A Few Thoughts by John Nalivka – Outlook for Real Feeder Cattle and Calf Prices
March 1, 2018
As I sat down to write on a couple of key dynamics of this year's beef industry outlook that I think are significant, I was thinking that perhaps, with the recent introduction of meat produced in a lab or plant based protein, I might qualify that I am talking about the real beef industry. In fact, a new certification may be in order – "Certified Genuine Beef from Cattle that Graze". Maybe that label is too long. How about "Certified Real U.S. Beef?" At any rate, on to the topic at hand.
In 2018, real beef production will be up 6 percent from 2017 as herd expansion coupled with growing production efficiency continues to take hold. Last year, the beef industry produced 745 lbs. of beef per cow and will jump to 774 lb. in 2018. In addition, 5 percent more pork and 2 percent more poultry meat will bring the total per capita supply to over 222 lbs., a new record exceeding the previous record seen in 2007. This year's beef production coupled with projected imports and exports of U.S. beef will lead to a 10 percent increase in per capita beef use from the liquidation-led 60 year low in 2015. There is generally consensus across the industry that exports will continue to take a leading role if markets are to remain relatively robust with this much of an increase in per capita supply of not only beef but total meat. And, based on export performance during 2017, we can be quite optimistic about exports, even in the face of uncertainty about trade agreements.
Key to the feeder cattle and calf price outlook is the feeder cattle supply (estimated from cattle inventory), forage conditions, feeding margins and feedlot demand and thus, fed cattle prices. But, in addition, cow-calf profits and the impact on the decision to breed or feed heifers is key to the dynamics of the feeder cattle supply. So, the feeder cattle supply at the beginning of the year was down 2 percent from a year earlier and about the same as the January 1, 2016 feeder supply. Again, this can change based on the heifers. But, the current estimated supply would suggest that feedlot placements this year would be down about 2 percent from last year's large number (+9 percent). My feedlot placement projection assumes about 88 percent of the feeder supply would be placed on feed – about the same as last year. Again, that percentage varies according to decisions on heifers and markets.
Using this analysis of feeder cattle supply and expected feedlot placement activity suggests a sharply declining cattle-on-feed inventory as the year progresses. Furthermore, I would submit that it paints a relatively optimistic outlook for feeder cattle and calf prices. As always, I advise against throwing caution to the wind. The wild cards are still weather (drought), exports, heifer retention, and not to mention USDA's tally book! F