A Few Thoughts by John Nalivka: Big picture beef supply outlook for 2018
USDA’s December 1 Cattle on Feed report showed a sharp increase in the number of cattle placed on feed during November – up 14 percent from a year earlier. In fact, 9 of the 12 states included in the monthly survey posted double digit gains over the prior year. Coupled with a 3 percent gain over the prior year for fed cattle marketed during November, the on feed inventory jumped 8 percent from a year earlier.
For all of 2017, feedlot placements were up 9 percent from 2016 and this was the largest annual tally since 2011. It’s not much of a mystery why there was such a significant increase – higher fed cattle prices than expected, relatively low feed costs, and perhaps, most important, a 14 percent drop in the breakeven price of fed cattle marketed during 2017 compared to 2016. These factors in concert left feedlots with an average per head feeding margin during the year of $235. That compares to -$4 per head for 2016 and -$110 per head in 2015. Simply put, it was a solid year for feeding margins and feedlots are motivated to continue filling feedlot capacity into 2018. Again, relatively low feed costs and breakeven prices are supportive to margin expectations. Cattle inventory numbers will also increase, feeder cattle supplies will continue to increase and feeder cattle prices will be pressured lower for 2018.
We can work through the weight breakdowns of cattle placed during the month in an attempt to estimate when those cattle will be marketed or we can suffice it to say, the placement figure serves as a pretty solid indicator of the direction of fed cattle supplies during the first half of the year. I opt for the latter and I use the monthly feedlot data in combination with my slaughter model to develop monthly steer and heifer slaughter projections. Aside from the distribution of cattle within each weight range, there are numerous other factors affecting the final marketing date for those cattle. Within that steer and heifer supply, heifers are the biggest variable and are dependent upon retention.
Along with these increased fed cattle supplies going into 2018, I expect carcass weights will increase. They have steadily increased since hitting a low for the year in early May and on a combined weighted average for steers and heifers, are up 74 pounds into mid-December. Those 74 pounds coupled with increased cattle numbers have resulted in a notable increase in beef tonnage.
Feedlot placements will continue to trend higher. The economic incentives for this increased supply will leave the market facing not only 5 percent more beef in 2018, but also nearly 4 percent more pork and 2 percent more poultry and thus, a record per capita meat supply. Demand is the key, both domestic and global. Maximum U.S. participation in global demand depends upon concluding bi-lateral trade agreements in Asia that represent both free and fair trade as well as a “reworked” NAFTA agreement that is signed.