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Cattle industry outlook for 2018

Progressive Cattleman Editor Lynn Jaynes Published on 12 December 2017
Duane Lenz, General Manager of CattleFax

“This has been one of the few years in history when every segment of the industry made money. And that doesn’t happen very often,” said Duane Lenz, general manager of CattleFax, at the California Cattleman’s Association annual convention in Reno, Nevada. Generally, one segment of the cattle market makes a profit at the expense of another segment.

A quick review of 2017 saw production a little smaller – due mainly to lighter animal weights – stronger exports than had been forecast (resulting in smaller net supplies) and domestic demand was strong with the economy gaining strength, but volatility remained extreme on fed cattle.

However, Lenz said, the retail market is changing quickly and the search for recipes on Google has “gone through the roof.” People are staying home and cooking, or are into entertaining at home, while avenues like Blue Apron and AmazonFresh continue to grow, delivering fresh meats and produce to the consumers’ doorsteps. Although that bodes well for the beef market domestically, other domestic changes may be on the horizon. Two European companies, Aldi and Lidl, are coming or are in the U.S. now, and are targeting the big box stores. Lidl, a German-owned chain, purports to be “Costco on a budget” and carries off-brands and store brands that are low priced. They announced 20 stores opened throughout the summer, and the company hopes to open at least 100 stores across the East Coast by summer 2018.

With the onset of new grocery suppliers, Lenz said this would likely lead to pricing wars with Kroger, Walmart, Albertsons, Safeway and Costco. While retail beef demand may be high, prices will likely trend lower. Lenz said, “Consumers will likely get a good deal for a year or two, but it could change retail markets dramatically.”

Total red meat production in 2017 was up 3 percent, making it the second-most profitable year in history. Cattle inventories are projected to go up 700,000 in 2018 and another 200,000 head increase in 2019, with 2020 numbers plateauing.

Lenz reported the U.S. is in a La Nina year, which portends a likely drought in the Southern Plains and Southwest through spring and summer, which may mean extra cattle on the market as grass becomes unavailable. It may also make the Midwest drier, which may disrupt corn plantings. However, while we have a La Nina year, an El Nino is forming, which could break the drought and get the Central Plains wet again, but that scenario is too far out to be accurately predicted.

Lenz reported U.S. and global grain supplies are large, and corn prices will remain range bound into the 2018 growing and harvest seasons (projected at $3.35 to $3.85), basically remaining at cost-of-production pricing. While the Midwest is suffering through low corn prices, it means corn is probably not going to shift for the next six months.

U.S. cattle on feed will see an increase of 6 to 7 percent for the next few months, and those cattle will have to be marketed somewhere. The industry will have to work through some larger supplies in the next six months, Lenz said.

“If you can sell calves through video and contract them this spring, you need to take a look at that,” Lenz said. “Don’t gamble that the 2017 calf price will hold through 2018. If you can lock in a profit, take a look at that.” The U.S. average for breakeven is about $1.35 per pound. Lenz said, “If you can get someone to look at your cattle and give you a price and make a profit, take the money.”

Other outlooks include record production for beef, pork and poultry in the U.S. Lenz emphasized export market growth and access are essential to keeping domestic supplies manageable, and the U.S. is currently at a disadvantage on trade agreements.

Per capita meat consumption is expected to grow another 4 to 5 pounds by 2020 and create a new record. Slaughter capacity at both the fed cattle and cow level will be tight through the rest of the decade, Lenz predicted, and packing margins will remain robust as a result. Cattle and beef prices are likely to work modestly lower through 2020. And volatility and the speed of change in futures markets are not going away, Lenz said.  end mark

Lynn Jaynes
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PHOTO: Duane Lenz, general manager of CattleFax, encourages ranchers to contract calves this spring to maintain profitability in 2018. Photo by Lynn Jaynes.

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