OVERALL, U.S. beef pro-duction has been boost-ed by some fairly
large year-over-year place-ments, which began all the way back in the
fourth quarter of last year and have persisted throughout most of this
year, according to Dr. Isaac Ol-vera, livestock and meat commodity
market analyst at Informa Economics IEG.
The growing production is expect-ed to only continue, he said.
IEG is forecasting beef production at 26.2 billion lb. in 2017 and at 27.1 billion lb. in 2018.
Olvera said the larger supplies have moderated some of the upside in the Choice cutout, which is currently sitting at less than $200/cwt.
“The expectation is that these larger beef supplies will continue to keep a lid on the Choice cutout and prevent it from really going too much higher,” he said.
While the lower price may not equate to great news for beef producers, he said it has spurred retail-ers to continue to feature beef at fairly attractive prices, ulti-mately leading to increased consumer demand.
Retail prices have eased from relatively high levels during the summer of 2017
and are expected to remain below the prior-year level well into 2018, Olvera said.
“We’ve had some pretty good beef demand overall.
We do expect overall retail prices to continue easing into the future, which should continue to foster really good consumer sup-port for the overall beef complex,” Olvera said.
Larger beef supplies mean that consumer demand will remain critical, although there has been an increase in per capita consumption as the beef supplies have grown.
“We have seen a pretty accepting rate overall through the past year, and we do ex-pect that to continue moving for-ward,” Olvera said.
On the cattle side, Olvera said feedlot performance has been bet-ter than anticipated as feeders have done a really good job of marketing cattle. “We haven’t really seen the train wreck that I think a lot of people were looking for this year,” he said.
In the September time frame, premiums were built into the deferred contracts, Olvera said, so cattle producers “have continued to place cattle aggressively in order to capture some of those premiums moving forward.”
“This will continue to lead to larg-er supplies of beef throughout the remainder of this year and well into 2018,” he added.
On the cow/calf side, the midyear cattle inventory confirmed what was anticipated but was more than what IEG had initially expected: “We have more calves on the ground. That’s going to lead to a fairly large 2018 expectation on the calf crop side,” Olvera said.
Despite having more calves on the ground, he noted, “We’re seeing ag-gressive movement that feeders are competing for these additional supplies of calves.”
Depressed wheat prices also caused farmers to put stocker calves on their fields to use the field for beef rather than wheat production.
“So, we’re still seeing a pretty ag-gressive desire for mid-weight to heavyweight calves both on the feedlot side as well as on the back-grounding side,” Olvera said.
Producers will be at par to mod-estly negative margins, he added.
“These overall higher calf prices should continue to support the cow/calf guys moving forward, but again, we are looking for a continuation of a larger beef cow inventory through-out 2018 and into 2019 — which should continue to foster larger calf crops again in 2018 and well into 2019 — before we probably hit a turning point or a peak in this cycle somewhere in the area of 2020,” Olvera said.
Demand opportunities, challenges
Year-to-date exports continue to run well above year-ago levels, and “fairly stellar exports” are expected in the future, Olvera said.
“I think the expectation moving forward is that we finish out this year somewhere in the order of about 11% above a year ago, and then we move into 2018 with the continuation of larger overall export volumes,” he said.
Olvera suggested that 2018 exports will probably be somewhere in the area of 1.5-2.0% larger than 2017.
“August exports were record large, and September and October export totals are expected to follow suit,” he noted.
There are some challenges on the trade front, like Japan increasing its tariff on imports of U.S. frozen product, but Olvera said Japan still has been buying relatively aggressively. “It does look like Japan has made some changes to their buying habits, but we are still looking for larger year-over-year exports throughout the remainder of this year and on through 2018,” he explained.
Olvera said record-large exports in 2017 and the fourth quarter of 2016 will be difficult to beat in 2018, although “we’re obviously not at peak export levels; we still have quite a ways to go, especially as we start exploring the new frontiers of China or even break back into the (European Union). If we can do that, we will do a pretty good job of expanding exports overall.”
Olvera said it has been pretty quiet since China reopened its market to U.S. beef.
“We just don’t have the overall supplies of cattle that meet the requirements,” he explained. “Given probably a year to two years, when we start to have the ability to set some cattle aside that have the traceability we need to get into China, I think we’ll see China take off, but at the moment, there really hasn’t been a whole lot of beef that (can be) shipped directly into China,” Olvera said.
He said China is currently purchasing U.S. beef through transshipments from Hong Kong, Taiwan and Vietnam, where the U.S. has better access and China does not have to pay a premium.
Production restrictions required by China put U.S. beef into a premi-um-type category, but Olvera said China tends to be more of a price-conscious buyer. “They don’t want to pay premiums for some of these products. If they can transship it from other areas, they’re probably going to continue to do so,” he explained.
All in all, Olvera said exports are going to be key with the larger over-all domestic production.
As for other global players in beef production, Olvera said Australia has been coming back on line for quite some time now.
“They’ve been hampered by drought, and they were getting a little bit dry through our summer time frame, but they have seen some easing rains that should con-tinue to help stop the liquidation (of the herd) that they’ve had the last couple months,” he said.
Australia has the advantage in countries like Japan, since a trade agreement secures a lower tariff on beef imports from Australia versus what the U.S. is required to pay.
“Australia is going to continue to beat us in some of these Asian markets,” Olvera said.
Brazil has faced numerous chal-lenges this year, but Olvera said the country has done fairly substantial damage control after Operation Weak Flesh revealed that it had been shipping tainted meat. “They’ve bounced back pretty well. They had one of their best export months in August,” he added.
Still, numerous scandals involv-ing JBS S.A. have continued to affect the future outlook for Brazil’s meat production moving forward. “Brazil is kind of on a downslide here, and the JBS scandals continue to plague Brazil moving forward,” Olvera said.
The U.S. has maintained restric-tions on beef imports from Brazil, even though the country’s agriculture minister continues to say the restrictions will be lifted soon.
Olvera said, “It doesn’t look like, anytime in the very near future, that’s going to happen.”
In the U.S., IEG has pegged 2018 per capita consumption at 57 lb. on an annual basis, which will be 1% higher than 2017. This is also up significantly from the low 54 lb. range seen in 2015, Olvera noted.
“We are still adding beef into that domestic supply, and we’re expecting the American consumer to consume more beef,” he said. “This comes at a time frame when we’re going to have more pork and more chicken. Those retail prices are go-ing to become very, very impactful to the consumer.”
Keeping the prices lower will be key, he said, adding that retail prices should show year-over-year declines that will foster beef consumption.
Challenges ahead for the U.S. beef industry are twofold, Olvera said, with trade being the largest in 2018, specifically the North American Free Trade Agreement negotiations.
If we lose Canada and/or Mexico, you’re talking about losing two fa-vorable trading partners that we tend to utilize or leverage on a fairly normal basis,” he explained.
The second challenge for the industry, according to Olvera, is consumers’ perception of beef.
“I think we’re going to have to do a good job of reaching out to the ‘newer-age consumers.’ Millennials are concerned with where their food comes from and how it’s being pro-duced. I think that transparency in the industry, and the overall education that we can give the consumer base, needs to be expanded,” Olvera said.
Lower prices move product
Pricewise, IEG expects the Choice cutout to move mostly between the low $190s and into the $210-215/cwt. range throughout 2018, which Olve-ra said is going to be somewhere on the order of 5-7% below a year ago.
Also, larger beef supplies mean beef has to be cheaper to move that product.
On the cattle price side of things, the lower cutout value will obviously take away a little bit of the packer’s margins seen this year. “So, it’s going to make the packers a little less aggressive on their overall desire to pay up for cattle,” Olvera said.
IEG forecasts first-quarter 2018 prices at $113-118/cwt., with the peak coming somewhere in the mid- to upper-$120s during the summer.
“With the larger supplies of cattle, we should be able to do a pretty good job of maintaining that $120/cwt. range throughout the summer time frame and then heading back down into the low $100s by the late-summer/early fall time frame,” he said.
From there, prices will likely head higher in the fourth quarter, Olvera suggested.
In regard to overall profitability, he said these prices will mean some losses for cattle producers.
For the rest of this year, feeders may be running in the red, which could temper placements somewhat. “They should still want to place cattle fairly aggressively as the prices rebound on into 2018,” Olvera noted.
IEG expects an extension of prof-itable feeding margins through the spring of 2018.
“Overall, 2018 will probably be a mostly decent year for cattle feeding. I don’t think it will be anything compared to the record highs we saw this year, but it should be a pretty decent time frame for cattle feeding, especially given that we are seeing some moderating feed costs,” Olvera said.
Next year, feeder prices should moderate compared to this year, Ol-vera said, which should give feeders the ability to lock in some pretty decent margins.
On the cow/calf side, more calves mean there may be some easing in overall cow/calf returns. “That will probably continue to take place through the remainder of 2018,” Olvera said. “While I don’t think there will be much herd liquidation, we might start seeing a little bit of losses on the cow/calf side moving forward.”
The growing production is expect-ed to only continue, he said.
IEG is forecasting beef production at 26.2 billion lb. in 2017 and at 27.1 billion lb. in 2018.
Olvera said the larger supplies have moderated some of the upside in the Choice cutout, which is currently sitting at less than $200/cwt.
“The expectation is that these larger beef supplies will continue to keep a lid on the Choice cutout and prevent it from really going too much higher,” he said.
While the lower price may not equate to great news for beef producers, he said it has spurred retail-ers to continue to feature beef at fairly attractive prices, ulti-mately leading to increased consumer demand.
Retail prices have eased from relatively high levels during the summer of 2017
and are expected to remain below the prior-year level well into 2018, Olvera said.
“We’ve had some pretty good beef demand overall.
We do expect overall retail prices to continue easing into the future, which should continue to foster really good consumer sup-port for the overall beef complex,” Olvera said.
Larger beef supplies mean that consumer demand will remain critical, although there has been an increase in per capita consumption as the beef supplies have grown.
“We have seen a pretty accepting rate overall through the past year, and we do ex-pect that to continue moving for-ward,” Olvera said.
On the cattle side, Olvera said feedlot performance has been bet-ter than anticipated as feeders have done a really good job of marketing cattle. “We haven’t really seen the train wreck that I think a lot of people were looking for this year,” he said.
In the September time frame, premiums were built into the deferred contracts, Olvera said, so cattle producers “have continued to place cattle aggressively in order to capture some of those premiums moving forward.”
“This will continue to lead to larg-er supplies of beef throughout the remainder of this year and well into 2018,” he added.
On the cow/calf side, the midyear cattle inventory confirmed what was anticipated but was more than what IEG had initially expected: “We have more calves on the ground. That’s going to lead to a fairly large 2018 expectation on the calf crop side,” Olvera said.
Despite having more calves on the ground, he noted, “We’re seeing ag-gressive movement that feeders are competing for these additional supplies of calves.”
Depressed wheat prices also caused farmers to put stocker calves on their fields to use the field for beef rather than wheat production.
“So, we’re still seeing a pretty ag-gressive desire for mid-weight to heavyweight calves both on the feedlot side as well as on the back-grounding side,” Olvera said.
Producers will be at par to mod-estly negative margins, he added.
“These overall higher calf prices should continue to support the cow/calf guys moving forward, but again, we are looking for a continuation of a larger beef cow inventory through-out 2018 and into 2019 — which should continue to foster larger calf crops again in 2018 and well into 2019 — before we probably hit a turning point or a peak in this cycle somewhere in the area of 2020,” Olvera said.
Demand opportunities, challenges
Year-to-date exports continue to run well above year-ago levels, and “fairly stellar exports” are expected in the future, Olvera said.
“I think the expectation moving forward is that we finish out this year somewhere in the order of about 11% above a year ago, and then we move into 2018 with the continuation of larger overall export volumes,” he said.
Olvera suggested that 2018 exports will probably be somewhere in the area of 1.5-2.0% larger than 2017.
“August exports were record large, and September and October export totals are expected to follow suit,” he noted.
There are some challenges on the trade front, like Japan increasing its tariff on imports of U.S. frozen product, but Olvera said Japan still has been buying relatively aggressively. “It does look like Japan has made some changes to their buying habits, but we are still looking for larger year-over-year exports throughout the remainder of this year and on through 2018,” he explained.
Olvera said record-large exports in 2017 and the fourth quarter of 2016 will be difficult to beat in 2018, although “we’re obviously not at peak export levels; we still have quite a ways to go, especially as we start exploring the new frontiers of China or even break back into the (European Union). If we can do that, we will do a pretty good job of expanding exports overall.”
Olvera said it has been pretty quiet since China reopened its market to U.S. beef.
“We just don’t have the overall supplies of cattle that meet the requirements,” he explained. “Given probably a year to two years, when we start to have the ability to set some cattle aside that have the traceability we need to get into China, I think we’ll see China take off, but at the moment, there really hasn’t been a whole lot of beef that (can be) shipped directly into China,” Olvera said.
He said China is currently purchasing U.S. beef through transshipments from Hong Kong, Taiwan and Vietnam, where the U.S. has better access and China does not have to pay a premium.
Production restrictions required by China put U.S. beef into a premi-um-type category, but Olvera said China tends to be more of a price-conscious buyer. “They don’t want to pay premiums for some of these products. If they can transship it from other areas, they’re probably going to continue to do so,” he explained.
All in all, Olvera said exports are going to be key with the larger over-all domestic production.
As for other global players in beef production, Olvera said Australia has been coming back on line for quite some time now.
“They’ve been hampered by drought, and they were getting a little bit dry through our summer time frame, but they have seen some easing rains that should con-tinue to help stop the liquidation (of the herd) that they’ve had the last couple months,” he said.
Australia has the advantage in countries like Japan, since a trade agreement secures a lower tariff on beef imports from Australia versus what the U.S. is required to pay.
“Australia is going to continue to beat us in some of these Asian markets,” Olvera said.
Brazil has faced numerous chal-lenges this year, but Olvera said the country has done fairly substantial damage control after Operation Weak Flesh revealed that it had been shipping tainted meat. “They’ve bounced back pretty well. They had one of their best export months in August,” he added.
Still, numerous scandals involv-ing JBS S.A. have continued to affect the future outlook for Brazil’s meat production moving forward. “Brazil is kind of on a downslide here, and the JBS scandals continue to plague Brazil moving forward,” Olvera said.
The U.S. has maintained restric-tions on beef imports from Brazil, even though the country’s agriculture minister continues to say the restrictions will be lifted soon.
Olvera said, “It doesn’t look like, anytime in the very near future, that’s going to happen.”
In the U.S., IEG has pegged 2018 per capita consumption at 57 lb. on an annual basis, which will be 1% higher than 2017. This is also up significantly from the low 54 lb. range seen in 2015, Olvera noted.
“We are still adding beef into that domestic supply, and we’re expecting the American consumer to consume more beef,” he said. “This comes at a time frame when we’re going to have more pork and more chicken. Those retail prices are go-ing to become very, very impactful to the consumer.”
Keeping the prices lower will be key, he said, adding that retail prices should show year-over-year declines that will foster beef consumption.
Challenges ahead for the U.S. beef industry are twofold, Olvera said, with trade being the largest in 2018, specifically the North American Free Trade Agreement negotiations.
If we lose Canada and/or Mexico, you’re talking about losing two fa-vorable trading partners that we tend to utilize or leverage on a fairly normal basis,” he explained.
The second challenge for the industry, according to Olvera, is consumers’ perception of beef.
“I think we’re going to have to do a good job of reaching out to the ‘newer-age consumers.’ Millennials are concerned with where their food comes from and how it’s being pro-duced. I think that transparency in the industry, and the overall education that we can give the consumer base, needs to be expanded,” Olvera said.
Lower prices move product
Pricewise, IEG expects the Choice cutout to move mostly between the low $190s and into the $210-215/cwt. range throughout 2018, which Olve-ra said is going to be somewhere on the order of 5-7% below a year ago.
Also, larger beef supplies mean beef has to be cheaper to move that product.
On the cattle price side of things, the lower cutout value will obviously take away a little bit of the packer’s margins seen this year. “So, it’s going to make the packers a little less aggressive on their overall desire to pay up for cattle,” Olvera said.
IEG forecasts first-quarter 2018 prices at $113-118/cwt., with the peak coming somewhere in the mid- to upper-$120s during the summer.
“With the larger supplies of cattle, we should be able to do a pretty good job of maintaining that $120/cwt. range throughout the summer time frame and then heading back down into the low $100s by the late-summer/early fall time frame,” he said.
From there, prices will likely head higher in the fourth quarter, Olvera suggested.
In regard to overall profitability, he said these prices will mean some losses for cattle producers.
For the rest of this year, feeders may be running in the red, which could temper placements somewhat. “They should still want to place cattle fairly aggressively as the prices rebound on into 2018,” Olvera noted.
IEG expects an extension of prof-itable feeding margins through the spring of 2018.
“Overall, 2018 will probably be a mostly decent year for cattle feeding. I don’t think it will be anything compared to the record highs we saw this year, but it should be a pretty decent time frame for cattle feeding, especially given that we are seeing some moderating feed costs,” Olvera said.
Next year, feeder prices should moderate compared to this year, Ol-vera said, which should give feeders the ability to lock in some pretty decent margins.
On the cow/calf side, more calves mean there may be some easing in overall cow/calf returns. “That will probably continue to take place through the remainder of 2018,” Olvera said. “While I don’t think there will be much herd liquidation, we might start seeing a little bit of losses on the cow/calf side moving forward.”
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