Sorting out the Market: Market experts expect 2018 to be a good one
January 4, 2018
Is it the end of an old year, or the start of a new one?
Looking to the days, weeks and months ahead, cattle folk reflect on a year of improved cattle prices and anxiety over what tomorrow will bring.
The Livestock Marketing Information Center reported in December that 2017 was expected to go on record for importing more cattle from Canada and Mexico than the year prior.
But A Drovers' story said that 2017's final import numbers would likely still fall below 2015's stats.
"Some of the feeder cattle purchased from Mexico go directly into U.S. feedlots while others, especially the light-weight animals, are put on U.S. pasture to gain several hundred pounds before going into a U.S. feedlot. Year-to-date (through mid-November) Market News reported that about 185,000 more feeder animals had been imported than a year ago. That's a 25 percent year-over-year increase. LMIC projects that for all of 2017 imports will be…the largest since 2012. The Mexican cowherd has been growing in recent years, and that has combined with relatively strong U.S. calf prices to pull animals north."
According to USDA data, 1.8 million head of cattle were imported in 2017 and 1.9 million are expected for 2018.
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The U.S. exported 165,000 head in 2017 and will likely export around 175,000 head in 2018.
Bill Bullard, representing R-CALF USA said high import numbers contributed to the 2015 market collapse.
"The high number of imports that occurred in 2015 is what helped break our market. And, the beef from all those cattle can be both exported and sold domestically as a product of the USA, which reduces demand for USA cattle. Also, because those imports are cheaper, they help the packer to leverage down domestic cattle prices," he said.
According to USDA predictions (see charts) the U.S. is expected to export slightly more beef in the year 2018, which will likely coincide with increased imports as well.
Thor Roseth, owner of Philip Livestock and Belle Fourche Livestock, both located in Western South Dakota, said demand for feeder calves was up at his Jan. 4, sale in Belle Fourche after a soft ending to 2017. "The market sure slipped in December. But in the near term, buyers are very optimistic."
Roseth said the fat cattle market is stronger than expected, giving feeders the confidence to pay a bit more for calves.
"Demand is good today (Jan. 4) and the price reflects it." Roseth said some 703 pound steers brought $165.50 per hundredweight and some 603 pound steers sold for $181 per hundredweight. Not many heifers are moving right now so that market is hard to pin down, he said. Calves are headed to the usual feedlot regions – Kansas, Nebraska and Iowa, he said.
The 2017 fall calf market was higher than expected after a ver rought 2016, said Roseth.
"It was much better than the year previous. People were pleasantly surprised." Profits in the cattle feeding sector created by strong beef demand and a vibrant U.S. economy helped propel the calf market upward, he said.
"People feel like they have money and when they have money, they eat beef."
Market analyst Rich Blair from Sturgis, South Dakota, agrees.
"I think the best thing about 2017 was that it kind of ended up with everyone in the industry profitable. That doesn't happen very often. I think that's a good indicator of demand overall."
Beef consumption is indeed on the rise, according to USDA data. Per capita consumption in 2017 was up about 2.5 percent and is expected to increase by 3.6 percent in 2018.
Marketings, or cattle sold out of feedyards were five to 10 percent higher each month of 2017 than they had been in 2016, Blair said. The higher volume of cattle being marketed didn't overload the market this time around because the price was low enough to sustain it, he said.
"I think in 2015 when the market got to $1.72 (per pound for finished cattle), beef priced itself out of the market."
In a 2016 Tri-State Livestock News story, though, both NCBA and R-CALF blamed market influencers for the 2015 market collapse. In early 2016 NCBA sent a letter to the CME Group saying their members have voiced concern over market volatility and high frequency trading's contribution to that volatility.
R-CALF USA asked for a senate investigation into potential anti-trust and anti-competitive conduct in the U.S. beef and cattle markets.
The group asserted that at least three cattle procurement practices by the big four meatpackers caused feeders to put more pounds on cattle then necessary, further driving the market down. First, meatpackers can simply delay delivery of cattle under formula contracts. Second, they can pass over market -ready cattle and offer competitive bids on only "green" (unfinished) cattle, and third, they can buy market-ready cattle on the condition that the feeder not deliver the cattle for two to four weeks or more, said R-CALF USA. According to Bill Bullard, the Senate has not yet reported any findings on their investigation.
But Blair believes the price of beef in 2015 was pushed up to an unsustainable level. "When we pushed the (live cattle/finished cattle) market to $1.70, we pushed the retail price a long ways." Retail beef prices don't go up as fast as the cattle market did, so we can't expect them to drop as quickly, either, he said.
Because total beef imports and total beef exports are fairly similar, in terms of pounds, neither of them has a profound effect on the market, he believes.
"It's going to make a little difference but overall domestic cattle supplies, overall fed cattle currentness and overall weather will make a bigger difference in the cattle market on a six month basis than imports or exports unless you have a major shock to the system (like the 2003 mad cow case.)
Looking ahead, the "big fear" in the market for 2018 is whether there is sufficient packer capacity for the increased cattle numbers, said Blair.
"I don't know if anyone knows the answer to that."
The good thing, he said, is that packers have been profitable. "They can see the increased numbers coming and hopefully they will expand and take advantage of that."
Blair also believes that the quality of beef being offered has improved, even since 2014, to help keep the market strong in the coming months.
Like Roseth, he also believes that with a more vibrant economy and an administration that favors de-regulation, that the agricriculture industry as a whole is feeling more confident and more willing to buy something – whether it is cattle, machinery or something else.
"The industry is going into the year with some money in their pockets and can withstand some adversity," said Blair. "I like that."