Time for optimism in cattle industry

B. Lynn Gordon
for Tri-State Livestock News

New trade agreements plus continued solid domestic and export demand, and the highest quality beef produced in history are all signs of optimism for the beef industry reported CattleFax during their annual outlook session at the 2020 Cattle Industry Convention, Feb. 7 in San Antonio, Texas. This optimism comes as Randy Blach, CattleFax CEO reports, “all segments of the industry will be profitable in 2020, with an estimation of $500 per head in profitability which will be split up among the segments.” Although the cow/calf producer segment will not see as much of the share of this profitability as Blach would like to see, the entire industry will have more profitability to divide up than has occurred at almost any time in the cattle business history.

Weather Shift

Dr. Art Douglas, professor emeritus at Creighton University joined the CattleFax team to update cattlemen about weather impacts. After five years of El Nino which kept much of the country wetter than normal, the forecast is a shift towards a La Nina pattern by summer 2020. La Nina will bring drier climate to most areas and the length and intensity of it will be an influencing factor for potential drought conditions in the Southwest and Plains. Globally, the La Nina pattern will also ease the drought in Australia and Brazil.

“This spring much of the country will be warmer, with above-normal temperatures forecast through the Corn Belt in April and May and drier conditions intensifying in the central Rockies and Plains,” said Douglas. This includes the Dakotas, western Nebraska, and eastern Montana and Wyoming. Fortunately, the Corn Belt region will not see a repeat of the 2019 flooding. In fact, parts of the Midwest might even see areas of dryness this summer. “Temperature predications are indicating near normal in the Central U.S. but if La Nina strengthens early, the warmth will expand into the Midwest,” said the climate specialist.

Weather is the one factor that has the potential in 2020 to impact the optimism of the cattle market. If drought conditions begin and continue to persist weather will be the greatest risk to the industry in the next year.

Crop Comments

2019 presented a challenging year for not only crop producers but those who tally the data. The late-planted crop made it difficult to estimate and created uncertainty in reports. The USDA is once again surveying producers to gather data therefore there is anticipation the crop reports are subject to change. However, forecasting numbers are expecting the 2020-2021 corn acres to increase 4 million acres to 94 million acres and soybean acres to increase 7 million to 83 acres. CattleFax predicts spot corn futures will trade from $3.50 to $4.00 per bushel on a monthly average basis in 2020 unless weather becomes a concern.

Trade and Tariffs

China has been in the spotlight with the outbreak of the African Swine Fever (ASF) impacting the pork industry. ASF is reported to have cut China’s pork production in half in 2019 with further estimated declines in 2020. China’s protein shortage will boost import needs not only on pork but beef and poultry as well to fulfill the country’s protein needs. Shortly after we entered 2020, the U.S. reported the signing of ‘Phase One’ of U.S.-China trade deal. China committed to $34 billion in agricultural purchases in 2020 and $42 billion in 2021 from the U.S., including the allowance of hormones in U.S. beef imports at internationally recognized standards.

Reductions in tariffs due to the signing of the new Japan-U.S. bilateral trade agreement is also set to influence the already positive global trade market. Beef export trade is projected to be up 5% this year but with a larger overall supply domestic, demand will need to keep pace to not have supply numbers influence prices negatively.

2020 Beef Business

“Over the last few decades we have done a tremendous job of producing more with less,” said CattleFax Vice President of Industry Relations and Analysist, Kevin Good. “The industry is now in a plateau after one of the most aggressive expansions on record.” With the rough winter across the central plains reducing the calf crop numbers and impacting conception rates, along with calf prices at disappointing levels, the industry did experience some liquidation of the cowherd.

The 2019 weather conditions also influenced carcass weights, with an unusual dip in weights on what had been a continual trajectory upward. Larger carcass weights will begin to once again prevail and push beef production to record high numbers of 27.7 billion pounds.

Expansion over the past six years has left a large supply to continue to move through the system. The packing industry will continue to work a lot of Saturday harvests to make headway with the increase in slaughter numbers in 2020.

Good, a veteran analyst forecasted fed steer prices to average $120 per cwt, up from $3 from the previous year, range of $106-$130. He predicts 550-lb. steer prices trading in the range of $155 to $180, averaging $170, up $6 per cwt from 2019 levels and 750-lb steers $140- $160, averaging $150, $6/cwt higher than last year’s average. Positive cattle feeding margins for the first half of 2020 will influence increased demand for feeders, thus supporting prices.

“Historically, in years that are not an expansion year, (like the projection for 2020) in these years you have typically a fall rally that matches or exceeds the spring highs,” said Good.

Cow/calf producers who achieve added income from marketing cull cows can aim for a stronger market, up $5 with an average of $60/cwt. The additional cow numbers from the past few years of expansion is testing non-fed packing capacity, however, the elevated trim market is helping to push cow prices higher. The bred cow market appears to be staying steady with an average of $1,500/hd., across a range of $1,200 – $1,800.

Demand Dominates

“Over the course of the last 20 to 30 years things have changed,” said Blach referencing what he sees as the most dramatic shift the industry has witnessed. “We are moving away from a boom and bust supply-driven market to a demand-driven market.” He explained, demand will become the driving force and the signal the industry takes its cue from. Messages from consumers wanting to know if the products they buy are produced in an environmentally acceptable manner and a continual increase in demand for a higher quality product are just a couple of examples of how consumer influences will drive demand, creating a trickle down impact to production practices.

“We have a story to tell,” said Blach. “We have record beef production with 35 million less head of cattle, this is a great sustainability story that our industry needs to tell consumers.”