I sincerely hope everyone had a merry Christmas and looks forward to a profitable new year.
When the new year comes in, it’s like getting a blank scorecard. We know what challenges we had in 2018 and now we get to look forward and implement new ways to improve our operations. Hopefully, Mother Nature doesn’t throw us too many curve snowballs this year.
It is remarkable that the beef industry has produced over 26.8 billion pounds of beef, processed 32.1 million head of cattle, and kept the average all-fresh beef price at $5.60 per pound, just a couple cents lower than last year, which was $5.62 per pound. Consumers are spending record amounts of money on beef when there are clearly lower cost proteins. Beef is the preferred meat protein.
What consumers spend on beef is important to our success. We’re producing more, better-quality beef than ever. It is common that nearly 80 percent of all USDA-graded beef is coming out Choice and Prime. Remember the war on fat in the ‘70s and ‘80s? Consumers didn’t want to eat beef because they thought it had too much fat. Today, the more marbling the better, and modern feeding programs and genetics have placed the beef industry high in consumers’ dietary mind.
What consumers didn’t like back in the day was the inconsistency in beef, but we fixed that with the first Beef Quality Audit. At least we took an objective approach on how to fix our product, and fix what the audit said needed fixing.
The economy is booming despite what you may be hearing in the news about the Federal Reserve Bank raising interest rates and the stock market making a huge correction of nearly 20 percent in some indexes. The irony is that most companies are doing quite well and increasing dividends.
We don’t need to see a big panic in financial markets, yet many pundits are starting to talk about bear markets and taking a “the sky is falling” mentality. Don’t listen to them. Employment and wages are growing, and the bottom third of wage earners are seeing the fastest growth.
Consumers are spending, and the economy is on solid ground. It’s been 10 years since the Great Recession and some folks think it’s simply time to have another. Credible economists aren’t finding much to worry about.
Andy Gottschalk of Hedgers Edge said in his latest outlook, “Despite the recent $4 trillion erosion in stock values, the consumer is in the best financial condition he has been in for many years. For the latest reporting month, the personal savings rate stood at 6.2 percent. Prior to the Great Recession it stood at 3.1 percent. It was 0.9 percent before the 2001 recession. Consumer debt relative to disposable income at the end of the third quarter 2018 was the lowest level since 2002. With the added benefit of low interest rates, the consumers’ share of income earmarked for debt repayment is the lowest on record.”
Cattle markets are solid, and packers continue to process large numbers of cattle even though their margins have been reduced to about $100 per head. We still have lots of cattle in feedyards and the same old mantra is being broadcast—stay current and keep those finished weights in line. Last week finished steers were 4 pounds below a year ago and heifers were 3 pounds lower. Feeders are starting to see some positive breakevens, so they have all the motivation they need to sell cattle.
The latest Cattle on Feed report showed us that we had 1.9 percent more cattle on feed than a year ago. It showed that placements were 4.9 percent lower than a year ago. The last three months have shown lower placements, so you do the math. We also achieved the third highest marketing rate since 2002, which represents about 70,000 additional cattle going to processors and doing it with strong retail prices.
The first half of 2019 should offer feeder cattle sellers some opportunities. Fed cattle futures are showing some cover during the winter months. Typically, the first few weeks of January see rallies on the cash feeder cattle markets, so beware. But for 2019 our friends at Hedgers
Edge are forecasting these 2019 average cattle prices; 500-550-lb. steer calves to average $171.00; 760-800-lb. feeders will average $145.75; and fed cattle to average $116, with the first quarter averaging $120.
All we need to do now is pray for spring rains and good snowpack in the mountains. Peace be with you. — PETE CROW
