Volatility continues to affect cattle markets

Volatility continues to affect cattle markets

High Plains Journal, By Jennifer Carrico

The drought monitor shows the worst conditions in South Dakota and Montana. With other areas getting much needed moisture, crop yields and production was better than it has been in the past four years.

“The projection is for 14.184 billion bushels of corn for 2017. While that is good for the corn growers, it seems that years with good crop production are difficult years for livestock producers,” Blach said.

Eight million more cattle are expected to be produced from 2014 to 2021, after recent drought cut 40 million head from beef herds. About 75 percent of the decrease in cattle numbers was offset by increased productivity in the beef sector and an increase in demand for beef has kept prices from decreasing dramatically.

“There was a 50 percent reduction in beef demand from the late 1970s to the late 1990s,” Blach said. “Demand is 21 points higher today than it was at the low in the late 90s.”

Cattle prices peaked in 2014 and 2015. Blach said prices will be soft into the next decade until there is an obvious increase in demand to help push prices higher.

U.S. cowherd rate of expansion has slowed in 2017 after the increase from 2014 to 2016. In 2016, the lowest percentage of heifers were sent to slaughter, showing the increase in the cowherd. The Southern Plains lost 1.8 million beef cows due to drought, but from 2014 to 2017 the same area saw an increase of 1.159 million head of beef cows.

“Beef producers are seeing more profitability, but we are also seeing more consolidation in the beef industry,” Blach said. “Most of the growth has been in the bigger operations.”

Big numbers in the High Plains

Cattle continue to be fed out in the Midwest and High Plains as the Ogallala Aquifer provides a plentiful supply of water for feeding cattle. About 80 percent of the domestic supply of cattle are fed out in this area. Blach expects an increase of over 27 million head of cattle to be fed out in the next few years; however, the problem will be not having enough harvest facilities to handle the increase.

In addition to increased beef cattle numbers, production will increase further with more pounds per animal and better conversions of feed to meat.

Exports will progress to nearly 16 billion pounds of protein in the next few years, valued at $15 billion. If that was eaten all domestically, it would mean 40 pounds more beef would need to be consumed per person in the U.S.

“By the end of this decade we will be back up to 220 pounds of red meat and poultry consumption in the U.S., which is back to the levels in the early 2000s,” he said. “The low was in 2014 of less than 200 pounds. This would coincide with higher beef prices.”.

Exports have been hampered by the BSE case in 2003 and trade tariffs, which prevent exports to some countries.

“The next few months will be critical in getting trade agreements with countries like Mexico, Canada, South Korea, Japan and Hong Kong. China will also be a place for growth for beef,” said Blach. “Growth will be slow, but we should see it in the next few years. We need to meet the demand of the consumers.”

Better quality, better demand

An increase in choice and prime carcasses in the past few years has helped with the value of beef. In 2005, 56 percent of carcasses fell into those grades; in 2017, it has increased to 78 percent. The choice-select spread is $10. The market wants quality and beef producers are figuring out how to raise higher quality beef.

The cattle business is profitable—some years more than others. Most cow-calf producers haven’t lost money since 1998. Exports continue to be the key for profitability, but Blach said it’s important to not compromise animal health and good genetics to try to make an extra dollar. Value-added beef continues to be worth more. Value can be added by having calves pre-weaned prior to sale, having a certified vaccination program, a source verified program, a breed and certified management program and performance history.

Prices are expected to trend lower into the end of 2017. Blach expects 2018 to show calves worth $160 per hundredweight, feeders worth $140 per cwt. and fed cattle worth $114 per cwt. Corn supplies remain large and prices for 2018 will remain in the $3.35 to $3.85 per bushel range.

“Volatility and the speed of change in these markets is not going away. We need to continue to expand exports and put more protein on the plates of consumers to see our industry have higher prices,” Blach said.