Cattle Outlook and Strategies February 2018 Brenda L. Boetel UW-River Falls Extension Commodity Marketing Specialist 1 Key Issues for 2018 and beyond Supply Expansion continued but has moderated Continued lower feed prices Demand Mixed signals Role of export demand is increasing Domestic retail vs food service 1
Inputs 2018 MY production will have 1044 MMT (a 2.7% decrease from 2017) Record production means Stock/Use between 16-17% Cash price between $3.10 - $3.70 highs in late March 4 2
-23% 45% -26% 0% 0% -15% -4% -22% -10% 11% 6% 0% -29% -19% -11% -17% -8% -14% 0% -15% -5% -16% -8% 8% -27% -21% -37% 8% -17% 9% 19% 35% 9% -9% -3% -2% -27% 3% 48% 31% 20% 20% 25% 15% 7% 0% -3% -11% -100% to -15% -15% to -3% -3% to 9% 9% to 49% Record wheat and soybean production in 2017 WI non-alfalfa hay production increased from 2016-2017 - 24% - alfalfa hay down 2% (acres down) Wisconsin hay stocks down 17% Other hay prices are up 1% YoY 5 Demand 3
From highs Pork down 9.7% from September 2014 Broilers down 7.9% from October 2013 Beef down 8.9% from July 2015 7 Retail beef demand consistent with 2016 Average price was $5.21 Likely see an increase of 1%in 2018 Beef demand receiving price pressure from pork and poultry 8 4
Restaurant menu prices have increased 2.3% Price sensitive consumers buying beef but concerns about increased pork and poultry 9 RPI at 102.9 in December Beef benefits from improved fine-dining restaurant performance Retail promotions and discounts benefiting steaks but roasts 10 suffering from lower priced pork and poultry 5
Seasonally increases at this time Wide spread indicates a greater number of Select graded cattle relative to Choice cattle 11 Strong wholesale beef prices Up 8% fro last year Strong load counts Indicates strong consumer demand Increasing prices with strong load count gives producers some leverage 12 6
Trade Global production continue to increase YoY in 2018 US produces close to 20% of world production (Brazil 15%) 14 7
Four largest exports (Brazil, India, Australia, US) account for 73% of world exports Brazil and India have increased market opportunities 15 Brazil dominant in EU, Middle East and now growing in China India now has direct access to China Australia is now rebuilding Has access to China 16 8
US will see exports increase 4% in 2018 Although as percentage of production it is down slightly Top 5 buyers (Japan, S. Korea, Mexico, Canada, Hong Kong) take 82.6% of US beef exports Increase share due to loss of Australian beef Trade policy is concerning NAFTA TPP 17 China US imports decrease 4% in 2018 Larger non fed slaughter decrease need for imports 18 9
USD Index Currently at 90.21 Value of US dollar decreased over last year Lower dollar is supportive of exports Supplies 10
Accounts for 51% of meat disappearance in US 2018 will be 4 th consecutive year of record setting production Supplies were 0.2 lb/capita smaller due to lower turkey production Adding poultry slaughter capacity Increase production Increased reliance on exports 2017 exported 16% of production Up approx. 1% over 2016 Mexico (-10%) big export market 21 3rd year of record production 2017 production up 0.8 lbs/capita 2018 up 1 lb per capita Export 21% of pork production Mexico and S. Korea Beef production growing faster than pork or poultry Record production in 2018 22 11
Cattle numbers continue to grow 2018-94,399M (+1%) Cattle numbers continue to grow 2018 = 31.7 Million Head +1.6 Percent 2018 = 9.4 Million Head +0.6 Percent 2017 = 35.8 Million Head +2 Percent 12
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The highest cattle prices usually occur during the accumulation (rebuilding) phase of the inventory cycle. That began in 2015 27 February Cattle on Feed USDA Cattle on Feed Report February 2018 Thous. Head 2018 as Pct of 2017 2017 2018 Actual On Feed, February 1 10,782 11,630 108 Placed on Feed in January 1981 2068 104 Fed Cattle Marketed in January 1751 1858 106 Source: USDA NASS, Dow Jones survey 14
February Cattle on Feed USDA Cattle on Feed Report February 2018 Thous. Head 2018 as Pct of 2017 2017 2018 Actual On Feed, February 1 10,782 11,630 108 Placed on Feed in January 1981 2068 104 Fed Cattle Marketed in January 1751 1858 106 Source: USDA NASS, Dow Jones survey February Cattle on Feed USDA Cattle on Feed Report February 2018 Thous. Head 2018 as Pct of 2017 2017 2018 Actual On Feed, February 1 10,782 11,630 108 Placed on Feed in January 1981 2068 104 Fed Cattle Marketed in January 1751 1858 106 Source: USDA NASS, Dow Jones survey 15
Where are we headed? Cattle price outlook should be viewed as having potential to be much different than expectations shown here. Feeding industry will remain current, but carcass weights will continue to increase slightly Commercial slaughter will be up 3.5% in 2018 Up 1.0% in 2019 Beef production will be up 4.6% in 2018 Up 1.7% in 2019 31 Continued struggles in 2018 16
Where will Feeder prices go? YoY declines in prices 700-800# 500-600# 1 st quarter +12.5% +12.1% 2 nd quarter +1.2% +1.5% 3 rd quarter -6.8% -1.2% 4 th quarter -9.9% -8.6% 34 17
Where will cow prices go? 35 Continued struggles in 2017 18
Where will Fed cattle prices go? Year over year decreases 1st quarter +2.1% 2 nd quarter -7.7% 3 rd quarter -4.0% 4 th quarter -3.7% 38 19
2018 Lower protein prices in 2018 Tighter margins Declining land values Trade Greater need for a marketing plan 39 Thank you! Any Questions? Brenda.Boetel@uwrf.edu Graphs: LMIC www.lmic.info Data: LMIC, USDA-NASS 20