As we ride a positive swell of good feelings, cinched to the promise of making America great again, I’d suggest remaining firmly grounded. Reality will eventually sink in once the hype runs out, and we will all be reminded that the cow-calf sector is steadfastly caught in a supply-demand sleeper hold. Consistently strong reports from boxed beef and retail aid in that confirmation like a lethal, tag team.
The uncharted levels of volatility the cattle feeding industry has been bucking for some time appears to be subsiding, with cattle placements starting off the new year on a positive trend. Stabilization in feeding margins will help ease short term outlooks.
The trek to next fall is a long, unknown path shrouded by the inescapable cloud of robust feeder cattle predictions. By fall, farmers and ranchers might be tightening their belts even more. Keep a sharp eye fixed on severe weather and trade. These two elements could help shape the pricing landscape over the next few years and beyond.
I can still recall the intense, visceral stress I experienced throughout the last major drought. I spent each morning with coffee in hand, staring at the daily forecast searching for the slightest hint of rain. Several years of widespread drought kept national herd expansion idle and helped prolong this last cattle cycle. A long stretch of similar weather could very easily have as big an impact on the current one. Ample feed resources have helped ease the agony of recent feeder cattle market corrections. Imagine how painful this past October would have been if you had limited feed reserves and had no option but to sell?
Even as we watch the results of President Donald Trump’s first term play out, his agenda is a wild card for the beef industry. His approach to trade will impact the overall viscosity of American goods in the global marketplace. Restructuring current trade deals to remove or reduce our trade deficiencies should create long-term positive trade margins for America as a whole. However, the short-term effect of a strong stance on fair trade could limit export interest from major trade partners of agricultural products such as animal proteins, grains, hay and machinery.
According to USDA, agricultural exports are expected to trend upward in 2017 after back-to-back years of significant decline. Expansion in all trade sectors could have the positive trickle-down effect needed to add an element of stability to cattle prices. With China and Mexico expected to be agriculture’s largest trade partners, look for Trump’s fair trade policy to have a major impact on markets moving forward. The collective success of ranch and farm-level profits might be more closely tied to trade than you think.
As the Trump victory hangover begins to wear off, be mindful of the many impediments and hurdles that can spring up along the journey to the other side of the cattle cycle. Be proactive with your risk management practices. Plan and prepare for drought, potential trade obstacles and underperforming cattle prices. I’ll be right there with you along the way, waiting for the dust settle and hoping Trump can truly make America great again.