Good News, Bad News for U.S. Cattle Markets
The good news: The extreme cattle market volatility of the last couple of years – the near 100% swing in prices – is behind us and probably not coming back for a while. And there’s more good news: Everyone’s making a little bit of money right now.
The bad news: There’s a wall of meat coming: beef, pork, and poultry. It probably means that cattle prices haven’t hit bottom for this cycle.
That’s the summary of the CattleFax annual outlook report delivered this week at the National Cattle Industry Convention.
Here’s the breakdown by industry segment.
Fed cattle: When finished cattle hit $170 per cwt a couple years ago, no one expected it to last. And they were right. It bottomed out at about $98 last fall. It’s rebounded since to around $115 now, and that is allowing some profits for feedlots that did a good job of buying calves.
This year, CattleFax’s Kevin Good expects fed prices to average $110, in a range of $98 to $124. It could be a couple more years before the full market bottoms are hit in this stage of the cattle rebuilding cycle. But for now, feeders can buy calves and hedge in profits through the summer months, Good says.
Feeder cattle: The price for 550-pound weaned calves is expected to average $150 per cwt this year, in a range of $135 to $165. “We believe the average breakeven price for cow-calf producers is about $140,” says CattleFax CEO Randy Blach. “For the best producers, that breakeven is probably around $100. So, that segment of the industry stays profitable this year.”
Longer term is more questionable. USDA numbers say we have added 2.5 million cows to the breeding herd in the last three years, about half of that coming in the southern Plains, and 230,000 head in Missouri. Credit that to restocking after the drought. We could add another 400,000 cows this year, says Blach. Those calves will hit in 2018 and 2019.
Cull cows: They have also hit the skids in the last year and are expected to average only $65 per cwt this year, or lower.
Bred cows: Replacement heifers are a different story, says Good. “Normally, we say a bred heifer should be worth about 1.5 to 1.65 times the value of a calf,” says Good. If the calf is valued at $800, it means a bred heifer is worth around $1,300. While many bred heifer sales are at higher prices than that right now, he thinks they may be overpriced for long-term profit potential.
Total meat supplies: All three of the major meats are in expansion mode, and that’s scary, says Blach. In the last two years, U.S. farmers produced 5.5 billion pounds more beef, pork, and poultry, 25% of which was exported. The record supplies have cost farmers leverage in the retail market: two years ago, about 24% of the retail price of beef went to farmers, but it’s under 20% now.
This year, total meat supplies will be up another 3.2%, pretty evenly split between the three meats. If there’s good news on the horizon, it might be that beef carcass weights have finally plateaued out at 825 pounds in the last year. Six years ago, it was 50 pounds less, and the increases have added to the beef supplies weighing down the market.
Grains: Mike Murphy of CattleFax thinks that 2017 corn acreage planted will drop a million acres to just under 93 million, with production falling 700 million bushels. Don’t expect that to be a major market mover, with plenty of corn in stocks. “The $3.50- to $4.00-per-bushel spot futures should hold this year, with a very balanced supply-and-demand situation,” he says. “Harvest lows may get down into the $2.90 to $3.10 area.”
As for energy, CattleFax thinks gasoline and diesel fuel prices will both be up about 10% compared with 2016.
Trade: It’s the biggest unknown, says Blach. “All we can say is to keep your eye on it. How the deals are reworked will be VERY important.”