Ag News, Monday December 5, 2016

More Volatility Ahead for Cattle Markets

Cattlefax CEO Randy Blach recently spoke at the Kansas Livestock Convention about volatility in the cattle markets, including what’s causing the downturn and what to expect in the months ahead. Cattle producers have recently seen higher prices after a two-year price drop of more than 40 percent. An Ag Web dot com article says 750-800 pound steers brought $125.19 per hundredweight last month. Prices climbed to $134.38 last week. However, Blach said the rally may not last much longer. “This is not about cattle, but more part of a global slowdown,” he said.

The bull market for commodities started in 2009 at the end of the global financial crisis. Crop farmers and livestock producers all raised their production efforts before things went in the negative direction starting in 2012. From August 2012-2016, corn prices dropped 60 percent and soybeans were 47 percent lower. Fed cattle prices followed crops lower, dropping 43 percent since November of 2014. The cattle industry has seen huge price swings from the highs in 2014 to this year’s low prices. Steer calves weighing 550 lb. averaged $911 in losses from the cycle high, with 750 lb. feeder steers falling $941. Blach adds, “Commodity cycles are a good reminder of how quickly things can change.”

Proposed Tax Regulation a Threat to Future Cattle Farms

The U.S. Treasury Department recently proposed a rule change that would lower or even eliminate valuation discounts on family-owned entities. The Internal Revenue Service hosted a forum to discuss the potential change this week. At the forum, National Cattlemen’s Beef Association Vice President Kevin Kester said that will discourage families from expanding and passing the business on to the next generation, or even continuing their operations in the future.

Family-owned cattle farms are often small businesses that face the same challenges as other small businesses in different sectors, including making payroll, complying with numerous regulations, and paying bills. Kester says, “Ranching is a debt-intensive business, meaning operators work on an asset-rich, cash poor business model. That makes them vulnerable to the estate tax.” When a principal in a business passes away, assets often must be sold to meet the tax burden. Producers have used valuation discounts to help them shoulder some of the tax burden and keep operations in their family. Kester adds, “The proposed rule will upset expansion plans, halt future business growth, and require most operations to liquidate assets just to survive.”

Source:  NAFB News