Cattle producer profitability likely will be squeezed this year, but decent returns are possible, said Derrell Peel, Oklahoma State University extension livestock marketing specialist in the service’s “Cow/Calf Corner.
Continued growth in beef production likely will pressure cattle and beef prices, Peel said. There will be many economic conditions they can’t control that will have implications for those factors they can control.
PRODUCT DEMAND CRUICIAL
Domestic and international beef demand will continue to be critical factors affecting cattle and beef prices in 2018, Peel said. The US economy currently is strong with low unemployment and a stock market supported by lots of cash from the Federal Reserve stimulus.
Economic growth has been rather plodding but steady over the past few years, he said. Though inflationary fears have not materialized, the Federal Reserve Open Market Committee began raising interest rates in 2017 as the economy gained strength.
Tax cuts and proposed infrastructure investments could provide additional fiscal stimulus, adding to inflation concerns, Peel said. This may bring more and faster interest rate hikes in 2018 and beyond.
And while no major change is expected, macroeconomic conditions are a factor to watch in 2018, he said.
RECORD BEEF PRODUCTION
Record beef production was expected to combine with growing pork and poultry production to bring record total meat supplies in 2018, Peel said.
Beef prices held up well to growing meat production in 2017, indicating strong beef demand, and there is no indication it will change in 2018, he said. However, ample meat supplies will continue to be a demand challenge for beef in the coming year.
Pork and poultry production and trade are factors to watch, Peel said.
BEEF TRADE CRUCIAL
Beef trade provided much support for cattle and beef markets in 2017, led by growth in exports, he said. Modest export growth was expected in 2018 assuming no change in trade policy.
However, the cloud of uncertainty from NAFTA renegotiations continues to hang over meat markets, Peel said. Beef, pork and poultry exports to Mexico and Canada represented 31% of total meat exports and included 26% of total beef exports for the first 10 months of 2017.
The US and South Korea have suggested a possible renegotiation of KORUS-FTA, which could affect the number two US beef market, he said. International beef markets and trade policy also are factors to watch in 2018.
Domestic and international beef demand will determine cattle and beef price pressure relative to increasing beef production, Peel said. Modest price pressure was expected, but any threat to demand would result in additional weakness.
Larger down-side price risk means risk management takes on additional importance in 2018, he said. While cattle producers cannot have much effect on overall market price levels, they may be able to reduce the risk of lower individual prices with risk management.
CATTLE, BEEF RECAP
Cash cattle traded this week at $120 to $121 per cwt on a live basis, down $1 to $2 from last week.
No fed cattle sold last Wednesday on the Livestock Exchange video auction. Cash cattle traded Friday at $121 to mostly $122 per cwt on a live basis, down $1 from the previous week and at $195 dressed, steady to up $2.
The USDA’s choice cutout Tuesday was up $0.29 per cwt at $210.49, while select was up $0.32 at $203.69. The choice/select spread narrowed to $6.80 from $6.83 with 95 loads of fabricated product sold into the spot market.
The CME Feeder Cattle index for the seven days ended Monday was $152.42 per cwt, down $1.50. This compares with Tuesday’s Jan settlement of $145.47, down $0.97.