#55 - Don Close, White Papers and Black Swans

Don Close is Terrain’s Chief Research & Analytics Officer. Don’s prior experience includes his work as a senior animal protein analyst at Rabobank, and as a market director for the Texas Cattle Feeders Association, where he worked on all economic and market-sensitive policy issues for cattle feeders in Texas, Oklahoma and New Mexico. 

In his three decades of professional experience, Don has been a licensed commodity broker, handled risk management and pricing for large cattle operations, managed a grain procurement program, and published market updates and outlooks for cattle and hogs. Don has conducted research on a wide range of topics including confinement cow/calf operations, dairy-beef crossbreeds, and development in international trade. Don earned his BS in agricultural economics from West Texas A&M.

www.terrainag.com
[e-mail]

Episode Transcript

Microphone (Yeti Stereo (00:06):
Thanks for joining us for episode 55 of
practically ranching.
I'm your host, Matt Perrier.
As always the podcast issponsored by Dalebanks Angus of
Eureka, Kansas.
Don close is the chief researchand analytics officer for
terrain ag.
He has held various positionswith many organizations

(00:29):
throughout the beef industry.
And Don has always been able tomeld that easy going demeanor of
his with a deep understanding ofeconomics to help producers and
agri businesses make informeddecisions about managing risk
and marketing cattle in the mostprofitable ways possible.
Now, when I invited Don on thepodcast a couple of weeks ago,

(00:53):
we were in the midst of themarket downturn following our
most recent black Swan event,the announcement of HPAI, in a
handful of dairies, and then asubsequent human case that was
linked to this pathogen.
I wanted Don to talk about thisone and other black Swan events
through the years and theeffects that they can have on

(01:15):
our industry, and Don was verywilling to do this, but his
response was,"we can sure talkabout that, but I don't think we
can fill an hour up with thattopic." After we got rolling Don
quickly realized that while Imight have one topic of
conversation in mind, when Ireach out to a guest, this topic

(01:38):
usually leads to another.
And another.
And another and another.
So much so that when we finishedDon chuckled and said,"that was
a pretty wide rangingconversation.
Just another day of practicallyranch in Don.
Just another day." Don and I hitall the C words, calf contracts,

(02:01):
the CME group, cattle contractlibrary, carcass size, confined,
cow feeding.
The cattle cycle and we eventhrew and a few other consonants
just for good measure.
It was a fun conversation with aveteran of the beef industry,
and I think you're going toenjoy it a lot.
So as always, thanks for tuningin, God bless you all, and enjoy

(02:22):
,this conversation with Donclose.

don-close_3_04-19-2024_13 (02:28):
after all the years I've done this, I
don't know that I've ever saidanything I wish I could take
back.
Uh huh.
Uh

Matt (02:37):
said that, I have to tell you a comical story about just
how much I've come around in 10years, I, I'm embarrassed to
admit the name Don Close wasn'ta household name for me until I
read an excerpt from a whitepaper that you wrote in about I
don't know, 14, 13, somethingalong there about, uh, ground

(03:02):
beef nation...I don't rememberwhat the title was.
And in your defense, I thinkthat I had already gotten the
spin because it was excerptsthat had come out of there that
someone had editorialized.
And I was convinced that youwere the antichrist wanting to
turn every Beef animal intohamburger and um, so yeah, I,

(03:26):
I'd say, uh, I don't knowwhether it was good, bad, or
indifferent, but I all of asudden knew who Don Close was
pretty quickly there after youwrote that.
Was I the only one?
ha ha ha ha ha ha ha ha ha ha haha ha

don-close_3_04-19-2024_1332 (03:36):
no, no, no, no, no, no.
And one time, uh, Donnie, um,past NCBA president.

Matt (03:46):
Schiefelbein.

don-close_3_04-19-2024_13 (03:48):
Yeah.
Schiefelbein..
He, he came up to me one timeand was saying that somebody
that was, uh, had been talkingabout me and I,, and I asked the
question when he said that, Isaid, what was he spitting on
the ground?
When he, when he brought it upand said, well, no, we wasn't.
but anyway, Donnie's deal isthat, look at it this way, Don.
It made you famous.

(04:08):
Said, well, yeah, it did that.
Yeah, there was a lot of, uh,there was a lot of what I was
trying to say there was totallymisconstrued and blown out of
proportions, but it, it was abig deal.

Matt (04:20):
You know, I went, I went back and read, I didn't read
your whole white paper, but Iread excerpts out of it years
later.
And after I think I, I heard youspeak somewhere and I thought,
you know, this guy actuallymakes a lot of sense and he is
kind of a team player and getsthe multifaceted nuances of

(04:42):
today's, beef industry, both theconsumer and the production
sides of it pretty well.
And I went back and looked atthat and I'm like, you know.
In a lot of ways, he's right.
And I mean, if you fast forwardto today, you can sit in any
sale barn across the nationright now and

Track 1 (04:58):
see what cull cows are

Matt (04:59):
bringing.
And I'm not ready to turneverything into ground beef.
And I know you aren't either,but it's a pretty,

don-close_3_04-19-2024_13 (05:06):
never said that.

Matt (05:07):
I know.
I know.
And, and like I said, what yousaid, I, I even pulled an
excerpt.
Let me see if I can find ithere.
Uh, that you said, and I thinkthis was an article that
somebody had written based offof it and maybe interviewed you,
but I've got,"in order tocompete in a ground beef nation,
the industry must change to aproduction model that determines
the best end use of an animal asearly as possible.

(05:31):
To keep beef competitive withother protein choices, to meet
counter new system for end usecategorization, uh, That
influences genetic selection,calf selection, cattle
management, production costs,and feeding regime throughout
the life of the animalsrequired.
Uh, one of the outcomes would bethe industry would not be
pushing lower quality cattleinto a grading percentage they
could not realistically orefficiently achieve.

(05:54):
It could also reduce thetendency to overfeed an animal
in the hope of reaching a highergrade." So yeah, I'm, I'm in
violent agreement

don-close_3_04-19-2024_13323 (06:02):
I, uh, that's what I was
specifically trying to referencethe, the cattle in the, in the
bottom third of the gene pool.
that were way overfeeding to tryto make him great.
I never had any, any changes orrecommendations for the, for the

(06:26):
remaining two thirds of thatcalf crop.
I didn't want to touch them atall, but there's nothing that's
not how it was perceived.

Matt (06:36):
I'm sure you're the first man in America beef industry or
otherwise that's ever beenmisquoted by the press or
misinterpreted by the likes offolks like me.

don-close_3_04-19-2024_13323 (06:47):
Uh huh.

Matt (06:49):
But like you said, I mean, whether I agreed with the
clickbait, we didn't haveclickbait back then, but the
headline or not, it made me diga little deeper and ask a few
more questions and actually readwhat it was you were saying.
And sometimes it, it takes alittle bit of a red flag or a

(07:11):
white paper, whatever, um, to,to make cowboys like me.
Excited enough to actually drilldown and learn something.
And so in that regard, probablywasn't a bad thing.

don-close_3_04-19-2024_13 (07:24):
with, uh, in the current market, And
the run that we're currentlyseeing on 90s and 90s, uh, the
premium over the comprehensivecutout.
And I, I've had people, youknow, contact me and say, you
know, you need to bring up whatyou said again.
I said, you know what, I don'thave to bring up anything.
I, I said what I had to say.

(07:46):
I stand by what I said and

Matt (07:51):
The market is

don-close_3_04-19-2024_1332 (07:52):
let it happen.

Matt (07:53):
Yeah.
Well, it is an interestingsituation because, you know,
like you said in that paper,whether the headlines that were
written about it, said it ornot, we cannot give, and this is
my, now I'm giving my opinion,we cannot give up that white
tablecloth...
And even I would say post COVIDthat splurge in the retail side

(08:19):
to take home and put on thegrill or the flat top or the
Blackstone or whatever they'recooking that steak or skirt or
whatever on, we can't give thatpart up.
That is what differentiates usfrom pork And poultry and
everybody else.
It's that sizzle and it's thattaste.
It's that everything that goeswith eating a nice piece of

(08:40):
beef, but not everybody can havethat every day of the week.
And, uh, that's where we are sofortunate.
And I think our industry and wecan cuss the middlemen all we
want as producers, but thosemiddlemen, those packers and
further processors and grindersand everybody else.

(09:03):
They're not stupid and they seean opportunity to be able to
improve every ounce of thatanimal that we produce and
upgrade it to a point where theycan get the most out of it.
And, and that's where, you know,nuances like imports and lean
trim and everything else comeinto it and really make us

(09:23):
scratch our heads.
But yeah, it, it's a pretty welloiled machine and it's, it's
being driven today, like it ornot, it's being driven today by
those nineties and by thatgrind.
No

don-close_3_04-19-2024_133238 (09:32):
I did an interview yesterday with
Chip Flory.
And, and he was determined thatwe spend way more of that call
hawking hogs than what I reallywanted to.
And we kind of went down that,that road and and talking about
the, the, consumer issues thatthe pork industry is having and

(09:53):
the, the fallout of favor withconsumers and just that whole
palatability thing.
And, you know, said, you know,they're, they're exactly where
the beef industry was in 1975.
Right.
And fortunately that beefquality audit brought the
realization to everybody that,Hey, we can do something about

(10:15):
this, or we're going to be outof a job.

Matt (10:17):
doubt.
We just talked about that lastweek or a couple weeks back
with, uh, with Temple Grandinand that, that and so many other
things there in the early andmid nineties, um, came out of
simple desperation.
I mean, value based marketing,branded beef, moving those
injection sites and, andhandling those cattle better.

(10:39):
Thanks to the beef quality auditaudit and check off dollars that
were placed into that research.
I mean, that it was.
We did it because there wasnowhere to go but up or out if
we weren't careful.
And, and, uh, you can see, Imean, I know, I think you said
that you just had a conversationwith Dr.
Ted Schroeder, who's been onthis podcast a year ago or more

(11:00):
probably, but he just wrote apretty good article in BEEF
magazine mapping.
overlaying the value that thosecattle have brought to the
industry, right alongside whatthe choice and prime percentage
rates have gone.
And from 96 forward, it's, it's,it's, amazing how highly

(11:21):
correlated those two charts are.

don-close_3_04-19-2024_1332 (11:24):
and you look at that, uh, 25, 30
percent increase in choice andprime carcasses that we've seen
as a result of that, and, youknow, in my view, that, that has
been the game changer.
And you, you take where thatstarted with.
One in four beef eatingexperiences being called

(11:45):
dissatisfactory to where we aretoday.
You know, industries are in thisspot.
They have.

Matt (11:52):
Well,

don-close_3_04-19-2024_1332 (11:52):
did a good job of that article.

Matt (11:55):
yeah, it was interesting.
I mean, it, it, even for a guythat, uh, that sometimes has to
really keep himself focused toread through an economist's
charts and graphs.
And, and I, I sat through acouple of, of Dr.
Schroeder's classes in undergradat Kansas state.
And, and he, he was one of thefew people that could even get
my attention on, on economics,but, uh, no, he did a great job

(12:16):
and it's, it's.
Unbelievable just, just howclosely those things have
tracked and just how much valueit's driven into producers
pockets.
We can argue whether theindustry and whether the market
and the supply chain today doesit right in terms of
distributing that dollar, thoseextra consumer dollars, amongst
all the participants.

(12:37):
We can argue that at everyindustry meeting we want, and we
may hopefully, you and I, get acut chance to talk about that
later on.
But, uh, but yeah, in, in theend, that focus on quality from
genetics, management, feeding,all the way on through
marketing, merchandising hasdriven an immense amount of
value into the beef chain.

(13:00):
So we talked about your whitepaper a little bit ago, and
we've thrown out a few othercolors.
the term black swan is somethingthat I don't think I'd ever
heard of until just the lastdecade, maybe less.
And now, between a processingplant fire in Holcomb a few

(13:21):
years back, and a virus calledCOVID 19, and I don't know how
many others, I guess we can goall the way back to the cow that
with the BSE case and, and allof these things.
We continue to hear about BlackSwan events and especially, or
specifically to the beefindustry and, and just for
kicks, I went back and, um, Ithink this was, uh, Britannica

(13:46):
or Wikipedia or somebody thatgave me the actual definition of
a black swan event.
Not particularly to beef, but"the black swan theory or theory
of black swan events is ametaphor that describes an event
that comes as a surprise, has amajor effect, and is often
inappropriately rationalizedafter the fact with the benefit
of of hindsight." Uh, and thenit goes on to talk about the,

(14:11):
where the term came from and,and how it was linked.
And it's been pretty recent thatit was linked to financial
markets and things like that.
I mean, even here since the newmillennium, 2001, 2002, I saw
different, different times therethat were accredited, but I
thought that was interesting.
You know, everybody knows thatit's something that catches us

(14:31):
by surprise and it has a majoreffect to a market or to
whatever else.
But my favorite part was.
It's often inappropriatelyrationalized after the fact with
the benefit of hindsight.
And I guess we could say thatabout any markets, but man, oh
man, in the beef industry, howmany of these things have we
seen here recently and why isthat?

(14:51):
And is, is, uh, is theresomething more that we as
producers can do about this toprepare for our own businesses?

don-close_3_04-19-2024_13323 (14:59):
So my contention with that is, and
I've wanted to, I've wanted todo a research piece on it, but
I've, I've wanted to use TCFA'snewsletter file as the source of
information And go through thereand look at the number of

(15:22):
whether we called it a blackswan or not market disrupting,
unexpected, uh, marketdisrupting occurrences in the
market from, you know, we'rehave go back as far as you want
to go.
And my contention is thatthey're really no more frequent
today than what they've everbeen.

(15:45):
It's just that now we've gotthat term.
Um, On front of minds that we'regoing to have these huge market
disrupted.
Exactly.

Matt (15:55):
For those of you who weren't seeing the video because
I don't publish video.
I held up my iPhone so they arenot necessarily happening with
any more regularity Is there anymore intensity to them?

don-close_3_04-19-2024_1332 (16:10):
,I, I would probably go to the
backside of that, that we'reprobably more orderly with those
disruptions today, just iPhoneup again, but because of the
amount of exposure.
We might have more of an impactinitially when they hit, but

(16:31):
because of the ability to get.
Information out.
I think the market works throughthose disasters probably faster
now than we would have thinkingin the even in the 70s and 80s.

Matt (16:44):
So we ripped the bandaid off quicker and it may hurt
more, but it's shorter lasting.

don-close_3_04-19-2024_133 (16:50):
Yep.
That would be my take.

Matt (16:52):
Well, it's like the other last weekend, when Iran fired
back at Israel and it happenedon a Saturday and Sunday.
And I heard a commodity traderon a Monday morning podcast say,
you know, the missiles went up,the drones went up, came back
down while the market wasclosed.

(17:12):
And because of that, we'reprobably not seeing anything
because it's already done.
If this had happened on aTuesday, yeah, it had been a
wild week in Chicago.
But as it was, you know, we allwatched it in real time and it
already kind of decided thatthings weren't.
You know, necessarily going tobe in up in arms immediately.

don-close_3_04-19-2024_13 (17:32):
Well, and you and you go clear back to
the, uh, to the, what was itOctober 7th event.

Matt (17:38):
Yep.

don-close_3_04-19-2024_133 (17:39):
That was a, that was a weekend event.

Matt (17:42):
That's true.
Yeah.
So quite often.
Somebody gets the blame whenthese black swan events happen
and it, it, it seems to me youcan, you can include this on
your research paper that you dowith that TCFA data, but who,
who gets the finger pointed mostat him?

(18:03):
Is it the Chicago MercantileExchange or the Big Four
Packers?
Because quite often it seemslike it's one or the other that
are to blame for all of this,right?
But.
As from your perspective, um,how do we best, as it said,
rationalize this in hindsightand sort through it as it's

(18:26):
going on.

don-close_3_04-19-2024_1332 (18:27):
uh, a week ago today, I was on a
panel in Kansas city that, thatTed happened to be the moderator
of that panel.
And they were, and they were, wewere looking specifically at, at
the cattle market, the current,uh, situation with tight supply,

(18:48):
the, the, the price levels wereat, and, and my takeaway is
this, when I look at thestructure of the market, when I
look at supplies that we willhave for the next two to three
years, I really don't worry.
I don't go to bed at nightworrying about price.

(19:08):
I worry about input cost andjust what it's going to cost to
break evens on cattle, but I'mnot worried about price.
But I think in this environment,volatility is going to be
unprecedented.
And, and these, whether it's,it's a total surprise to the
market on the, on the wholeBlack Swan discussion.

(19:30):
It just when, when prices get torecord levels...
to find speculative traderswilling to take that long
position to go even to newrecord highs, you know, they,
they become fewer and fewer.
But the other side of that iswhen the market's so lopsided as
we are today, and any, anyweekend event, any news story,

(19:55):
it just gets Those long positionholders all trying to hit the
door at the same time.
So for those two reasons, I, asI've, as I've given a market
outlook presentations for thelast year, I I've told producers
straight up.
I said, in this environment, ifyou are not willing to have a

(20:18):
risk management plan in place,don't buy the cattle.
Uh, just because if you takethe.
The 22, 23 percent decline wesaw in the market in November
and December of last year.
You take the, the current, thefrequency that we'll see.
Five to 7 dollar day moves inthe market.

(20:39):
Uh, it just, nobody is in aposition to endure any or many
of those back to back.
So it's the volatility of themarket going forward that really
causes me concern.

Matt (20:54):
So we've got a lot of folks listening to this podcast
that would be in the cow calfsegment, and As opposed to
margin operators who can laythat risk off the day They buy
those cattle or that feed orwhatever the case may be There
are more options historicallyten years ago.
I think I would have beensitting here saying well What
about the cow calf guy?

(21:14):
There's no options for him.
Options.
Alternatives, I should say.
Today, as you look at themarket, and without leading the
witness, um, there are somealternatives that they have.
What would you tell cow calfproducers who are selling those
calves, quite often, one day ayear, possibly at the local

(21:35):
livestock market?
In the fall, the low of the, ofthe price picture, you know,
from historical charts, what doyou tell those folks to do to
help them survive a black swanevent that happens days or weeks
before their time to take themto Eureka livestock?

don-close_3_04-19-2024_133238 (21:52):
I think the first answer I would
give in this market environment,the opportunity to contract some
calves ahead of time.
Uh, it's certainly worth lookingat, and that option has and
hasn't been there in the past,but probably the biggest reason.
I'm really an advocate of theLRP products.

(22:16):
I don't think it's the perfecttool, but I do think it provides
that opportunity for, for riskmanagement for smaller
producers, producers who areworking with limited budgets and
simply can't live with those,that margin call pressure.

(22:37):
I would really encourage them tolook into those LRP products.
And again, I don't want to giveit, I don't think it's perfect.
I don't know that I'm tellingthem to do it on 100 percent of
their production.
But to have part of it covered,that when we get into those
unexpected events, Are you goingto be in a position to be in the
game again next year?

(22:58):
I think they, they're doing avery good job.

Matt (23:02):
How would you change them?
If you were to say, wave themagic wand and call the USDA or
whoever is in charge of that andsay, this is how you could make
this a lot more user friendly orbetter.

don-close_3_04-19-2024_133 (23:14):
The, the biggest challenge that, uh,
because we're not working ineven load lots and because
they're two separately, uh,traded vehicles.
Uh, the delta between the LRPfor once the positions in place.
And the Delta between the, the,the LRP product and the futures

(23:34):
contract, they don't move insync.
So what, what a challenge thatthe farm credit, the bankers are
having is to keep it, keep thoseaccounts margined up against the
futures market that can moveindependently from the price
they've selected.
And I would, I would encourage Ithink over time we'll have,

(23:58):
we'll, we'll have to take acloser look at that and how to
work with it better.

Matt (24:02):
Well, I know that there have been a few rocks thrown at
that program, especially thisfall with some, uh, maybe false
narratives, but with some,editorializing about that big
market move down that we saw inNovember, October, November,
December, uh, being a functionof either an imperfect system on

(24:24):
the LRP and the option side, oraccused wrongdoings by some of
the folks that were, that wererepping those products.
But I think as we've, again, hadhindsight and a little
rationalization, we've probablyseen that it wasn't necessarily
any wrongdoings, it was just afunction of a perfect storm of,
of market forces.

don-close_3_04-19-2024_1332 (24:45):
You know, I, I was, I was in New
Zealand for the majority ofNovember and and missed, missed
a big

Matt (24:56):
No wonder it fell apart, Don.
You weren't here keeping an eyeon it.

don-close_3_04-19-2024_1332 (25:00):
And I didn't, I didn't miss not
being in the fray one iota, butI, but I do think that the
editorializing and theassumptions that were being made
towards the underwriters at thattime.
was absolute nonsense.

(25:23):
I don't, I don't think thoseunderwriters were doing anything
wrong whatsoever.
And the big, the first reasonthat I come up with with that is
if you simply look at the volumeof contracts that they're
dealing with and, and even with.
With various risk management,uh, positions that I've held in
the past; commercial feed yards,uh, even all the way back to

(25:47):
future beef.
And, and when you're trying towork a deck of that size, the
amount of, of contracts that youcan do in any given day, the,
the number of contracts you canmove without swinging the
market...
uh, you know, you've reallygotta be creative to get that
done.

(26:07):
Those, those underwriters,they're using futures.
They're, they're using, uh, overthe counter products.
They're doing swaps.
They're using a whole gamut oftools, uh, to, to keep that
volume of, of risk covered to,to say that they're in there
manipulating, uh, the futuremore.

(26:29):
I just, I think that was a, asilly, a silly notion from the
very beginning.

Matt (26:35):
Well, we talked a little, or touched on this just a minute
ago when we were talking aboutpointing the blame at Chicago or
Big Four Packers or whoever thecase may be whenever anything
hits the fan.
Human nature is such, and Ithink cowboy nature is even more
such, that those who we know thebusiness least of, we When we

(26:59):
don't understand it, we don'ttrust them.
And, um, you know, I, I, itdoesn't matter if we're talking
the Chicago Mercantile Exchangeor import and export trade.
There are key descriptions tothat, i.
e.
exchange in the CME.
You have to exchange.
You have to have a short andlong.

(27:20):
You have to have somebodythat'll offset.
The position you want to be in.
And that's what I get a kick outof and I'm guilty of it as well,
but the local conversationsometimes we get into is, well,
there's somebody that's stickingit to us.
Well, that somebody may verywell have been the one that we
made money because they were onthe other side of the trade or

(27:42):
the exchange last time, same waywith the Packers, uh, or imports
and exports or whatever the casemay be.
And that nuanced, uh, discussionsometimes gets lost pretty
easily.

don-close_3_04-19-2024_1332 (27:51):
You know, because of the roles that
I've served over the years andI've, and I'm always been in
that, uh, arena of pricediscovery, I've, I've been in
and out of the, of the futuresfutures market, but so many
times I find myself in aposition where I'm defending the

(28:11):
CME and I never have one ofthose conversations that I don't
get off of that, get away fromit.
Why am I doing that?
You know, why is it my job todefend the CME?
They, they can defendthemselves.
But the point that I'm trying towork towards is if you take the
job that the CME does today, thenumber of listening sessions

(28:35):
they have,, to work with marketparticipants on both the, the
large speculative side and the,the hedge community, If you take
how, how that exchange is runtoday compared to how it was
back under when it was stillprivate, uh, seat holders and

(28:55):
you had the old, uh, live cattlemarket committee.
It, it is night and daydifference today.
they truly want to know what theusers of those.
Uh, exchange products, they wantthat input.

Matt (29:12):
Well, I have as little experience with the CME group as
probably Anybody listening tothis podcast, but the one thing,
that I have noticed just insitting through a few NCBA
meetings, or the one time that Igot to go to, or the, the,
exchange there in Chicago, itbecame evident to me that their

(29:34):
feeder.
Their cattle contracts,especially the fed cattle
contract, is one of the fewcommodities that they still have
producers using for riskmanagement.
And they've gone down the roadin some of these other
commodities of seeing just howawful it is when the producers

(29:55):
leave them.
And they no longer have thatactual raw product to back up
some of those contracts.
And they're fighting like crazyto make sure that it works for
us cattlemen, aren't they?
Because if they lose us, theyknow we're going to go the way
of, you name it.

don-close_3_04-19-2 (30:12):
absolutely.
And one thing too, that, that,that most people don't realize
is that both the live cattlecontract and the feeder contract
are a, a minuscule, uh, portionof the total volume at the CME,
uh, even to a point where.

(30:33):
The, the exchange will tell youthose are, those products are
not profitable for the exchange,but the, they defend them
because the CFTC mandates thatthey leave those contracts on
the board.
So that's why that's partialexplanation of why those
livestock contracts draw so muchscrutiny.

(30:56):
The, the CFTC is mandating thatthey leave those, those hedge
opportunities available.
right this year, I say rightnow, it's been going on for a
while, but every five years,the, the CFTC requires that the
CME do an evaluation of everycontract they're trading, and

(31:20):
currently the live cattlecontract is, is up for an
evaluation.
And, and I, this year I'm onthat working group, uh, and, and
we met, oh, we've had a numberof calls, but, but the group met
when we were all in Orlando atconvention and absolutely some

(31:42):
of the brightest minds in the,in the industry today is on that
working group.
the thing with the, the livecattle contract.
Yeah, we, we, we always have thedeal with, live weights and
carcass weights escalating and,and the frequency that we have
to go in there and change therules under the contract.

(32:04):
To keep the live and carcassweights together, there's an
ongoing debate on, uh, should wemake the, the grading specs and
the, uh, the, the weights,change to what they call dynamic
specs.
So you basically put those,those movable parts on like a

(32:26):
three or five year movingaverage.
And you've got some folks that,uh, I would be an advocate for
doing it.
A lot of them; No, you're goingto make the contract too
complicated...
the contract participants won'tknow what they're trading on.
I don't buy that argument, butI, okay, fine.
Um, but the, the, the livecattle contract, if you take the

(32:49):
last five years, uh, thedelivery, the, the convergence
of the expiring contracts, wehaven't had any of the huge, uh,
delivery debacles that we've hadhad had in years past, the live
contracts actually working quitewell.
And then you can get anybody todisagree with that on any given
day, but, but it actually has.

(33:12):
once the evaluation of the livecattle contract is completed,
the next one up for review isthe feeder cattle contract.
And, and I think that's going tobe an incredibly interesting,
uh, discussion because.
The whole basis convergencething in the feeder contract,
uh, way, way more, challengingthan anything going on in the

(33:34):
live cattle currently.
And just the volume ofspeculative participation and
the level of open interest infeeders in comparison to fats
just makes it a lot morevolatile and harder to work
with.
That'll, that will be aninteresting discussion.

Matt (33:56):
So, In that discussion we were talking about when you said
you know, the fed cattlecontracts and the specs need to
do its best job of keeping upwith the increases we've seen in
live cattle weights and carcassweights and, and of course,
grading percentages, things likethat.
We touched on value basedmarketing and what that has done

(34:19):
over the decades to improveconsumer demand, improve the
product and consistency andquality that we're delivering,
but it's also changed the waycattle are priced and how
Producers enter into theseagreements and, and have you
given some thought...
I know you've worked with Calcontracts library and some

(34:41):
programs like that...
we've talked several times.
It's been a while, but we'vetalked several times here on
this podcast about trying to, ifwe can improve on the way value
based marketing and fed cattleare priced at least on a base
price level for grids andformulas and everything else to
be added to or deducted fromthrough premiums and discounts.

(35:05):
What are your thoughts?
Do we have a system today with,given the week, but 18 to 20
some percent cattle that aresold quote unquote cash basing
the rest of those formulas andgrids?
Or is there a better mousetrapor what are your thoughts there
going forth?

don-close_3_04-19-2024_13 (35:26):
Whoa.
Boy, there's a lot to unpackwith that.

Matt (35:29):
You just pick one and go.

don-close_3_04-19-2024_13 (35:32):
Okay.
Uh, first, first up, do, do, amI comfortable with the fact that
we have an adequate volume ofcash sales each week to, to have
comfortable level of, of coreprice discovery?

(35:52):
And my answer would beabsolutely yes, we do.
And if you take where we're atwith cattle and you compare that
to over the last 10 years, youknow, that, that hog, the hog,
hog contract or market hasworked with as little as 4
percent of that market.

(36:13):
Uh, being negotiated cash sales.
So when we're, we're stilltalking, you know, basically a
third.
Um, I, I'm comfortable on theprice discovery side.

Matt (36:26):
What about from a re what about from a regional standpoint
and specifically Texas, you'revery familiar with that
panhandle

don-close_3_04-19-2024_133 (36:34):
yes.

Matt (36:35):
because it would be significantly lower.
And I think

don-close_3_04-19-2024_1332 (36:37):
Oh, it, it, it's a, it, it is
significantly lower.
And, and even the years when Iwas still, uh, on staff at, at,
on the market desk at TCFA,There would be weeks that we
would, we would, you know, inthose years, we still worked
under the old 5, 000 headroomthat we had to have 5, 000

(36:58):
cattle trade at a price toreport.
Well, that's gone by thewayside, but in those events,
when, when we didn't, there wereperiods of time that we would,
we would have to rely upon the,the Western Kansas reported
price as a base price.

(37:18):
So there's, there's ways to workaround that.
And my, my most honest opinion,when I look at the price spreads
geographically.
And there's clearly seasonalityto that, as you well know.
But if you look at the pricedifferentials we have by market

(37:40):
region, the quality of thecattle, the grading percentages,
where they're at.
I think that the cattle, weekin, week out, cattle in all
areas of the country areabsolutely, honestly priced.
And I, and I do, why I say that,I just, I believe in the

(38:03):
efficiency of the marketplace.
And when you have, let's justsay the big four, but when you
have that, that number of peoplehavin' to buy that many cattle
and they're seeing thosecloseouts on a, on a weekly
basis, they know specificallywhat they've got.
When they bid, you know, whenthey bid on it.

(38:25):
So for that reason, I'mcomfortable.
Now, to the, when we incorporatethe, the, the cattle contract
library.
When we were asked to do thatstudy, we very clearly knew and
told, told everybody at thetime.

(38:45):
Look, this pilot project willbarely be past the six month
mark when you're asking us tocome back and give a report on
this.
And the reason that we wereunder that time squeeze was
because that thing had a fundingdeadline of September of last
year.

(39:05):
That, so NCBA had to come withtheir recommendation.
To, to should we keep it or, or,or not keep it.
So that's why we were under thetimeline.
Um, we've continued to, to, tobuild that data set that in the
event that we were ever askedto, to revisit it, we, we'll

(39:28):
have the big share of the workdone.
But, um, I was of the opinion,and I still am that.
I think I would make itmandatory and a lot of why I'm
saying that it would put itunder that whole mandatory price

(39:49):
reporting umbrella.
It would be deemed essential.
So when we get into theseperiods of government shutdowns,
for whatever reason, that wholedata collection process would
continue to work.
And that's really a big reasonwhy, uh, I think, I think the
system works.

(40:09):
Um, and I think it really, itdoesn't really provide any new
information that wasn't alreadyavailable to the marketplace
under the various mandatoryprice reporting reports.
It just puts them in a, in aformat that's much easier to

(40:31):
read.

Matt (40:32):
So if you would walk us through, give us the basics of
the cattle contract library forthose folks who weren't.
In the room when it was beingdiscussed or aren't using or
contributing to that.

don-close_3_04-19-2024_13 (40:45):
Okay.
It's essentially taking the,again, it's taking market data
out of the, uh, mandatory pricereports.
Okay.
But it's giving us a breakdownof all of the transactions by
type.
It's giving us a rundown of thepremium and discount schedules

(41:07):
for quality grades, for yieldgrades, discounts on carcass
weights, uh, discounts on.
on.
dark cutters and all the outcattle.
Um, it's very consistent.
Uh, and if anything, it itdoesn't, it doesn't change week
to week or even quarterly, verystable.

Matt (41:32):
And those, those for lack of a better term, those
formulas, those grids are beingsubmitted by the buyer, i.
e.
If us premium beef has one gridand Tyson has another grid, they
are showing those, but it's whatthere is some anonymity there.

(41:54):
So we don't know exactly who hasthe highest premium for prime or
whatever the case may be, or thelargest discount for fours and
fives, et cetera.

don-close_3_04-19-2024_1332 (42:03):
It, uh, it takes all the measures
not to disclose any individualcompanies, uh, actions, but it,
so it's all, it's all averagedtogether.
And that, that by, by naturesmooth, smooths out those price
changes to a degree.
Uh, but it does show that,again, the, the aggregate of the

(42:27):
premiums and discounts, and itdoes so even on a regionalized
basis.

Matt (42:34):
So switching gears still on the value based pricing
discussion.
let's let's say that we allagree that we've got enough
cattle and they arerepresentative of the base and
we're setting that cash price orthat base accordingly, and that
we are transparent enough withthe cattle contracts library

(42:59):
that we know what everybody'sdoing in the aggregate after we
put all those grids and formulastogether and average that out.
Here's a off the wall questionfor you, especially in a time
when we are short cattlenumbers, we're making these
cattle bigger.
I've had a couple, I've hadseveral conversations over the

(43:19):
last month with variousdifferent people, not all just
in the retailer, food service,meat side of things, but even
producers, feed yard owners,even who are saying, have we
reached a point of at leastdiminishing returns?
If not.
Negative returns to the marketbecause huge ribeyes, because

(43:41):
overfat cattle, because all ofthese different things, even two
weeks ago, Dr.
Grandin was talking about froman animal welfare standpoint
that we made them too big.
Will there ever be a day when wedon't continue to reward maximum
production and maximum outputper head?
In the beef industry.

don-close_3_04-19-2024_133 (44:03):
The, uh, The first job I had off the
farm was a fat cattle buyer forGreat Plains Beef in Council
Bluffs, Iowa, and this wouldhave been late 70s or about
1980.
Um, the, the cattle that we werebuying at the time, and, and we

(44:24):
were buying cattle with abasically a 75 percent choice
grade was our target.
And we were buying steers thatweighed, uh, 1050 to 12, and we
were buying heifers of 950 to 11were our weight specs.
And, and I remember as clear asday, I was sitting around

(44:47):
talking with industry folks atthe time, and that there was
constant complaining then that,These cattle are too big.
They don't fit the box.
They're not meeting the needs ofconsumers.
And this is all going tobackfire on now.
Here we are.
50 years later and we're havingthe exact same conversation when

(45:09):
carcass delivery weights todayare heavier than the cattle I
was live weight at the time.

Matt (45:17):
Oh my.

don-close_3_04-19-2024_13323 (45:18):
So do I think there's a cap on what
we can do?
Obviously, yes, I do.
But at the same time, I thinkabout it.
We can go back to the, you know,mid 1950s.
That average live weight willincrease with, with very little

(45:39):
moderation, but that lightweightwill increase between five and
eight pounds a year.
And it is absolutely linear fromwherever you want to start
through today.
Are we going to make these cowssmaller?
No, we're not.
They're going to continue to getbigger.
Will we ultimately, and youthink about it for practically

(46:01):
speaking, but the only primalsthat this is a burden is the rib
and loin.
All the other primals in thatanimal, we're cutting them up
into portion needs and sizesanyway.
So where, what I would arguewith the animal science crowd is
we've got to find a way to cutthat, that strip and that ribeye

(46:26):
in a different way.
to, to reduce the weight of thatportion size.
We're already seeing that donewith strips, where they're
taking a strip and cutting itlengthwise and calling it a
Manhattan strip.
You know, that, that one'spretty straightforward and
simple.
How do you cut that ribeyedifferently and, and would have

(46:46):
all eaters happy?
It's clearly a challenge, but,but that's where I see.
We're ultimately going to haveto address this problem is how
we're breaking that, thatcarcass down.
Not, not that we're going tomake cattle smaller.

Matt (47:00):
So I agree with you from a meat science standpoint, we can
do things with a knife and witha little bit of a departure from
tradition and fix that.
Just like that, where I get alot of heartburn.
is from an animal science andanimal breeding standpoint and
from a management standpoint,because as Dr.

(47:23):
Grandin said two weeks ago, thatgreat big steer that weighs 1,
600 pounds in the feedlot has agreat big sister that's starving
to death somewhere out in thehills of Eastern Colorado.

don-close_3_04-19-2024_13323 (47:37):
So I think we're on the thing.

Matt (47:39):
to make that work?

don-close_3_04-19-2024_133238 (47:41):
I think we're on the same page,
the problem that I, I see withthat.
And, you know, I've beeninvolved in the conversation or.
Are we simply going to haveenough grass available to run
the cow herd that we have tohave?
And I'm not nearly as concernedwith that as I have been at
times in the past.

(48:03):
Because my main reason is, ifyou take the proliferation we
have had of grow yards over thelast 10 to 15 years, and the
number of true summer grazingprograms where We were running
steers on grass.
Uh, those cattle had been movedinto grow yards.

(48:23):
As those, as those cattle havebeen repositioned, that's
opening up more grass for thecow herd.
So that, that eases my concernsthere.
Where, where I do have achallenge with it is if we, if
we parcel that land down toeither quarters or in section

(48:44):
increments and producerswherever, whatever the stocking
rate is of the geographic area,but they're still thinking about
the number of animal units theyran per quarter When their dad
or their granddad was runningthe place and we're trying to
run the same number of cows on aunit today And I just think
we're way hard.

(49:05):
We're grubbing that grass outway harder today by unit than
what we did historically.

Matt (49:11):
Yeah, it doesn't work.
And I, I've even heard fromfolks who stock it on a pounds
to the acre standpoint and, andrecognize that if they used to
be in a seven acre to a cowunit, they're now in a 10 acre
to the cow unit because sheweighs 1350 instead of 1050.

(49:32):
And even those folks are saying,we've got issues.
There's grass out there andthose cows are eating longer
throughout the morning and theday and are still hungry at
night.
Those cows are maybe not justover grazing, but are thinner,

(49:53):
are poorer body condition.
I mean, I'm sure you've heardthe.
Disastrous conception rates thatwe've seen through the sand
hills and North and South Dakotaand, and, you know, so many
areas.
And I think it's been asmoldering storm and that we
didn't even see coming, but it'sbeen happening over the last
decade or so, some of that, wedon't know for sure what's

(50:16):
going, but some of that couldhave some tie to these five to
seven pound per year increasesin steers.
Live weight that we're alsoseeing in those mothers that
raised them.

don-close_3_04-19-2024_133 (50:29):
Yes, and

Matt (50:30):
You did

don-close_3_04-19-2024 (50:31):
Probably the smartest admission that I
could make at this point theconversation is My universe is
price discovery.
You know, when, when, when Istart talking about, about range
management on cows, I need toacknowledge really quickly that
I'm, I'm outside of myplayground.

Matt (50:49):
one thing that I thought you might bring up and I have
not read this white paper, butdid you not do some work on
confined cow feeding?

don-close_3_04-19-2024_133238 (50:59):
I did.
I have,

Matt (51:00):
Is that, and I think that has maybe some, uh.
Unintended consequences to ourindustry, but is that something
that pencils out and makes senseas we make cows that are maybe
outstripping mother nature'sability to provide for them?
Uh, are we going to end uphaving to haul every bite of

(51:21):
feed to the cow just to get herto raise that 16, 17, 1800
pounds steer?

don-close_3_04-19-2024_13323 (51:28):
So with just a touch of backstory
on that, the, the real beginningof, of the, my thought process
on, on the confined cows, I,when we went through that, uh,
11 to 13 drought.
I, those were included in theyears when I was at TCFA and we,

(51:52):
we had the severe, severedrought.
You know, the, the big Texasranches, the, the spade, the
sixes, wagner was sending hugeblocks of cows to Nebraska, just
trying to hold them together,and we were putting those cows
in the feed yard, uh, in the, inthe panhandle area.
So that was just necessity waswhen I first saw that.

(52:16):
We then got down to that wholeexpansionary phase, uh, in 14
and 15, and so, so that, that'swhere my thought process started
in, in short, the answer ismixed it's mixed because.

(52:38):
Will that program work when feedgrain prices are low?
Yes, it will.

Matt (52:44):
Yeah.

don-close_3_04-19-2024_1332 (52:45):
But if feed grain prices get really
high, it's a huge challenge.
The other thing to acknowledge,you are making a massive swap
for labor over equity.
Because to manage those cowsbottled up like that, uh, both
with, with feed in and animalwaste out, it's a huge labor,

(53:10):
commitment.
To try to find a happy mediumwith that, and I, when I look at
the number of hoop buildingsacross, uh, specifically Iowa,
but the, the Corn Belt, I thinka mixed program is ideal.

(53:30):
And when I say a mixed program,I'm talking of get those cows
bred, put them in confinementfor the winter.
As those cows, we get to spring,they're ready to, and we might
have to drag the calving seasonlater than what many of them do,
but as soon as those cows areready to calve, whether it's on

(53:53):
stocks, whether it's on freshgrass, but get those cows out of
there and turn em loose.
As soon as you do that, get thatbuilding cleaned out, put a set
of big steers in there, feedsteers for the summer, so you're
getting complete utilization ofthe investment in the, in the
building, and then as that setof steers is finished.

(54:15):
Those, you're weaning calves inthe fall, then you put the cows
back in.
So, um, a hybrid program iswhere I would be today.

Matt (54:24):
That makes sense.
I mean, and it, um, Quite often.
A mix of all the above is quiteoften the answer.
And that's what that would befrom a consumer standpoint.
Do you think that tarnishes ourimage of this cattle on a
thousand hills out there andGod's green grass, or do they

(54:45):
care?
I think they're so confused forthe most part of what it is we
really do.
They still think they're allalready in confinement and
confined feeding organizations,operations, and all this.
And maybe they, maybe they don'tknow enough.

don-close_3_04-19-2 (54:59):
Invariably, Matt, with that kind of a
program, when you're disruptingthe natural perceived flow of
things, is somebody, wouldsomebody be upset with it?
Yes.
If you're taking, if you'relooking at the reality of how
that cow's treated and thatshe's inside on that, on the

Matt (55:19):
Yeah.

don-close_3_04-19-2024_13 (55:20):
night of 40, 40 mile hours blowing
snow, uh, Is she better off?
I could argue she is, but wouldsomebody feel that, you know,
nature's being disrupted?
Yeah, it's gonna happen.

Matt (55:36):
Again, I mean, it's just like so many things that we've
talked about so far.
it's probably going to change.
We're probably not going to doit the way that grandpa did it.
And, uh, we don't today.
And I think sometimes we yearnfor that simpler, quieter,
easier time.
Uh, I would argue a lot of timesthat there was nothing easy

(55:56):
about those days, but, uh,regardless, the, the industry
has changed.
It is changing and it willcontinue to do so.
And, um, you know, conversationslike these talking about whether
it be price discovery, which isin your wheelhouse, but also
everything else that you'veworked on because you have to,

(56:18):
you know, because there's a lotof different things that affect,
that animal for the year to twoyears that it took to get.
Him or her conceived and raisedand to the feed yard and finally
to that processor and onto theretail and food service.
So there's a, there's a lot goesinto it.
Any other major changes you seeto the structure of the beef

(56:43):
industry or the way wemerchandise and market cattle in
the next 10 years or so.

don-close_3_04-19-2024_1332 (56:51):
The one thing that I would say is,
when we look at the, at theglobal market, and I'm
specifically saying NorthAmerica here, I'm not saying
just U.
S., I'm, I'm, North America.
But if you look where we're atwith, uh, with feed supplies on

(57:12):
our production capabilities, andI compare us to Brazil,
Australia, New Zealand, I thinkNorth America is in a pristine
position, uh, going forward tobe the ultra high quality
supplier to the world.

(57:32):
So I think, I think the U.
S.
and North American industry isreally in a good spot there.
Um.
When I look at the structure ofthe market and I've all the
years that I've been doing this,if you take where we're at today
with the empty shelves on, oncows, certainly the empty

(57:56):
shelves on replacement, uh,heifers, and then the high
percentage of heifers on feed, Ithink the market is in The most
bullishly structured market Ihave ever seen.
And so I don't, I don't want tosay that in the context of
prices will just run forever.

(58:17):
But I think the real beauty ofthis market is the longevity.
This one has in front of uscompared to where we've been in
other times.

Matt (58:28):
Well the data would back that up.
The thing that those who dependon throughput of cattle through
it and even guys like me wholove having short supplies
because it means higher calfprices, but at what point, how
high is it going to have to get?
And obviously it's the coststructure that's driving this,

(58:50):
but how high do calf prices haveto be before we finally do
trigger heifer retention?

don-close_3_04-19-2024_1332 (58:57):
You know, we talk about, uh, I think
it came up in an earlierconversation, but, but Darryl,
Darryl Peel gave that, uh,presentation to Oklahoma
Cattlemen's probably a year agonow, uh, or close to it.
And he was talking$4 calves,$3yearlings and$2 fats.

(59:19):
And, and I thought at the time,I said, you know, I'm right
there with him with a 2 fat.
In fact, I've been surprisedthat we, we haven't seen that
yet.
And, and we will, with a 2 fatand the prospects for a 3
yearling.
If you just take the seasonalityof the, of the feeder index

(59:40):
today, could, are we going to bestrikingly close to that 3 area
late summer, fall?
Yeah, I think so.
When you start talking a$4 fiveweight calf, that's just a fluff
ball.
Woo.
That one I got to swallow hard.
But my point is this.

(01:00:02):
I absolutely believe ineconomics and I believe the
market is going to rally to apoint that industry will put a
carrot out there that is ofsize.
It will induce these guys to, tostart rebuilding cow numbers.
It's going to happen.

Matt (01:00:21):
Yep, I think you're right.
It's just where that point is.
And I think we have, because ofthe absolute rapid run up in
2014, and folks maybe getting alittle bit too aggressive in
pricing and buying replacementfemales then, And then the fall

(01:00:44):
in 2015, there are so manypeople who have this
psychological barrier

don-close_3_04-19-2024_133238 (01:00:49):
I do.

Matt (01:00:51):
because they gave 3, 000 or 3, 500 or name the price for
a bred heifer or young bred cow,and she may have left their
place five, six, seven yearslater and never paid for
herself.
And I think there's a lot ofthat that is maybe pumping the
brakes on, on heifer expansion

don-close_3_04-19-2024_133238 (01:01:09):
I can tell you that as I have done
producer meetings throughoutthis past winter and spring,
that with very few exceptions,Have, did I do outlook meetings
where that very discussiondidn't come up?
Um, the, the one thing that Iwould say is so, and I, I still

(01:01:31):
have remorse for being one ofthose guys that was recommending
buying those females at thoseprices at the time.
So, you know, I, I'm not guiltfree in this discussion either,
but I think what is so differentin this market.
Then what we saw then was we, weactually started that

(01:01:53):
liquidation phase on the heelsof the great recession and Oh,
eight liquidated Oh, eight,nine, 10 and 11, the market had
reached a point where we're foras economists, we thought we had
reached equilibrium and we weretelling guys, okay, it's time to
start thinking about rebuilding.

(01:02:15):
As soon as those comments weremade, then that severe drought,
11, 12, 13 kicked in, so we justpushed that liquidation phase
further.
But while that droughtliquidation was going on, there
were some of those retainedheifers working their way
through the system under theradar.
And so when, when they, thosefemales' calves were started to

(01:02:41):
be hit the market.
That's what enabled that buildback to occur.
So, so what we thought wasovernight, it actually started,
you know, 11 and 12.
This time we don't have thatwith, with the percentage of
heifers on feed.
One other point in this areathat I think is important to

(01:03:02):
bring up, you know, we'resitting here today with, uh,
with retail beef, average retailprices of choice, uh, Retail
price on top of eight bucks.
Uh, the all beef price rightthere, right there at 8.
So where I will, will we reach acap where consumers tell us,

(01:03:24):
"Enough, I can't take any more,"absolutely.
We will from the work that we'redoing at Terrain, we're, we're
working two separate differentmodels.
One is just basically historicalregressions of cut out value to
retail price.
And with, with cut out is Xwhere should retail price be on

(01:03:46):
the Y axis.
But the other thing we're doingis real per capita expenditures
where we're taking total monthlyproduction, adding imports,
subtracting exports, and, and,and, and subtracting cold
storage to take total poundstimes that retail price.

(01:04:08):
Deflated.
And then we're dividing by thepopulation.
So we're looking at expendituresover

Matt (01:04:16):
per capita.

don-close_3_04-19-2024_1332 (01:04:18):
Um, that is really high quality work
and that enables us to comparebeef to pork and poultry, but it
also enables us to compare primebeef to choice by quality grade.
And, and the bottom line of thatwhole work is that we're not

(01:04:39):
seeing any waffling in beefdemand at this point in time,
it's still as solid as it canbe.

Matt (01:04:46):
on all of those quality grades and breakouts?
Or

don-close_3_04-19-2024_133 (01:04:50):
Now, when we, when we came off of
that deal of the, of the COVIDexperience and we were in the
consumers quickly figured outthey could buy a prime, prime
steak at the retail counter.
Take it home and, and have itfor about half the price they
were paying to eat out.

(01:05:10):
We've, we've seen that prime,um, uh, demand waffle
fractionally.
I would also point out that thepercentage of prime in the
slaughter mix today is about 2percent higher than it was at
that time too, so we've got moreof it.
the branded product demand basefor the branded cutout is
absolutely solid.
choice cutout is still solid.

(01:05:32):
Um, What we, you know, we'reseeing, seeing some noise in the
market right now.
But, but as we've done thatstudy, uh, if anything, you
could, you could argue, we'veseen a little bit of easing and
select, uh, demand over time.
and that probably going tocorrect, you know, and right now
correcting, but overall it'sgood.

(01:05:53):
It's, you know, will we hit thewall somewhere, yes, but we're
not there yet.

Matt (01:05:59):
well, we've had that discussion here too.
I mean, we have, when I was akid, every time we would try at
this point in the cycle toraise, and I, when I say we, the
market would raise that Retailbeef price.
they'd trade down to pork andpoultry really quickly.

don-close_3_04-19-2024_1332 (01:06:19):
And we're not

Matt (01:06:20):
signal would pass.
And, and today we're servingthem a different product when we
have, you know, quadrupled orquintupled the amount of prime
and we've taken select almost.
I would argue that's why you're,you've got some noise in the
select thing is there's hardlyany select left.
I mean,

don-close_3_04-19-2024_133238 (01:06:37):
a true,

Matt (01:06:37):
you don't have enough quantity to actually.
even evaluate that.
That may need to go into yourground beef nation, Don.
But honestly, I mean, I don'tknow that we have approached a
complete inelasticity, but aslong as we're making products

(01:06:58):
that achieve excellence whenthat guy or gal takes them home
and serves them to their familyor orders them at Ruth's Chris
or wherever else, uh, they pay alot of money for experiences
that don't deliver near what wecan deliver with the, with a cut
of beef.

don-close_3_04-19-2024_1332 (01:07:15):
you know, and we're, we're keeping
an eye on the behavior of themarket since all of the, uh, the
COVID bucks I've been workedthrough, but, but when we're
sitting here with a, uh, anunemployment rate running three
to 4%, we are seeing, you know,an increase in, Credit card

(01:07:36):
debt.
We are seeing an increase evenin the the rate of credit card
payment delinquencies But iteven that is still below the
historical average.
So Where I'm going with that iswhen when you have the the wage
pressure that we have Just theinflationary wage pressure

(01:07:57):
because of the number of openpositions out there unemployment
as low as it is, consumers stillhave disposable income and, and
they, they're still, you know,still very active, supportive in
the marketplace.

Matt (01:08:12):
Well, it's a pretty good story for us as producers.
and you know, we talk aboutcattle cycles and we, talk about
are almost embarrassed at thesepoints of the cattle cycle to
admit that we sell beef for alot of money.
We're almost embarrassed that wesell calves and yearlings and
even fed cattle sometimes for alot of money.
But when you look at what wehave in it, labor, capital, you

(01:08:37):
know, not to mention feedexpenses and everything else,
um, we've probably earned it.
And I think that we as producershave to do our homework and dot
our I's and cross the T's.
And, and we started this thingoff talking about black swans,
um, make sure that we figure outhow we manage risk and make sure

(01:08:59):
we find opportunities to pricethese profits in when we can
and, um, hit singles and doublesand not try to swing for the
fences all the time.
But yeah, I, I, I'd say we'veearned it.
I mean, you talked about thecattle cycle responding as
quickly as it did there in 14.
I think part of that is Iremember discussions.

(01:09:23):
Clear back in 08, 9, 10 saying,you know what, maybe this 10
year cattle cycle no longerexists.
We almost missed or had a silentcattle cycle in there.
We went 20 years before we sawwhat happened in 12, 13, and 14.

don-close_3_04-19-2024_13 (01:09:38):
know,

Matt (01:09:38):
That might be part of the reason that that one.
Happened so quickly, went up soquickly, went down so quickly.
And this one is probablytracking with more of a normal
quote unquote, 10 year cattlecycle.

don-close_3_04-19-2024_13323 (01:09:50):
I, I would, I would agree with
that.
And, you know, when we, we wentthrough so many years when those
peak cattle inventory numbers of134 million in 1974, and we just
saw that continuous erosion, uh,I think that was really a
catalyst in there What maskedthat traditional cattle cycle

(01:10:12):
and we were openly well, is itstill there or not?
And many times I was on theargument that now it's not
there, but once we stabilized,reach that equilibrium point,
I'm with you.
I think it's very much intactand very visible in this cycle.

Matt (01:10:32):
And it helps to know that going into it.
So we can recognize.
When the right time, you know,when to hold them, know when to
fold them.
I mean, no, no, what we have andhow best to price those going
forward.
So, well, Don, I appreciate,your time and being with us and,
and all the work that you'vedone.
And, I will, if it's okay withyou, I will include, Terrain's

(01:10:55):
website and, and, uh, maybe evenyour email address.
And if people want to.
Discuss any further and get incontact with you or your team.
You do some great work there atTerrain and, and, uh, have with
Robbo and TCFA and all theplaces throughout the,
throughout the years and, andwhether my first brush with you
on your ground beef nation whitepaper or not was a positive one,

(01:11:15):
I've always looked forward to,to hearing your, uh, synopses
and, and, uh, work in beefindustry, economics and
everything else.
So thanks a bunch for being hereand have a great rest of the
day.

don-close_3_04-19-2024_13 (01:11:26):
Well, thank you for putting up with
me.
I've enjoyed it.

Matt (01:11:29):
You bet.
Thanks.

Microphone (Yeti Stereo (01:11:31):
Thanks again for listening to
practically ranching brought toyou by Dale banks, Angus.
We've sold most of ourregistered bred females that
were up for private treaty sale,but we still have a nice set of
private treaty bulls.
And we're also going to have asmall group of April calving
pairs for sale very soon.

(01:11:51):
They all stem from ourfoundation cow families
developed for decades right herein the Flint Hills of Kansas.
They'll make a nice set ofregistered or top end commercial
females for your place.
For information about any ofthese cattle, email me, Matt
[e-mail] or text 62 0 5 8 3 43 0 5.

(01:12:14):
As always.
Thanks for listening.
God bless.
And we'll be back again in twoweeks.