Forecasting live cattle prices is always tricky but most analysts were close to the mark at the start of last year. Prices were better than expected in the first quarter but mostly followed forecasts the rest of the year. Prices this year are likely to be slightly lower than the average price in 2018 of $117.08 per cwt (basis USDA’s 5-area steer price), despite a year-on-year increase in steer and heifer slaughter.
Prices ended last year on a strong note, with a $3.71 per cwt live price rally in the Christmas week. Part of the surge was because of tightening supplies and part was due to weather (snowstorms). Prices will likely remain strong through much of the first quarter, especially if weather continues to remain a factor, and are likely to average around $122 per cwt or slightly higher for the quarter. This average is likely to be the quarterly high for the year by a wide margin, as was the case in 2018.
Prices in the first quarter last year were stronger than expected, with the average at $125.60 per cwt. They dropped to $116.72 per cwt in the second quarter and to $110.83 per cwt in the third quarter. But they rallied to average $115.16 per cwt in the fourth quarter, in part because of higher prices in December. The last week of the year saw prices average $122.52 per cwt, versus $118.81 per cwt the week before. This was the highest weekly live price since the first week of May last year. Whether quarterly prices follow the pattern of last year is unclear. Four of the five analysts I surveyed in early January have the quarterly high in the first quarter. Their average and USDA’s for the year is just under $116 per cwt.
Demand and tariffs will be the key issues for the beef industry this year. The meat and poultry industry will produce more protein than ever before. How it disposes of it will depend on continued strong demand at home and abroad. That is especially true for beef as it is by far the highest-priced protein. Americans showed a remarkable willingness to pay more for beef last year. Japan and South Korea meanwhile remained the top markets for U.S. beef exports and Australia can expect even more competition in these markets this year.
Total 2019 red meat and poultry production is expected to reach 105.570 billion pounds, up 3.0 percent on 2018, according to USDA’s Economic Research Service (ERS). This would exceed the expected 2.4 percent increase in 2018 from 2017. ERS forecasts that 2019 broiler production will be up 1.7 percent on 2018 at an estimated 43.370 billion pounds. Beef production will total 27.810 billion pounds, up 3.3 percent on 2018, and pork production will set a new record of 27.715 billion pounds, up 5.3 percent on 2018.
Potential negatives to continued strong demand will be stock market volatility in the U.S. and overseas, and trade issues. The latter includes tariffs and uncertainty that Congress will ratify the new U.S.-Mexico-Canada Agreement (USMCA), which would replace the 24-year-old North American Free Trade Agreement. Congress is unlikely to take up ratification anytime soon. Moreover, House Democrats might try to alter terms of the agreement and delay or even block its ratification.
Two other clouds hanging over the industry were present in 2018 and are likely to remain this year. The first is the availability of a sufficient number of skilled workers to staff the industry’s hundreds of processing plants. This is the No. 1 issue facing the beef industry, according to most of the industry’s 30 largest beef processors that I surveyed last November.
Especially revealing was that companies made it clear that the shortage is hampering their ability to operate at maximum efficiency. Absent a significant change in immigration policies that would allow more foreign-born workers to enter the U.S., beef processors will again struggle to run plants at desired levels this year.
Another cloud is burgeoning transport costs caused by a nationwide shortage of truck drivers in the U.S. that appears to be worsening. In a business where the old adage is “sell it or smell it,” getting meat and poultry to customers and end users on a timely basis is critical. Companies coped with the issue last year but at significant added cost. The shortage is likely to remain all year and continue to add to processors’ cost of doing business.
Should beef demand at home and abroad remain strong, beef processors can expect to repeat their record-breaking results of 2018. Let’s also hope that cattle feeders have a profitable year, as well as all participants at the ranch level of the industry. — Steve Kay
(Steve Kay is editor/publisher of Cattle Buyers Weekly, an industry newsletter published at P.O. Box 2533, Petaluma, CA, 94953; 707-765-1725. Kay’s Korner appears exclusively in WLJ.)
