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CattleFax 2017 outlook: Weather, grain and energy, and global protein trade

Progressive Cattleman Editor Lynn Jaynes Published on 14 February 2017
Art Douglas

It’s good news for the Midwest and Southeast in 2017, but the Pacific Northwest will likely encounter major drought. Why? “A new El Nino is coming,” said CattleFax meteorology analyst Art Douglas as he addressed the National Cattlemen’s Beef Association (NCBA) Cattle Industry Convention (CIC) attendees in Nashville.

According to Douglas, it’s very unusual to have two El Ninos back to back. The last time this occurred, he said, was in the early ’90s. He expects this time around the drought in the Southeast will break very quickly due to the new El Nino.

The main concern going into spring and summer is going to be the dryness seen developing in the northwestern U.S., Douglas said. However, the drought in the Southeast will finally shrink moving from spring to summer.

Throughout the summer as a whole, Douglas said temperatures are expected to stay warm in the western U.S. with dry conditions persisting in the Pacific Northwest and a very poor monsoon in the Southwest. On the other hand, east of the Rockies, it should be relatively wet all the way from the mid-Gulf Coast out into the lower portion of the Midwest, with no indications of dryness in the Midwest. The southeastern U.S. will finally get its share of rain during the summer.

Mike Murphy

Grain and energy outlook

CattleFax market analyst Mike Murphy also addressed the record crowd on Feb. 2 with positive outlooks for the grain and energy markets.

Murphy said, “Clearly, if you think about where we have been in the last decade, we’ve had huge growth in terms of supplies – led by wheat.”

Wheat producers have felt the brunt of the supply increase over the past decade and especially over the last few years. Not only do we have depressed prices in the wheat futures market, but base regional prices have had a lot of pressure as well. Total wheat supplies are expected to increase sharply, reaching the highest levels since the late 1980s.

Noting the record yields in U.S. corn, soybean and wheat production, Murphy also reported record U.S. supplies in place for corn and soybeans, which should stabilize prices in those sectors.

The soybean industry has seen six consecutive years of increased exports. Even with record yields, this increase in exports has been a factor keeping the supply situation in check, Murphy said.

We saw record corn yields in 2016 of 174 bushels per acre, with strong demand especially in the feed sector.

“The bottom line,” Murphy said, “as we think about the supply situation is that we’re in a very adequate supply environment from a historical standpoint, at least in comparison to the last 10 years.” Larger livestock inventories are expected to remain supportive to corn demand during the next two years.

Murphy said ethanol production should be sustained throughout the remainder of this marketing year and also beginning the 2017-2018 marketing year. The recent announcement from China banning distillers grains could play a role in ethanol profitability and influence production. Overall, however, supply and demand is balanced.

Looking at spring and summer, the domestic corn market looks to be adequately supplied with a 16 percent stocks-to-use number, Murphy said, “and we don’t expect to see a significant change from that as we go forward. Price should stay in a practical range of 3 dollars and 50 cents to 4 dollars a bushel as we look at the spot futures markets.”

Murphy continued, “As we head into May, we get our first projections for the 2017-2018 marketing year; a shift will take place, focusing on new crop corn. But overall, we feel like we’re pretty well balanced in terms of our supply and demand situation, keeping price fairly flat.” This should keep prices in a fairly narrow trade range.

Oil and energy

More oil production is coming from North America, Murphy said, with OPEC’s percentage of production expected to continue to decline through the end of this decade.

In the states, price has begun to stabilize; we found our lows about a year ago. Price then improved beginning in 2016. In the second half of 2016, a few more rigs began operation and production started to rise with demand improved as well. Murphy estimated a price for crude oil in 2017 of about $48 per barrel. Retail gas will be about $2.50 per gallon average for the year. Seasonally, he said we should see higher prices going into spring and a decline in the second half of the year.

Trade outlook

Regarding the global protein trade outlook, Murphy said, “We feel in 2017 that the currencies will have less of an influence on the trade situation, specifically as we look at the U.S. and our ability to export because we think that the overall supply market is not quite large enough to supply the globe’s needs from at least the beef sector.”

China’s increase in pork production may affect the ability of the U.S. producers to export pork, which means that protein supply has to be consumed domestically or sent to new markets. “But,” Murphy said, “on the beef side, we feel like we’re going to be in good shape and commanding the marketplace.”

“We’ve got slight decline in price again here globally for 2017, obviously increasing in that overall production,” Murphy said. “But when you look at global beef production, [there is] not a lot of change from year to year over the course of the last decade. That’s what’s helped sustain this overall uptrend in price through 2014. Now remember, Australia had gone through a significant drought situation. ... They are in the midst of a very rapid expansion, just like the U.S. was here a couple years ago. So when we think about 2017, and we look at our opportunities from a price standpoint, we’re cheap relative to the Australian product market. And that’s going to create an [opportunity] for us to have very robust exports for 2017.”  end mark

Lynn Jaynes
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PHOTO 1: Art Douglas, CattleFax meteorology analyst, addresses cattle producers at the 2017 NCBA Cattle Industry Convention.

PHOTO 2: Mike Murphy, CattleFax analyst, also addresses cattle producers at the 2017 NCBA Cattle Industry Convention. Staff photos.

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