Uncertainties Rule In Cattle Market Outlook

US cattle producers have a tough year ahead of them, fraught with many uncertainties.

Currency exchange rates, beef and cattle imports and exports, beef production levels and US consumer demand, not to mention weather influences on cattle health and feed production all will influence cattle markets for 2016 and beyond.

But what market influences are most likely to become market drivers?  For answers, a look at the major movers this year is useful as projections are made into next year.

 

2015 CHALLENGES VS 2016 OUTLOOK

 

Cattle markets this year faced some enormous challenges that resulted in the train wreck seen today in feedlot margins.  Sometimes, good things became bad things as it applied to the cattle industry.

The US dollar strengthened early in the year as the economy continued to climb out of the Great Recession of 2008.  The US dollar index, an index of the US dollar compared against a basket of other currencies, reached its high of 100.39 on March 13, rising from a May 5, 2014, low of 78.90, a 27.2% gain.

Since reaching the 2015 peak, the dollar index moderated to a low of 92.62 on Aug. 24, but has since climbed again to Wednesday’s peak of 99.85.

The stronger US dollar hampered beef and cattle exports and encouraged imports of both this year, and the outlook is for an even stronger greenback in 2016.  US interest rates likely will strengthen as other nations struggle with economic and political upheavals, bolstering the US currency.

Large supplies of pork and chicken competed for their place at the table of US consumers, driving beef prices lower in an effort to compete.  Studies showed that consumers were willing to pay more for quality beef, even though they cut back on total beef purchases.

Retail grocers were able to exploit the gains in pork and chicken production by ramping up features on these products and negotiating aggressively for lower beef prices from the packer.  The subsequent push-back left cattle feeders holding expensive cattle that were worth a whole lot less.

Pork and chicken production next year are expected to remain strong, challenging the beef industry for another year even as the cattle herd continues to grow cyclically.  And even though 2016 pork and chicken production increases are expected to moderate, they still are expected to be higher.

 

IMPORTS VS EXPORTS

 

As US beef production continues to ramp up and the US dollar continues to hold within a range, US meat imports are expected to moderate significantly.  Beef imports in particular are expected to decline because Australia’s export pace is seen by many as unsustainable.

Still, the US dollar remains strong, limiting exports while maximizing imports of all goods.  And uncertainty remains about beef demand here and abroad.

Uncertainty also is present in feed markets.  A bumper US corn crop is just now becoming competitive in world markets, but South American farmers appear to be planting in good weather conditions again.

Things could deteriorate for Brazilian and Argentine producers, though creating more uncertainty in grain prices.

 

CASH FED CATTLE MARKETS REMAIN QUIET

 

The USDA reports a handful of cattle sales this week on a dressed basis at $194 to $195 per cwt, which is down $2 to $7 from last week, but with this week’s highly volatile cattle futures, there is little trading interest so far this week.

The snow storm that slapped major cattle-feeding areas Tuesday may keep trading interest at bay for at least another day as producers and buyers assess the situation.

By and large, cattle trade last week was $5 per cwt lower at mostly $129 per cwt on a live basis and $2 to $4 lower on a dressed basis in a range from $197 to $202.

Wholesale beef prices Wednesday were lower, with the USDA choice cutout at $206.68 per cwt, down $1.69 on the day, and its select cutout at $196.70, off $1.23.

The choice/select spread Wednesday narrowed to $9.98 from $10.44 on Tuesday, and there were 130 loads of fabricated product sold into the spot market.

The CME Feeder Cattle Index for the seven days ended Tuesday was $176.72 per cwt, up $0.28.  This compares with the Nov futures settlement Wednesday of $174.87, up $1.40.