‘Perfect storm’ points to rosy picture for cattle industry
August 11, 2014
The cattle industry is transitioning from the liquidation phase to the expansion phase in terms of cattle numbers, according to Kevin Good, senior market analyst for CattleFax. When combined with a very robust domestic and global demand for beef, it helps point to a rosy picture for the industry. Good made the remarks during a general session of the 2014 Cattle Industry Summer Conferences in Denver August 1. The conference will run through Aug 2.
"It's one for the ages," Good said, referring to the cattle market. "It's been a tremendous change from a year ago."
Good said the industry is accelerating the rate of expansion, and "it's a great opportunity to take advantage of the trend." However, while the fundamentals are "friendly," he said, "the market will have a correction." And that correction could be soon. "Something needs to give," he said. "You have to be prepared for that ceiling," he told the hundreds of cattle producers in attendance.
Good said a "perfect storm" was in place for the industry in terms of profitability. There's a tighter animal supply in general, with the PED Virus in the pork industry and hatchability and genetic issues in the poultry industry keeping pork and chicken supplies in check. With all animal protein supplies stable and prices increasing, beef is not that far out of line, he said.
Good said calves in 2014 are averaging $2.40 cwt., while feeder cattle are $2 and fed cattle $1.50. He said CattleFax expects prices should be stronger again on average in 2015, but larger supplies of beef by 2016 and larger total meat supplies will limit prices by then.
Lowering corn prices are giving the industry some relief. They are the lowest since 2010, and are expected to average in the $4 per bushel range, and possibly in the upper $3s, for the year. Production in 2014 is expected to be in the 14 billion bushel range, he said.
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Range conditions are the third best they have been in the past 20 years, Good said. El Nino has been moderately strong, and is also providing relief to much of the country devastated by drought. However, he said the industry is still in the midst of a 20 year drought, so producers should still be cautious about conditions for 2015, 16 and 17.
Exports are increasing, and will continue to be a key component of producer profitability, according to Good. The China market (including Taiwan and Hong Kong) has become the top importer of beef in the world, and will continue to be a critical export market for beef producing countries in the future. Good said about 17-18 percent of a beef animal's value is exported in beef, variety meats and hides, and producers should recognize the importance of this income source.
"We are living in extraordinary times," Good said. "And prices are going to be continually strong over the next couple of years." Still, he urged producers in the audience to exercise caution. "It's easy to be optimistic today," he said. "But markets don't go up forever."