2017 Beef Cattle Market Outlook

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1 2017 Beef Cattle Market Outlook

2 Chris Prevatt Livestock and Forage Economist UF/IFAS Range Cattle Research and Education Center

3 Presented at the 2015 UF Beef Cattle Short Course

4 Presented at the 2015 UF Beef Cattle Short Course

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8 Reasons Cattle Prices Have Increased Since October 2016 Feedlot Turnover Rate Likely has Peaked, 13% higher than average on 3 rd and 4 th Quarter Placements Declining Carcass Weights Down 11% YTD Improvement in Beef Exports Quantity Up 20% YTD, Total Value Up 21% YTD Since October, Price up 4% or $0.10/lb. Reduction in Beef Imports Down 11% Since October

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11 What Factors Will Influence the Direction of 2017 Cattle Market Prices?

12 Major Factors Affecting The 2017 Beef Cattle Market Outlook U.S. and World Economies Interest and Exchange Rates Energy Prices U.S. Domestic Beef Demand U.S. Export Beef Demand U.S. Domestic Beef Supply U.S. Import Beef Supply Total U.S. Meat Supply Cow-Calf Cost of Production and Profitability Feedlot Cost of Production Weather Outliers

13 U.S. and World Economies

14 U.S. GDP Growth Rate (Percent Change In Gross Domestic Product By Year) 8.00% 6.00% Q: 0.7% 4.00% 2.00% 0.00% -2.00% -4.00%

15 World GDP Growth Rate (Percent Change In Gross Domestic Product By Year) 8.00% 6.00% 4.00% 2.00% 0.00% -2.00% -4.00%

16 U.S and World GDP Growth Rates (Percent Change In Gross Domestic Product By Year) U.S. GDP Growth Rate World GDP Growth Rate Linear (World GDP Growth Rate) 8.00% 6.00% 4.00% 2.00% 0.00% -2.00% -4.00%

17 Interest Rates and Exchange Rates

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19 Impact of Exchange Rates on U.S. Imports and Exports Item U.S. Exports U.S. Imports

20 Impact of Exchange Rates on U.S. Imports and Exports Item Stronger Dollar U.S. Exports Decreases Exports U.S. Imports Increases Imports

21 Impact of Exchange Rates on U.S. Imports and Exports Item Stronger Dollar Weaker Dollar U.S. Exports Decreases Exports Increases Exports U.S. Imports Increases Imports Decreases Imports

22 The U.S. dollar became stronger during October December 2016 rising from 100 to 117 Yen per U.S. dollar. Thus for a given amount of Japanese money to be spent on beef, less beef would be bought. The U.S. dollar became weaker during January 2017-April 2017 declining from 117 to 111 Yen per U.S. dollar. This has contributed to more U.S. beef exports to Japan during the first quarter of 2017 (both $ value and metric tons).

23 The U.S. dollar has become stronger compared with the Canadian Dollar during the past year (1.25 to 1.36 Canadian dollars per $1 U.S. Dollar).

24 Energy Prices

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27 Domestic Beef Demand

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30 Export Beef Demand

31 Year Japan volume (mpcw)* Top Export Markets for U.S. beef Japan value ($ million) Mexico volume (mpcw)* Mexico value ($ million) South Korea volume (mpcw)* South Korea value ($ million) Canada volume (mpcw)* Canada value ($ million) , , , , , , , , , *mpcw stands for million lb carcass weight. Note: BSE was confirmed in a U.S. cattle sample in late December Before BSE, countries included accounted for over 90 percent of U.S. beef exports. Volumes on a carcass weight basis. Sources: USDA, Economic Research Service, World Agricultural Supply and Demand Estimates, and National Agricultural Statistics Service.

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36 Domestic Beef Supply

37 Table 1. U.S. Cattle Inventory, January 1, 2016 and 2017 Class Change (mil. hd. ) (mil. hd. ) (mil. hd. ) (%) Total Cattle (All Cattle and Calves ) % Cows and Heifers that have Calved % Beef Cows that Calved % Heifers, 500 lbs. & over % Beef Replacement Heifers % Other Heifers, 500 lbs. & over % Steers, 500 lbs. & over % Bulls, 500 lbs. & over % Calves, Under 500 lbs % Calf Crop (2015 vs. 2016) % Feeder Calf Outside of Feedlots (FCOF) % U.S. Cattle on Feed, All Sizes % Source: USDA-NASS

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43 U.S. Export and Import Beef Supply

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47 Beef Demand and Supply Interaction

48 What should we expect when we expand U.S. Beef Production? S 2015 D P 2015 Q 2015

49 What should we expect when we expand U.S. Beef Production? S 2015 S 2016 D P 2015 P 2016 Q 2015 Q 2016

50 What should we expect when we expand U.S. Beef Production? S 2015 S 2016 S 2017 D P 2015 P 2016 P 2017 Q 2015 Q 2016 Q 2017

51 What should we expect when we expand U.S. Beef Production? S 2015 S 2016 S 2017 S 2018 D P 2015 P 2016 P 2017 P 2018 Q 2015 Q 2016 Q 2017 Q 2018

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56 What would cause a shift to the right in Demand? (which results in higher beef prices) S 2017 P 2017 D 2017 Q 2017

57 What would cause a shift to the right in Demand? (which results in higher beef prices) D 2018 S 2017 P 2018 D 2017 P 2017 Increasing number of consumers Increasing disposable incomes Increases in competing meat prices Increases in consumer preference Q 2017

58 What would cause a shift to the left in Demand? (which results in lower beef prices) S 2017 D 2017 P 2017 Q 2017

59 What would cause a shift to the left in Demand? (which results in lower beef prices) S 2017 D 2017 P 2017 D 2018 P 2018 Q 2017

60 Total U.S. Red Meat and Poultry Production

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65 9.0 U.S. Total Red Meat and Poultry Production By Month (Jan Feb 2017) 8.0 Billioon Pounds Jan-1983 Oct-1983 Jul-1984 Apr-1985 Jan-1986 Oct-1986 Jul-1987 Apr-1988 Jan-1989 Oct-1989 Jul-1990 Apr-1991 Jan-1992 Oct-1992 Jul-1993 Apr-1994 Jan-1995 Oct-1995 Jul-1996 Apr-1997 Jan-1998 Oct-1998 Jul-1999 Apr-2000 Jan-2001 Oct-2001 Jul-2002 Apr-2003 Jan-2004 Oct-2004 Jul-2005 Apr-2006 Jan-2007 Oct-2007 Jul-2008 Apr-2009 Jan-2010 Oct-2010 Jul-2011 Apr-2012 Jan-2013 Oct-2013 Jul-2014 Apr-2015 Jan-2016 Oct-2016

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67 Cow-Calf Cost of Production and Profitability

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70 Projected Cow-Calf Profits During the Four Phases of the Cattle Price Cycle Phase of Cattle Price Cycle Projected Cow-Calf Profits/Losses This is simply a projection about cow-calf profit trends based on the past history using a 12-year cattle price cycle. No one knows for certain the length of the four phases of the cattle price cycle. We will update this projection as time progresses and new economic information becomes available.

71 Projected Cow-Calf Profits During the Four Phases of the Cattle Price Cycle Phase of Cattle Price Cycle Top of Price Cycle ( ) Downward Price Transition ( ?) Bottom of Price Cycle ( ?) Projected Cow-Calf Profits/Losses Upward Price Transition ( ?)

72 Projected Cow-Calf Profits During the Four Phases of the Cattle Price Cycle Phase of Cattle Price Cycle Projected Cow-Calf Profits/Losses Top of Price Cycle ( ) Significant Profits Downward Price Transition ( ?) Profits/Losses Declining Profitability Bottom of Price Cycle ( ?) Significant Losses Upward Price Transition ( ?) Profits/Losses Improving Profitability

73 Feedlot Cost of Production

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77 Weather: Favorable vs. Unfavorable Periods of favorable weather usually result in increased forage production, lower cow-calf cost of production, and increased beef production long-term. ***** Periods of unfavorable weather usually result in decreased forage production, higher cow-calf cost of production, and increased beef production short-term.

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82 Economic Outliers

83 Recession Food Safety Economic Outliers (These usually can t be anticipated or predicted.) Government Policies/Regulations (taxes, health care, etc.) Terrorist Events Trade Barriers (NAFTA, TPP, South Korea, China) Political Confrontations Military Disturbances & Wars, etc.?

84 Major Factors Affecting The 2017 Beef Cattle Market Outlook U.S. and World Economies Interest and Exchange Rates Energy Prices U.S. Domestic Beef Demand U.S. Export Beef Demand U.S. Domestic Beef Supply U.S. Import Beef Supply Total U.S. Meat Supply Cow-Calf Cost of Production and Profitability Feedlot Cost of Production Weather Outliers

85 Summary Herd expansion will likely continue as long as beef producers feel they are profitable and have the land, labor, capital, feed, and forages resources to expand. As herd expansion continues the transition to cyclically lower cattle prices will likely continue until prices approach the cost of production.

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87 Summary As changes occur in the U.S. and foreign economies and trade regulations, the 2017 U.S. Beef Cattle Market has the potential for some big price swings. Modestly lower U.S. cattle prices for feeder calves, feeder cattle, and fed cattle are expected during 2017 due to expected increases in beef production and competing meat production.

88 2017 1Q Q Q Q Choice Steers - 5 Area, $/cwt. $123 $119 $115 $115 Feeder Steers, 650 lbs. (Ok City) $130 $131 $136 $135 Cutter Cows, National Avg. $63 $64 $64 $65 *Prices are in $/cwt USDA Projected Cattle Prices

89 Summary Due to expected future declining beef prices, U.S. cattle producers will need to: 1) search for ways to lower their unit cost of production (such as more efficient use of inputs, reduce wastes, scrutinize capital purchases, debt, etc.) 2) identify opportunities to enhance cattle market prices (improve quality and quantity, identify economical weights, months to sell, when to use price protection, etc.) in order to achieve higher levels of profits during the bottom of the cattle price cycle ( ?).

90 Thank You For Your Attention Have a profitable 2017! Chris Prevatt (863)

91 2017 Beef Cattle Market Outlook

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