Market And Industry Trends In The Beef Business - University Of Florida

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Market and Industry Trends in the Beef Business Trey Warnock Amarillo Brokerage Company, LLC Amarillo, TX

Today’s Beef (Feeding) Industry Things are changing huge understatement Fundamental developments Supply/demand Basis Leverage pen space versus kill capacity Outside influences hugely diverse Money flow Interest rates Leverage equity Post-weaning sector is crowded multiple business models Corporate Private Investor Farmer Guy that won’t put his hand down Industry Overview Quality Grading Fed Cattle Marketing Feedlot Ownership Shifts What will my calves bring?

Source: USDA

Source: USDA

Source: USDA

Source: USDA

Source: USDA

So what? Fed cattle basis loss of leverage Out front/forward sales smaller Early Apr 2018 versus Apr 2019 102.50 vs 120.50 Winter weather and cattle performance losses Seasonally increasing supplies into the summer Need to remain current keeps all sectors supported

Beef Grading

Advancing Quality Grade Source: MP Agrilytics, LLC

Source: USDA

Source: USDA

Source: USDA

Why? Improved genetic composition of cow herd (bulls) Changes in instrument grading Revisions in utilization of bone ossification for determining carcass maturity for cattle 30 months Age documentation and dentition Changes in grid performance and premiums Yields Dressing % Weights Plant Averages

Fed Cattle Marketings

How we sell fed cattle Marketing methods has changed materially Reasons for the change Efficiency Relationships Synergies fed cattle sales, beef sales, feeder sales Source: USDA

Source: USDA

Source: USDA

Source: USDA

Source: USDA

Source: USDA

What does this mean? The transition from negotiated trade has long been a point of contention within the beef industry Current lawsuit The cattle and beef markets are both trending further in this direction how will the cow/calf sector behave? Transparency does not have to suffer as a result Negotiating something is better than negotiating nothing at all

Feedyards – Recent Changes

Top 20 Feedyards Rank Feedyard Rank Feedyard 1 Five Rivers Cattle Feeding, LLC 11 Cattle Empire, LLC 2 Cactus Feeders 12 Tejas Feeding Group 3 Friona Industries, LP 13 Pinal Feeding Co. 4 Irsik & Doll Feed Services, Inc. 14 Harris Feeding Co. 5 Green Plains Cattle Company, LLC 15 Adams Land & Cattle, LLC 6 Foote Cattle Co. 16 Dinklage Feed Yard, Inc. 7 JR Simplot Co. 17 Bar-G Feedyard 8 Oppliger Feedyard, Inc. 18 Barrett-Crowfoot, Inc. 9 Innovative Livestock Services, Inc. 19 Agri Beef Co. 10 Gottsch Cattle Co. 20 Hitch Enterprises, Inc. Source: NCBA

Changes in feedyard sector Largest packers divest themselves of cattle feeding Cattle feeding entities acquired by managed money/publicly traded companies The top end of the feedyards get larger through acquisitions of smaller private and corporate yards Large private yards increased size by adding bunk space Ag entities feeding cattle in a large way for the first time Losing some of the old guard

Changes in packing sector JBS National – Leucadia Harris Ranch Beef – Central Valley Meat CS Packers – Caviness/Simplot Caviness – Hereford Kane Beef – STX Beef

So does it matter? Type and kind of cattle we buy When we buy, how we buy, aggressiveness or lack thereof Entering and exiting the business Core business, returns, shareholders or investors Interest rates

So how much will my calves bring? Fed cattle prices Cost of gain Pen space Margin/Available capital Crush/Feeder-Fat spread Supply Optimism

Source: USDA, CME

Source: USDA

Source: Cattle Fax

Source: Cattle Fax

Source: USDA

Source: Dow Jones, CME

Source: Cattle Fax

Source: Cattle Fax

Source: USDA

So I am saying Avg spot August basis around -4.00 Avg August 650 Lb FL Steer 147.00 Aug 19 FC Futures 144.35 now Pen capacity should loosen Days on feed likely remains strong Optimism possibly remains high Late Summer and early fall calf prices possibly lower than last year but similar to longer term averages

I will leave you with this High supply cycle Stable markets Margin compression for now but not forever Absolutely a heads up and eyes open setup

Thanks and Go Gators Trey Warnock / trey@amarillobrokerage.com

Random slides

Source: MP Agrilytics, LLC

1 Five Rivers Cattle Feeding, LLC 11 Cattle Empire, LLC 2 Cactus Feeders 12 Tejas Feeding Group 3 Friona Industries, LP 13 Pinal Feeding Co. 4 Irsik & Doll Feed Services, Inc. 14 Harris Feeding Co. 5 Green Plains Cattle Company, LLC 15 Adams Land & Cattle, LLC 6 Foote Cattle Co. 16 Dinklage Feed Yard, Inc. 7 JR Simplot Co. 17 Bar-G Feedyard

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