The US cattle herd is well into a transition to very modest growth from one of active herd expansion, but what does this imply for the cattle industry?
Tuesday, the subject of the industry’s cyclical change was discussed with a review of the first half of a mid-year review and outlook by the Denver-based Livestock Marketing Information Center. Today the LMIC’s outlook for the industry is explored.
PRICE OUTLOOK
In the second half of this year, US beef output was forecast to be above a year ago, rising more than 5% in the third quarter and more than 4% in the fourth. On a per-capita basis, after adjusting for exports and other disappearance, supply was projected to be 2% to 3% higher than last year.
Production and disappearance forecasts suggested fed cattle prices 2% to 4% below a year ago for the balance of this year. Feed costs were expected to remain attractive to cattle feeders, cushioning calf and yearling prices against major declines.
For the fourth quarter, the LMIC forecast for the Southern Plains called for 700- to 800-pound steers to average in the high $140’s per cwt and 500- to 600-pound steers in the upper $160’s.
The LMIC said, however, that a huge corn crop (as some market analysts and the USDA are predicting) could pull calf prices even higher than the outlook predicted.
In 2019, look for US beef production to increase over this year’s by a rather modest 1% to 3%. This would put commercial tonnage at about 27.7 billion pounds. If export markets don’t deteriorate, domestic per-capita disappearance would be less than 1% higher year-over-year.
Assuming a normal 2019 Midwest corn crop, that sets the stage for steady to modestly higher cattle prices in the second half of 2019, compared with the corresponding months in 2018.
CORN PRICES CRITICAL
As stated earlier, a driver in calf and yearling prices is cattle feeding returns, and corn prices are critical to profitability. All else being equal, year-over-year declines or increases in corn prices are associated with higher or lower calf and yearling prices.
This year’s US corn plantings declined because of low prices last year, but excellent early season weather has bolstered yield prospects. A larger crop now is expected and is boosting calf and yearling prices, but 2019 plantings still are in question.
Corn prices were expected to have an average price similar to 2016, and tariffs likely will play a role in the mix of Midwest 2019 crop plantings. Traditional models suggest smaller soybean acres next year.
It’s too early to say how much President Trump’s bailout plan will affect 2019 plantings, but the feed complex looks promising for cattle feeders and corresponding calf and yearling prices.
CATTLE, BEEF RECAP
No fed cattle sales were reported last Wednesday on the Livestock Exchange Video Auction. A week earlier, 851 head sold at an average price of $110.07 per cwt, down from the last sale at $112 two weeks previous.
Cash cattle trade took place last week at $110 to mostly $111 per cwt on a live basis, down $3 from the previous week, and at $175 to $179 dressed, down $3 to up $1.
The USDA choice cutout Tuesday was up $1.21 per cwt at $209.64, while select was up $1.61 at $201.27. The choice/select spread narrowed to $8.37 from $8.77 with 69 loads of fabricated product sold into the spot market.
The CME Feeder Cattle index for the seven days ended Monday, was $150.64 per cwt, down $0.48. This compares with Tuesday’s Aug settlement of $148.92, up $0.27.