Texas Cattle Feeders Association President and CEO Ross Wilson presented a forecast and state-of-the-industry report at the recent Agricultural Bankers Association annual conference. He said that the domestic demand situation looks good, but production increases will pressure prices if exports are not expanded.
“We’re rebuilding the herd,” he said, calling it a good thing. CattleFax projects the U.S. will add 700,000 head of beef cows to the cow herd in 2018 and 200,000 in 2019. The cow herd expansion is expected to level off in 2020 and begin the cyclical decline in 2021.
But more beef cows mean more beef calves. More beef calves mean more beef. And better genetics and feeding practices in recent years means more, higher-quality beef.
“Since 2000, we’ve nearly put 100 pounds [of dressed weight] on these animals,” Wilson noted.
A bigger beef supply can mean lower beef—and thereby cattle—prices.
“We will probably, from a fed cattle perspective, end this year at $119 [per cwt.] for an average price,” Wilson said, citing CattleFax data.
“We have a forecast for 2018 for $114,” he added, still talking about cash fed cattle prices. He cautioned his audience that this is a projected annual average, and recent years have seen a $20 trading range from market top to low in a given year. He summarized, saying both cash fed and feeder cattle are projected to be steady to down $5-6 on average in 2018.
One of the risks to the cattle market in the near term will be demand, and there is good and bad news on demand.
Good news: Domestic beef demand is good.
“Even with our increased tonnage and prices having come down, the retail beef demand index is still very strong, all things considered. So, we’re in a good place as far as beef demand today and going into 2018 and probably 2019.”
Bad news: Beef is not alone in terms of increasing production.
“Beef, pork, and poultry—we all are increasing production. We all will have more tonnage on the market, both U.S. and international to sell in the future,” Wilson said. More pork and poultry means more competition for consumer dollars. Even with the current strong consumer demand for beef, retail beef prices are often—pound for pound—higher than the combined price of pork and poultry.
Reducing that domestic supply is essential, Wilson explained.
“If we’re not exporting it, then we’re consuming it here. And we will consume it here, but at a price,” he said, giving the higher prices paid in Asian countries for offal cuts unwanted by American consumers as an example. CattleFax estimated the value of export demand at $324 per head (about $60/cwt.) on the a 550-lb. steer calf in 2017.
China and traceability
“Of course, the 800-lb. gorilla today in everyone’s markets—even outside agriculture, but certainly in beef and in all proteins—is China,” Wilson said when turning to the topic of international markets. According to CattleFax data, China’s imports of beef more than doubled from 2012 to 2013, and have been rapidly climbing since. For 2017, China is estimated to import roughly 2.75 billion pounds of beef. Chinese imports are only expected to increase.
Wilson recapped the recent official reopening of China to U.S. beef. But he projected a surprising result: more U.S. beef going into China’s “gray market.”
“The Chinese government no longer throws importers in jail for importing U.S. beef,” he explained. “So we’ll actually see more U.S. beef going into China through the gray market and back channels than we will through the official protocols for a while, but that will change over time.”
The current protocols are not without problems, however. Not only do they exclude most production technologies used by the industry, they include a level of traceability.
Traceability featured heavily Wilson’s forecast.
“The U.S. beef industry is behind the rest of the world in animal ID and traceability. That is the bottom line.”
While he said he does not see a mandatory animal ID program happening in the U.S. in his lifetime, he told his audience of ag bankers to look north for what the future might hold in terms of financial incentives for participation in voluntary programs.
“The bankers in Canada are talking about lower interest rates, or lower equity requirements, or some combination of the two to recognize that greater protection of collateral,” Wilson said, speaking of events he witnessed at a Canadian beef conference this past summer.
Wilson was uncertain of if such a thing could work in the U.S., but he noted that the Texas Cattle Feeders Association was interested in such a thing and that the National Cattlemen’s Beef Association is working on a study on incentive-based voluntary animal ID programs. This study, he said, will hopefully be presented at the annual conference in Phoenix in January 2018. — Kerry Halladay, WLJ editor
