Strong demand, leverage shift adds optimism for year ahead | TSLN.com
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Strong demand, leverage shift adds optimism for year ahead

Focus on consumers a requirement for continued beef industry success

San Antonio, Texas – (Feb. 6, 2020) – Beef demand is strong and with U.S. cattle numbers plateauing, prices are likely to be stronger in the year ahead as consumers at home and abroad support industry profitability. That was the message delivered today during the popular CattleFax outlook session, held as part of the 2020 Cattle Industry Convention in San Antonio, Texas.

Weather is expected to play a supporting role for agriculture during the year ahead, according to Dr. Art Douglas, professor emeritus at Creighton University. He said that following repeated El Niño events during the past five years, the U.S. will shift to a La Niña pattern, which will shift much of the nation outside of the northwest and southeastern portions of the country toward conditions slightly warmer and drier than last year, which will be favorable for planting and growing conditions during the spring and summer.

CattleFax Vice President of Research and Risk Management Services Mike Murphy predicted that corn and soybean acres will increase during the year ahead, with corn plantings rising 4 million acres to 94 million acres and soybean acreage rising 7 million acres to reach 83 million acres. He predicted 2020 spot corn prices to trade in a range of $3.50 to $4.00 per bushel, down 15-20 cents per bushel from 2019, unless weather issues become a significant factor. He noted, however, that trade could present an upside to the projected prices, particularly in light of the recently signed U.S./China trade agreement.

Trade also will play a significant role in beef and cattle markets, according to CattleFax Vice President of Industry Relations and Analysis Kevin Good, who said he expects higher total animal protein production to be offset by strong demand and increasing exports. During the year ahead, Good said record-large U.S. beef production will reach 27.7 billion pounds. However, he projected that increases in beef exports and decreases in beef imports will result in per-capita beef supplies of 58.4 pounds, an increase of just 0.4 pounds over 2019 levels.

“With strong demand for U.S. beef at home and rising demand overseas, the modest increases in supply will be more than offset by a growing consumer appetite for our product,” said Good, who projected all-fresh retail prices will rise to reach an average of $5.87 per pound during the year ahead, an increase of 5 cents per pound over 2019. “Higher wholesale beef values are a reflection of improving domestic and global beef demand,” Good noted, pointing out that CattleFax projects composite cutout prices will rise $3 during the year ahead to reach $222 per hundredweight.

Growing demand and increasing beef prices at the consumer level will be supportive of cattle prices, with leverage beginning to shift away from the packing sector as more shackle space becomes available during the year ahead. Good said CattleFax projects fed steer prices to average $120 per hundredweight during 2020, an increase of $3 from the previous year. Through the year, he noted downside risk to the $108 level, with resistance at the top near the $130 level. Calf prices are also expected to move higher in the year ahead, with 550-lb. steer prices trading in a range of $155 to $180, averaging $170, up $6 per hundredweight from 2019 levels. Feeder prices will also rise, with 750-lb. steers trading from $140 to $160, with a yearly average of $150, also $6 per hundredweight higher than last year’s average.

Good noted that additional supplies of utility cows, the product of several years of aggressive expansion, are likely to challenge the cull cow market. “However, increased demand for lean trim and a decline in the availability of imported grass-fed trim from Australia and New Zealand will be supportive of cow prices,” he said. He projected utility cow prices should range from the low $70 level to a fall low near $55, while averaging near $65 per hundredweight for the year, an increase of $5 per hundredweight over 2019 levels.

CattleFax CEO Randy Blach closed the session highlighting the strong demand that is highly favorable to the entire industry. He noted that there is significant outside interest in U.S. protein production, which is also highly supportive and a positive sign for the future.

“The days of boom and bust in our industry are behind us,” said Blach. “Thanks to strong demand at home and abroad, we’re likely to see far less volatility in the market during 2020 than we saw last year.”

Blach noted that global demand for all proteins is strong, with beef being a major beneficiary of that demand.

“Rising demand has meant more dollars flowing into the industry, which adds to the profitability of all segments of our business,” said Blach, who noted that although the leverage has been largely held by the packing sector, that too would begin to shift during the year ahead, with more dollars flowing back into the live cattle segments.

“That investment should begin to incentivize increases in shackle space during the years ahead,” Blach said. “In turn, as supplies begin to flatten out, packing margins have likely peaked and we’ll begin to see margins at the packing sector begin to narrow as we move through 2020.”

However, Blach pointed out that although the market outlook is positive during the year ahead, the U.S. beef industry needs to be vigilant and maintain a competitive posture.

“There is strong demand for our product, but that’s the result of the fact that our business has paid attention to market signals and we’ve been producing a consistent, quality product that has gained a greater piece of that retail dollar. We need to protect that,” said Blach. “Cattle must continue to be better over time. We must pay attention to what the consumer is telling us. That means conversations about topics like traceability and sustainability only become more important as time goes on. We have to listen to the consumer and respond with action to meet their needs and demands if we’re going to continue to be successful in a hypercompetitive global protein market.”

–NCBA


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