Heading on the cattle drive with Kyle Bumsted

Paul Yeager: Hey, everybody, it's another Tuesday, which means it's another M to M Show podcast. I'm Paul Yeager. Today, we're joined by Kyle Bumsted of Ericson, Nebraska. And we're not even going to introduce you, Kyle, we're gonna let you introduce yourself. Give me the elevator pitch. Who's Kyle?

Kyle Bumsted: Well, Kyle is a farmer, rancher row crop out here in central Nebraska with my family here. So we do everything from cow calf to backgrounding and into feeding them out. And then we also row crop on the side row crop corn, soybeans, and quite a bit of hay out here. A lot of pasture range land.

Paul Yeager: I didn't hear you mentioned anything about a pencil. I thought you're supposed to have a sharp pencil is all of those things?

Kyle Bumsted: Oh, well, you do? You do. But I, I liked mechanical ones. So you know.

Paul Yeager: So when you say, you mentioned a whole lot of things, what's, of those? What's your favorite to do?

Kyle Bumsted: Um, I'd say probably the row crop. And I like it all the row crop out here, because it's a challenge. I mean, I grew up in western Iowa. And there, we didn't have any irrigation, didn't have any Chemigation didn't have didn't have a lot of the stuff we have to deal with out here. And the climate is so much different. So it's definitely a learning process every year is very different. And you know, the old timers used to say once you get western Missouri River, you measure water or rain in hudredths of an inch and yeah, that is very true hundredths of an inch. I'm used to when I was growing up, it was an inch or two of rain. But now it's actual hundreds that we measure.

Paul Yeager: Well, you mentioned Western Iowa. Yeah, they used to think are they still say they're still dry. But you're you're thinking that's an oasis compared to where you're at?

Kyle Bumsted: It is they've actually gotten some snow. And I think at this point in time where we're at, we will take any moisture we can get at this point.

Paul Yeager: Well, Kyle, you mentioned in Nebraska, so the Sand Hills, right. Is that correct? You saying there was a little more sand? West of you?

Kyle Bumsted: Yeah. That is correct. The folks around here say the true Sand Hills start west of here about 30-40 miles. So yes, have some extended family over there. And they are right getting into the to the heart of the sand deals over in that country. And it's been very, very dry, very dry.

Paul Yeager: You feed and finish. But you also work on analyzing and selling. Is that accurate? That's correct, sir. When you say analyze, what do you look at when it comes to cattle markets?

Kyle Bumsted: I'm most of the stuff I look at. I look at the cash market, obviously, because cash drives the futures market. I focus a lot on spreads. How are the front months be behaving compared to the deferred contracts? And what are we seeing out there for movement? What's our slaughter pace? What's our feeder cattle movement? And what where are we at on the calendar, that's always a good thing to to know to is where we're at on the calendar also like to watch the economic indicators too, because well, at the end of the day, beef is still demand driven. And while it's a good product, people still have to be able to afford to buy it.

Paul Yeager: We are recording this in late 2022. How has the year been for the cattle producer as a whol,e not necessarily in Nebraska.

Kyle Bumsted: As a whole, it's like any other year, I'd say this year has been better, but it's had its ups and downs. This past week, we scored the highest cash market that we've seen all year. I'm actually kind of looking for a little bit firmer cash this week. But we are kind of at that cusp of the of the year coming in to the end of the year, where we could see this market break back a little bit based off the fact that we could see some slowing demand.

Paul Yeager: Is that a slowing demand because of just the time of year you mentioned something about paying attention in the calendar or is it because it's one of those too high prices knocked down the demand?

Kyle Bumsted: I think it's more of a time of the year. I mean, we're sitting here at the holidays, most of the procurement for the box side is getting wrapped up for the end of the year, you're seeing you're probably gonna see a little bit more here after the holidays, maybe restock some of the shelves and I think we'll see some intermittent demand. Once we get the snow cleared out of the Northeast, there'll be some boxes shipped to the northeast. But for the most part, I think most of the consumers right now we're looking at well, I've got to put Christmas on and you know, 30 days, we're going to sit here looking at a Christmas tree instead of each other Paul, and then in 60 days, we're going to go to the mailbox and we're gonna say, oh, yeah, about Christmas that's starting to come due now. So I think there's that aspect that has to be taken into consideration.

Paul Yeager: On the consumer is always, both a good and fickle indicator, right? I mean, it's kind of hard to, I like to tell people I was just speaking to a class recently and I said, you know, I've tried to go to the grocery store at the same time each Saturday for since the COVID thing had started just to kind of see my own scientific experiment of what has been up what has been down what's in the case what's not I don't have the case. I look at the the meat counter and I just see, am I crowded? Or am I not? And it's interesting to see how they shift. How is the consumer shifted the way you say see things here in the last two years.

Kyle Bumsted: I think they've shifted a lot more to the grocer, instead of going out to restaurants, obviously, you know, since the nation and the world essentially was virtually locked down, we started to cook more at home. So I think the demand shifted more to home, they went to some, you know, nicer cuts while they were at home. But those, those higher dollar high protein cuts are still a luxury item, and they still dollar up pretty fast at the cash register. So I do the same thing. We go to the city now. There was a time when the family and I lived out in the suburbs of Chicago. And it was always very interesting to me a farm kid where when we we needed to go meet shopping, we just went to the the freezer, I mean, let's face it out here. In some places, our our protein bill comes off the schedule left. So it was always very interesting to see how the consumer spent their dollar. And I think that, you know, since I guess I would say recently here, I've started to see him back off just a little bit, not not a lot, but they've gone for some of the cheaper cuts. As you know, we have some economic indicators that say we could be struggling economically.

Paul Yeager: Well, and is that the biggest sign of Whoa, to come for the cattle producer when the consumer starts slowing up? Or is there another factor that the cattle producer has to keep an eye on?

Kyle Bumsted: I think that's just part of the puzzle here. And I'm not sure which which sector is going to get the margin squeezed the most, whether it's going to be the retailer, or the packer or the feed yard, or the or the actual feeder cattle producer, I haven't been able to pinpoint which one's gonna get squeezed the hardest as far as margin goes. But I think as far as cattle production as a whole, we, we've seen some really good clothes out here lately, from cattle that were bought here a year ago, some of these cattle have been on feed for, you know, 290 to 300 plus days, they've had some really good, some really good returns. But when I look at it, and the numbers that went into those cattle, we had a whole different cost structure going into it, whether it was our interest rates, cost of corn cost of our feed, or just cost of feed in general, and cost of transportation. So now that we're placing cattle, and we're looking at a summer futures out there trading, you know, 155 to 160, depends on your month. I'm questioning, are we going to have the same margin? Is it going to be a little bit worse? Or are we just handling more dollars in between? Did we have the same margin at 120 to 130? Cattle that we're going to have maybe 160 To 150 to 160, maybe 170? If we get there is the margin can be the same. We're just handling more dollars in the middle. That's the question.

Paul Yeager: So different sets of dollars are different sources of them. Is that what I'm picking up what you're saying?

Kyle Bumsted: I guess what I'm I guess what I'm looking at is different input costs. Yeah. But yeah,

Paul Yeager: yeah. Right. So there's always a cost. It's just the cost is different. So you just say, Oh, my goodness, this one's way higher. But yeah, but look over here. It's way lower. So okay, I get what you're saying. When you talk about margins, let's talk about the packer margin for a minute, I guess. I'll use you to say, what's your definition of a packer margin?

Kyle Bumsted: That's a good question. I don't know if there is a textbook, you could use the you know, add your choice and select and divided by a certain percentage and, and everything. But there's a lot of other factors that go into it. And so a rough estimate, yeah, you could say the packers right now, maybe you're at breakeven, maybe making, you know, three to $4 a 100, whatever it may be. But what I look at here is where they're sitting at. And if this box continues to decline, and if we are on the precipice of tightening numbers out there, which some of the future spreads have indicated, we could be tightening some of our numbers a little bit, I will give it that we're still in bearish territory getting on spreads, we'll get to that later. But I would not be surprised if the packing industry doesn't come in here and try to break this market after the Thanksgiving holiday. And that seasonally going back to the calendar again, that seasonally does happen once we get through this Thanksgiving holiday where we see less demand because the boxes aren't moving and then we do see an industry that has tried to break the cash market just a little bit.

Paul Yeager: I have to say that we hear a lot about the packer margin when it is in favor of the packer and not so much when it's in favor of the consumer. The politicians get a little excited because their constituents get excited. Is it good that when we have high packer margins?

Kyle Bumsted: it's tough to say I think it's it's like any business that's how you get everything bought on the input side. And I think that's how a producer needs to adjust on their end is how they can how they can protect themselves and control what they can control. I can't control it. The packing industry may So it's something that I try not to focus on a lot, because it doesn't help me in any way, shape or form by the margin that they're making or not making. So what I try to focus on on the producer side of things is what I can control going into my equation?

Paul Yeager: Well, I'm that's how I was gonna say. So that helped me out what can I control then right now?

Kyle Bumsted: I would say probably, you can probably control the cost of feed inputs. If we can do something like that. Or we can probably, we can do some things here. As far as protecting our downside in this complex here. Like I said, everybody's margin is a little bit different. Some some of these folks have a 160 that works in the summertime, maybe it's in the form of an option or something along those lines just to protect our downside. And that's something that we can control, we do have the control over what we can either, you know, lock in for profit or lock in for a limited loss. If that's the case, I don't know everybody's in a different situation. So it's best taken on a one on one, one on one basis.

Paul Yeager: And when you're talking there, are you helping others do this? Is that part of your business? 

Kyle Bumsted: Yes, that is part of it. Yes.

Paul Yeager: So when you say, let's do, let's buy something here, let's protect it this way, let's look at that spread. How willing are customers to do that right now?

Kyle Bumsted: The folks that feed on margin, or know that they have to lock in a certain amount of margin, if they're borrowing a lot of money, they are very willing to do it because they know where they're at, at the end of the day, some of them that have a lot of equity or a lot of cash or don't have to worry about it so much, they're more willing to sit ride for a little bit. But your yards that basically feed on margin, they are more apt on getting something protected, either whether it's corn to the upside, or feeder cattle or live cattle to the downside, they're more apt on getting something protecting and controlling that that input or output cost.

Paul Yeager: When you look at cost structure, we kind of talked about how things are changing have changed. Do you find that a larger producer is better to handle irregularities in input costs than a smaller producer.

Kyle Bumsted: Sometimes, but not necessarily. I know a lot of very successful smaller cattle feeding operations that you know, they feed with some there's some of the feed with very new equipment, some of the feed with very old equipment, and they have a very, very good margin. And then I've seen some large yards that don't have very good margin either. So they are more trigger happy, if you will, to do something as far as protection, whether it's on the input side or on the protection side of the doubt in the cattle.

Paul Yeager: We're talking about some general generalities here about economy, what's the weather story going to do to this cattle market?

Kyle Bumsted: I think if we get some widespread rains out here, you'll see feeder cattle take off and rally really good because we'll start to see some hefty retention. Now, that's not going to be the first inch and a half or two inches of rain that falls out here on the plains, I think it's going to take a general soaking rain or multiple moisture events in order to get people back comfortable to be able to start retaining heifers. Because we've depleted a lot of our our grass or stockpiled grass, even our old hay piles and stuff like that, that we've been saving for reserves, a lot of those have been depleted, and a lot of the old cows have gone to town. So now we're kind of at a at a cusp here of do we start to send younger cows to town, which it is somewhat happening in different areas, if they're coming off grass right now, especially in this area, and they don't have a calf on them or they're open, they're going to town.

Paul Yeager: So in a sense, I think I can hearing you say there is been an upside to some of this reduction in the herd because maybe we have gotten rid of some of those animals that maybe weren't up to par with what we need to be efficient in our operation. Did I catch that?

Kyle Bumsted: Yeah, that is correct. That is correct. And, and most of the ranchers don't like to get rid of cows unless they're a fence jumper or they just don't produce but it is just something that we have to we have to live with from time to time. And that is correct to should should should be taking out, you know, the the poor, lesser doing animals and should be helping improve the efficiency now, whether that improves the efficiency of your pastures and whatnot, you may have to retain some there just to keep things in balance on that order.

Paul Yeager: Have you heard anything about some of the larger lots or just anybody really, for that matter in Nebraska, Kansas, Oklahoma, other big feeding areas, shipping animals temporarily somewhere else? For feeding to kind of take off some of that pressure that might be in a drought? But location?

Kyle Bumsted: Sure that has that was a big thing here last year. I can I do know of a few instances where they brought especially your seat stock and purebred operations that have you know, longevity and bloodlines. And that's not something they can just get give up overnight, and start back with next year if things turned back around. So there was some of that movement. There were some cattle moved from the Southern Plains up here last year to graze on stocks and some of the winter stockpile and now we're at that point where it's Some of our cattle might be getting shipped east over towards that Iowa direction there, where they do have corn stalks, degrees and stuff like that for the wintertime.

Paul Yeager: How's that work that someone? Does they just pick a random person? Do you do? Is that a temporary thing that someone says, Yeah, I'll feed for a cost. I structurally How does that work?

Kyle Bumsted: Structurally, yeah, they basically hear the cows certain amount of days for a certain amount per head per day, whatever it may be per per operation. And then usually, the person that owns the cattle their day, they've got to pay the freight and whatnot. But then once they get there, they usually have to work out a deal with salt mineral does, you know who pays for what, you know, do we keep track of the receipts on that, but it's usually a per head per day or so many days per animal unit.

Paul Yeager: Now, are you hearing any region doing it more? I mean, granted, you're in the middle of Nebraska there. But I'd heard the story. We talked to the people in Oklahoma, and said that that was happening, or maybe not as many cattle were coming in Oklahoma because it had been dries. Is that what you're hearing?

Kyle Bumsted: There has been some of that. Yeah, there's been so much there's been some move to the north here. And you know, somebody got moved to South Dakota from Oklahoma just kind of one of those deals to where they kind of met up and it was the right fit for each other where one guy had the winter pasture he could spare and the guy had had some cattle that they needed to, to hold. So that's, that's what I've seen. Yes,

Paul Yeager: Arlight Kyle let's do this, live cattle. Let's talk futures looking for the next - I like to say three months. That's we're getting through the holiday, we'll get into the new year. Where are we headed?

Kyle Bumsted: I think once we get through the first quarter, we're going to be headed higher. I do think there's going to be a nice down turn here around the holidays, as it historically is. But I do think once we get through the first of the year, you do get some of that new New Year new mentality, new money type thing coming back into the complex. And we've also seen some of our non commercial traders liquidate their large long position here in the live cattle complex. So I would not be surprised if they come back. Now that's all going to be depending on the economy and how they see it fit. Where are they going to best invest their dollars, they're going to be back into the stock market? Is that going to be in the grains? Is that going to be in the lead cattle? That remains to be seen yet, but we are starting to see some things change in this live cattle market. And by change. I mean, looking out at those different live cattle spreads. As I mentioned before, we're still in bearish territory on the spreads and bearish is bearish territory historically, I guess, is where we're still sitting with those where the deferred contracts are still keeping the premium to the front. And I think that if we can get our feet cost under control here, you will see some guys feed cattle into that premium, you know, some some of the operations are still of the mindset, big cattle, big check. So we could see some feed into that premium. Yes. But I do think once we get through the first, probably four or five months, maybe around that June July timeframe, we could really start to see this tightening in numbers really start to affect the complex. And by that time, we should probably have most of the cows work through the system that we're going to have worked through the system. And if it does start to rain, then I do see a decent lessing up that cow slaughter and then moving more into a live cattle slaughter.

Paul Yeager: Well, and, do you think we've hit peak weights? For now? I think story in the last three to six months as weights were really, really high.

Kyle Bumsted: Yeah, we've we've seen a small decline here year over year. But I do think that weights are going to start trending higher. Now, we haven't seen that massive snowstorm in the southern plains that just keeps everything blocked up here for, you know, two weeks or whatever it is. But I do think the weights are going to seasonally start working higher as they typically do this time of year.

Paul Yeager: Okay. Let's look at the feeder cattle business. Same thing. What do you see here futures wise in the next three months?

Kyle Bumsted: Futures wise, that is one market that still has a little bit more bear spreading going on there. And by that, I mean, they're keeping the premium out there in the back. Something that they really have going for them as far as the feeders go is the large short position held by the non commercial traders out there. And I think that that complex, like we saw today saw a nice little rally to it. And it was a little bit vulnerable to some short covering. And I think that's what we're seeing. But what bothers me just a little bit here is this tight. This is the time of year where a lot of people get pulled up on the feeder cattle. And I'm actually taking more of a neutral to slightly bearish stance because when I tracked that feeder cattle index versus where we're sitting out here with the January futures contract, we're sitting here in the mid 170s for a cash index, and we got January trading, you know, 182 area 182 Or excuse me one, yes, 182 182 and a half area. And those are going to have to converge at some point in time. And I don't think we're ready to do that just yet. And we're going to start to see lighter numbers come through here in the next three to three to five weeks as we get work through the holidays and then it's typically a rough market or A softer market the first two weeks in January. But after that we start to trend higher in feeders. And I really think that if we are coming short on these numbers, depending on what people have for input costs on the other side, whether you know feed inputs and whatnot, we could start to see these feeders here. Once we get into late spring really take off, especially if we get some grass growing up here in the northern plains, you know, you can see a lot of these folks with crikey, pastures and whatnot, they could really start to go to town and start buying these feeders to put on grass pastures.

Paul Yeager: Well, you get that answer. That's like 10 inches worth right of rain when you say you measure in tensth of an inch. That is true. Yes. What about the hog industry or the poultry? What do you follow either of those.

Kyle Bumsted: I do follow the hogs a little bit in the poultry industry just a little bit as well, too. But with the hogs. It's a it's a lot more corporate, but I do follow the spreads here as well, too. And, you know, after we've seen some nice rallies here in the hogs, it was good to get some protection on here a while back. But I do think that longer term, they're going to succumb and have some issues to deal with as far as live cattle due to as far as economic woes and whatnot. 

Paul Yeager: Do you see the at least moving forward while spread it out? I'll give you the six months to 12 months, do you see exports being a bigger deal in the hog market than it is the cattle market?

Kyle Bumsted: That's a very good question. I know a lot of eyes are on China right now as far as when it comes to pork, soybeans, grains and things like that. But I don't see a lot of people talking about Mexico and Mexico is has seemingly been at the top of our export list several weeks in a row when you see the pork shipments, sales and shipments, Mexico is number one, Mexico is number one. So I do think that exports are a big picture thing. I do think that if we can get this dollar to weaken a little bit, I think it's only going to help solidify our export our export picture, whether it's to Mexico or to China or other foreign countries, whether it's Pacific Rim as far as beef is concerned, or if it's to China, as far as pork is concerned, I think that's only going to help things if this dollar does break. And we've seen this dollar rally rally up into the 130s. And now it's back into the 107. So I think that the dollar may have put in a long term tarp, it's just gonna take some time for us to get that dollar to settle back down and make us more competitive.

Paul Yeager: Poultry wise, we don't do much on the show with that. But I'm always curious what is going on. As we record this, it's right before Thanksgiving, we saw the the the the main street press talks about the high price of Turkey. Because of a lower population, we've been dealing with this HPAI, It looks like it might psych you never know how often that thing's gonna cycle up and cause problems. But what's the ramifications on the other meat markets when poultry keeps having problems, specifically turkey?

Kyle Bumsted: Well, if you do start to keep if you keep having or start to have more problems with it with the avian industry, I think it's going to switch over to other meats other other white, you know, like pork or beef, and people are gonna say, Well, I want to eat meat. So that's what that's what opportunity I have, or that's what choice I have. So if we do start to see thinner herds or numbers dialed back there in the poultry, we could definitely see them switch proteins over. So we do have the cold storage report that's coming out on Tuesday. And that's one thing that I'm really going to be interested to see is where are we sitting at for broilers and turkeys? Because it seems like those are the ones that are in high demand when meat is expensive. And I do know that a lot of people say that beef and pork per capita is just as competitive as pork or chicken. But when it comes to the cash register, and you're laying out, you know, cash to pay for groceries, they have been able to get more protein per se with pork or excuse me turkey or chicken than it has been pork or beef. So I do know that per capita, you know, per capita, it is about the cheapest out there and it's very competitive. But we always buy bigger cuts of beef or pork than we do turkey or chicken. So that's still on the consumers back pocket there.

Paul Yeager: When I say the name Walt Hackney, what does that mean to you?

Kyle Bumsted: It I remember watching Walt, he, he's a guy that he can put it all together with a one liner and I don't know if anybody will ever be able to compare to all hacky, but he's the guy who had boots on the ground experience whether it was in the sale barn, or in the back store and fat cat cattle he had it there and I I really, really miss listening to Walt.

Paul Yeager: I cite a couple of his lines still to this day. It's hard to lose money taking a profit. A lot of a lot of people like to lose that use that. But you know, and he used to talk about worried you know, Kyle, sometimes we get greed. He said in some of his operations, what they would do was put a number on each animal. And when that animal made that profit, they move the animal down the line is is that still apply to be a good philosophy

Kyle Bumsted: I think it does. Yes, I really do. And, you know, there's that. That fact is that greed, and there's the difference. And I think he hits on it with that line too. There's a difference in greed and the difference in need. And if I need this, and I've got it, then don't be greedy. Take it, move it on down the line, get rid of it. Let's, let's get something else in here. And I, I do think that we've, we've really worked on that here in the cattle industry as far as on the cash side, because with the way feed costs have gotten southern plains, I don't think producers have been greedy. I think that they've gotten where they could they've gotten what they need, or they've gotten what they can get on the animal. And so it's moved on down the line, as opposed to trying to hold out for a little bit more.

Paul Yeager: Well, we're gonna hold out for a little more conversation with you. Down the road, Kyle, I appreciate it a ton. Thank you so much.  Kyle Bumsted: You bet. Thank you. 

Paul Yeager: Alright, that's Kyle Bumstead. He's an Ericson, Nebraska and thanks for joining us here on that cattle discussion. And thank you for watching here. This M to M Show podcast. I'm Paul Yeager. Thanks for watching. We'll see you next Tuesday. New episodes come out. You can either subscribe in audio form or in video on YouTube. Thanks for watching.

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