"It looks like the weather forecast for 20 19 is to have warmer temperatures but more moisture. We're going to have plenty of grass hay all the way through the cow/calf growing regions, especially through the Midwest." he said.
In fact, Williams suggested that conditions may even push the expansion cycle a little further out before flattening in 2021.
He said producers in the drought stricken area may have seen margins that dropped below this year because of the cost ol minerals and hay. For 2019, however, mineral prices and hay prices are expected to fall.
"So, that should get them back into not necessarily what they were making three years ago but in a $ 100-150 per head profitability," he said.
In the cattle feeding sector, Williams said there were a lot of ownership changes in 2017 and 2018. but that is not expected to continue in 2019.
'What I see is currently a grain situation that is really a wonderful gilt to the cattle feeder," he said. "Their cost of feeding the animal is going to be 3-7% less for 20 I 9 versus 2018. So, that's going to help them keep their costs under control and give them a chance to be above breakeven without using risk management tools."
Weights will likely be higher year over year due to the lower input costs and strong beef demand.
All of these things continue to be a good opportunity for the cattle feeder, he said. Still, the cattle feeder is going to need really good risk management tools and to use opportunities within the market.
"It's not going to be like two years ago when there were gigantic feeding margins without basis cash to cash, but I do see that with using risk management and the lower feed inputs, feeders are going lo be at a $20-50 per head profitability from a cash-to-cash standpoint," Williams said. "By using risk management tools, they can push that even higher."
Williams said some feedyard expansion is expected in the northern areas in 2019, but not anything significant.
Additionally, he said producers in the North are also planning to build more confinement operations.
"The northern feeding region continues to change to adapt to the harsh winters or the wet conditions they have. That's a very small percentage, but that change will continue to happen year on
year," Williams said.
Weekly slaughter in 2019 is expected to rise by 1%, and carcass weights are also expected to be higher, but Williams said packers are adding more shackle space, so there will be more supply but
not necessarily cheaper prices.
"As we've increased the slaughter rates, as we have tremendous amounts of demand for cattle, I'm not forecasting that we're going to see cheaper cattle prices for 2019," he said. "Are we going
to see gigantic increases? No, but we are going to see $10-14/cwt., on average, higher prices in 2019."
IEG forecasts cattle prices in 2019 to average $118-128/cwt. The support in prices is due to the continued strong domestic and global beef demand, Williams said.
"The packer will want to run full all year next year" he said, adding that margins are expected to be really good - "maybe not as high as they were in 2018, but close. They were record this year."
Even with stellar margins, though, packer expansion isn't expected, be-. cause it costs about S1 billion to build a new plant. However, Williams said there will be more shackle space. ''That's what
gives the cow/calf, the backgrounder, the feeder opportunities, because we have a market structure that is continuing to be very opportunistic," he said.
Demand key to profitability
IEG expects per capita consumption in 2019 to rise by a half-pound or 0.75 lb., which Williams said is a deviation from a long-term trend of being very, very flat.
The firm is seeing more demand from ll sectors - from high-end restaurants all the way down to household purchases. The increased demand is mostly attributed to the improving U.S. economy, Williams said, explaining. "People have more money to spend on food, so what they're doing is trading up in all these sectors for beef. White tablecloth steak restaurants have not done this well since 2017. Consumers have more dollars to spend."
Domestically, middle meats and ground beef have been the biggest drivers of consumption. Additionally, the typical seasonality of beef demand has disappeared, and beef now dominates
all holidays, Williams explained.
In the global market, beef continues to be king, with three countries dominantly driving the export picture. "We have strong, consistent demand from Mexico and Japan - long-term partners that continue to buy large amounts of volume," he said.
However, the biggest change in 2018, which is also expected to continue into 2019, is demand from South Korea. "We're seeing unbelievable amounts of demand coming from South Korea, dominating the global scene for more beef," according to Williams.
In the rest of Asia, as citizens move up the wealth chain, they also look to include more beef in their diet, he said.
Overall, IEG forecasts beef exports in 2018 to be up 10.0-10.5% year over year and to rise another 2-3% in 2019.
U.S. beef imports, on the other hand, are expected to be flat.
"If that's flat, then that's really going to drive domestic demand, because with higher demand, the beef has to come from somewhere, so it will come from yhe U.S.," Williams said.
The change is due to restaurants like McDonald's and Wendy's moving to
fresh beef versus frozen.
In terms of wild cards in 2019, Williams said bee( demand could be curtailed if a global or U.S. economic set back were to occur. "When economies are healing up so much and growing by 3.5-4.0%, it's always possible," he noted.
Australia, a main competitor to the U.S., is expected to retain more heifers next year due to increased precipitation. "They're going to put less beef out into the global market, so that's going to give us a competitive advantage," Williams said.
Brazil, on the other hand, is expected to increase production in 2019.
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