by: Wes Ishmael

Further expansion of the U.S. beef cowherd remains a possibility this year, but seems less likely than when the year began. More than usual, plenty depends on weather and demand.

“Consumer demand for meat was stronger than average in 2017. It is rare for meat supplies to grow as they did last year without output prices suffering more severe declines,” say analysts with the Food and Agricultural Policy Research Institute (FAPRI) at the University of Missouri. “While economic projections point to U.S. meat demand remaining solid, prices are projected to retreat for most products in 2018 due to continued supply pressure and a return to more historical levels of consumer demand.”

So far, beef retail prices suggest that domestic consumer beef demand continues to maintain strength.

“The All-Fresh beef retail price for March was $5.598/lb., up from $5.530/lb. in February and up 0.9% from one year ago,” explains Derrell Peel, Extension livestock marketing specialist at Oklahoma State University, in his mid-April market comments. “Choice boxed beef cutout declined from a February high of $224.46/cwt. to $213.34/cwt. in mid-April but remained 1.6 percent higher year over year.”

Moreover, Peel noted, “The ratio of retail beef price to both pork and broiler continues to hold strong despite growing supplies of beef, pork and poultry.”

U.S. beef and meat exports continued strong, too. According to the most recent statistics released by USDA and compiled by the U.S. Meat Export Federation (USMEF), U.S. beef exports were higher year over year for both volume and value.

Specifically, February beef export volume (100,593 metric tons) improved 11 percent from the previous year, while export value increased 18 percent to $599.8 million.

February beef export value averaged $322.29 per head of fed slaughter, up 16 percent from a year ago. Through February, per-head export value averaged $306.69, up 15 percent.

Of course, that was before uncertainty about trade escalated as the U.S. levied new tariffs on some goods from some countries, and some of those nations retaliated in kind.

Heavier Supplies to Come

All of that occurred with less beef tonnage than anticipated in the first quarter, due to a number of factors, including the increased percentage of heifers in the fed cattle slaughter mix.

“Beef production is up about 1.5 percent so far this year but total production is projected to increase roughly five percent year over year by the end of the year,” Peel explained.

Although analysts with USDA's Economic Research Service reduced estimated beef production for this year in April, they forecast it at 27.6 billion lbs., in the April Livestock, Dairy and Poultry Outlook.

Likewise, pork and poultry production continues to increase.

“Production of beef, pork and broilers are all expected to be record large in 2018 leading to record-large total meat supplies of nearly 103 billion lbs., up 3.3 percent year over year,” according to Peel.

Markets have been expecting this for months, of course. Anticipation of the most fed cattle coming to market in years (from late April into July) cast a bearish pall over markets for weeks. The endless winter will likely change when some of those cattle head to town, but not the number of them.

Throw in the deepening drought across wide swaths of cattle country and associated doubts about how many of last spring's calves are left to place—lots more calves were placed early due to drought.

Add the sagging markets in March, and questions increase about how many producers can and will continue to grow herds.

Thus far, U.S. herd expansion is the most cyclically aggressive in history, buoyed by what had been historically favorable forage conditions, stable to lower feed prices and overall economic incentive. This year began with 31.7 million head of beef cows, two percent more than the beginning of 2017.

At the beginning of April, though, analysts with the Agricultural Marketing Service noted that heifer and beef cow slaughter were running significantly higher year over year. Through the first quarter, based on preliminary data, they say heifer slaughter was four percent more than last year and 10 percent more than the three-year average. Beef cow slaughter was 10 percent more than last year and about 19 percent more than the three-year average.

Peering Further Ahead

Depending on your own crystal ball, there's also likely a canyon-wide gap between your expectations and one or both of the often-referenced 10-year projections from USDA and FAPRI.

The most recent projections from both came out in February-March. It's worth keeping in mind much of the calculation was done before the start of the year, without the benefit of year-end cash realities.

Differences between the two projections are stark.

For instance, FAPRI projections are for cattle prices to decline the next couple of years before increasing gradually for the rest of the projection period. FAPRI forecasts the low fed steer price at $110.15/cwt. in 2020, increasing to a high of $132.41 in 2027. The low for feeder steer prices (600-650 lbs., Oklahoma City) is projected at $138.34/cwt. in 2020, with a high of $183.42 in 2027.

On the other hand, USDA projects declining cattle prices for the next decade. They project a period-high annual fed steer price this year at $117.25, declining to $97.13 in 2027. USDA projects the highest feeder steer price (Oklahoma City, 750-800 lbs.) for the period at $144, this year, declining to a low of $104.94 in 2027.

“Food and feed grains prices are expected to have bottomed out by marketing year 2017-18. Marketing year 2018-19 marks the beginning of gradual price increases that are expected to continue through the decade,” according to the analysts with the World Agricultural Outlook Board.

Among the reasons for difference in price forecasts between the projections: total estimated beef production.

FAPRI estimates beef production of 27.5 billion lbs. this year, growing to 28.5 billion in 2020 and 2021, then declining gradually to 28.2 billion in 2024; fairly static for the remainder of the projection period. USDA projects the period's least beef production this year at 27.6 billion lbs., increasing to 29.1 billion lbs. in 2027.

FAPRI sees the beef cow inventory peaking at 32.00 million in 2019 and 2020 and then gradually declining to 30 million head in 2027. USDA estimates the period peak for beef cows at 32.2 million head next year and then declining to 31.1 million by 2026.

Although price levels and the market ebbs and troughs are vastly different between the two forecasts, both emphasize the importance of consumer beef demand—both domestic and international—to future cattle and beef prices.

“Per capita use of red meat (beef and pork) and poultry (broilers and turkey) is projected to rise from roughly 218 lbs. per person in 2017 to 222 lbs. by 2027,” say USDA analysts. “This represents a return to pre-Great Recession availability levels, marking a rebound from the low of 199 lbs. per person observed in 2014, a level not seen since 1991.”

“Though meat exports will continue to increase in 2018, even larger production increases will result in more meat for U.S. consumers,” FAPRI analysts explain. “Per capita availability in 2018 will be nearly 20 lbs. (10 percent) above 2014, returning to levels last experienced in 2004-2007. Production growth will begin to slow in 2019, and domestic supplies should peak around 2020. Any unexpected challenges to domestic or international meat demand could severely deflate livestock prices.”

In the meantime, the growing domestic economy promises to support consumer food prices in the U.S.

“Food inflation recorded less than one percent growth in 2016 and 2017,” say FAPRI analysts. “It was the first time that consecutive years had grown by less than one percent since 1955-56. The food at home price index declined in both 2016 and 2017, as commodity prices fell and energy prices remained low. Food prices have begun to increase in recent months, and will post more typical rates of growth moving forward. Food away from home inflation is driven by a strong economy and more restaurant food consumption.”

“Strong demand supported cattle, hog, chicken and milk prices in 2017, in the face of large increases in meat and milk production,” FAPRI analysts explain. “Further production increases could weigh on livestock and dairy prices in 2018 unless demand growth is exceptionally strong.”

Don't forget to BOOKMARK  
Cattle Today Online!