
wouldn't have gotten $1.10 per lb. for our cattle. I
must concede that is true. And it is fun to make $300
per head profits. What I want is to get off the
rollercoaster, or at least get on a milder version. I
would rather make $40 to $50 per head profit for 10
years than make $300 profits for 2 months. I know a
lot of cattlemen don't agree with me on that, because
it is less thrilling than the big rollercoaster. To
each his own. All I've got to do is find a packer
and/or a retailer to agree with me, and we'll find a
way to consistently produce a quality product and all
make a bit of profit doing it. 'Nuff said.

The Hundred Year Euphoria – They say that each hundred
years brings about huge changes. Well, we may be in
for some interesting times. At about 1800 or so, from
the original 13 colonies we launched one of the
greatest migrations in history. Millions of people
came from all over (but mostly from Europe) and
populated millions of square miles west of the Ohio
River. They came, they saw, they settled and began to
grow things. Then gold was discovered and they moved
on again. Many times whole communities were set up and
running before the federal government even knew they
were there.

And we somehow pulled these different places peopled
by millions of folks, many of whom didn't even speak
English as a native language, into a coherent whole
with a shared purpose. We codified a private property
system out of a bunch of competing squatters' claims
and made that system, and the attendant prosperity
that followed the envy of the world. Than came 1900.

The beginning of the 20th century saw the end of the
frontier in the lower 48 states, and the end of the
horse as a primary means of transportation. We rapidly
went from an agrarian society that plowed with mules
to an urban society in which someone else plowed with
a tractor. Cities grew and we fought two World Wars.
We went from horses on one end of the century to a
space station on the other. Here we are at the
beginning of a new century.

Well, we have some wonderful political theater to
start things off. Arnold is governor of California,
and who predicted that. And our neighbors in Texas
have been behaving like spoiled brats over a
redistricting proposal where the Republicans are
greedy and the Democrats are children. Cattle prices
are at all time highs when a few months ago we were
going broke. Genetic engineering is remaking crop
production, and will continue to do so, in spite of
the Luddites in Europe who, one presumes, would prefer
we still farm with mules. It isn't politically correct
to genetically engineer animals, but I'd bet that
somewhere way back in the lab where no one can see
him, some frizzy haired scientist is tampering with
the genes of a chicken (they are only one step above a
plant in complexity) to get one that is all breast and
has no wings at all. They'll call it the Pamela
Anderson version. These are going to be exciting
times, and every bit of progress will be derided,
ridiculed and tampered with by some misguided soul who
feels that the past was perfect and the future is
terrifying.

Frankly, I can look at the past and remember when my
knees didn't hurt and my belly was flat, and think
that maybe it was better. Then I remember people being
crippled (as my father-in-law was) or dying of polio,
or heating their homes by burning cow chips, as my
grandfather did, and thinking that maybe I'd better
stop looking back, or the future will run over me.
It's going to be scary and exhilarating out t here in
the future, and it's sure going to be different. I
plan to experience as much of it as I can as I go. I
also am comforted by the thought that there are
billions of people out there, and they all want to
eat. Indeed, have to eat. I plan to feed them, and get
paid for doing so.

Anyone care to join me?
Paul Hitch
PO Box 1308
309 Northridge Circle Dr.
Guymon, OK 73942
Phone: (580) 338–8575
FAX: (580) 338–0132
Email:
URL: http://www.hitchok.com/

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