Ag Economist Sees Tough 2016 Cattle Markets

At least one agricultural economist says cattle market fundamentals this year haven’t changed nearly as much as the current volatility would suggest and that a change to general prosperity is a matter of changing market psychology.

However, predicting that market change is almost impossible, said Derrell Peel, Oklahoma State University Extension Livestock Marketing Specialist in a market commentary.  And the process of changing market psychology is emotional, often overly dramatic and usually painful.

This year’s change from a bull market to a bear market has been painful, especially for cattle feeders where margins went from being generous to record losses estimated at more than $600 a head.  Increasing herd sizes, rising cold-storage inventories rising volumes of competing meats and a steady decline in domestic and export consumption brought pain to the market and imply further losses.

The second half of 2015 has been especially agonizing and frustrating for nearly everyone, and contrasts are marked, Peel said.  Cattle prices at the end of the year are sharply lower, although 2015 will have the highest average annual prices ever.

Beef production this year will be down another 2.0% to 2.5% from last year, but fourth-quarter production will be up an estimated 1.5% to 2.0% year over year.  Annual comparisons of 2015 and 2016 will show sharp differences with average cattle prices lower and beef production increasing.

 

LOOKING AT 2016

 

Most cattle and beef market fundamentals will carry through into 2016, Peel said.  Herd expansion will continue, although perhaps at a more modest pace than in 2015, and a larger 2016 calf crop will contribute significantly to higher feeder cattle supplies by the end of the year.  This has bigger implications for beef production in 2017.

Carcass weights next year will continue higher, given continued cheap feed costs, he said.  However, some of the incentive to overfeed cattle should be moderated with a realignment in feeder and fed cattle prices.

2016 beef production will increase year over year based on higher carcass weights and increased cattle slaughter, Peel said.  Feeder cattle supplies likely will increase over this year but will be moderated by continued heifer retention and a likely moderation in feeder cattle imports from Mexico (already dropping in late 2015) and continued small imports of Canadian feeder cattle.

 

COMPETING MEATS

 

After jumping sharply in 2015, 2016 pork production is expected to increase only slightly, and, with improved pork exports, domestic pork consumption next year is likely to be slightly lower, he said.

Broiler production is likely to increase at a much slower pace next year and, with export markets recovering from avian influenza restrictions, domestic broiler consumption could be only slightly higher in 2016, Peel said.

Most of the projected increase in 2016 beef production will be offset by lower beef imports and stable, if not slightly higher, beef exports, leading to only a small increase in domestic beef consumption, he said.

Peel expected total 2016 red meat and poultry consumption to be close to 2015 levels, perhaps up fractionally.

 

CASH FED CATTLE MARKETS QUIET

 

Cash cattle markets were quiet Monday after active trading on Wednesday.  Weekly live-basis prices last week were down $4 to $5 per cwt at $118 to $119.  Dressed-basis prices were off $5 to $6 at mostly $187 to $188.

The USDA Monday reported its choice beef cutout value at $198.78 per cwt, down $3.72 from Friday.  The USDA’s select cutout was $186.73, up $0.30.  The choice/select spread narrowed Monday to $12.05 from $16.07 on Friday, and there were 84 loads of fabricated product sold into the spot market.

The USDA said chucks, rounds and loins were steady to weak, while choice ribs were sharply lower.

The CME Feeder Cattle Index for the seven days ended Friday was $156.50, down $1.29.  This compares with the Jan settlement Monday of $148.15, down $3.97.