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Cattle Outlook and StrategiesFebruary 2018

Brenda L. Boetel

UW-River Falls

Extension Commodity Marketing Specialist

Key Issues for 2018 and beyond

• Supply– Expansion continued – but has moderated– Continued lower feed prices

• Demand– Mixed signals

• Role of export demand is increasing

• Domestic retail vs food service

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Inputs

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• 2018 MY production will have 1044 MMT (a 2.7% decrease from 2017)• Record production means Stock/Use between 16-17%• Cash price between $3.10 - $3.70 – highs in late March

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5

• Record wheat and soybean production in 2017

• WI non-alfalfa hay production increased from 2016-2017 -24% - alfalfa hay down 2% (acres down)

• Wisconsin hay stocks down 17%

• Other hay prices are up 1% YoY

-37%-29%

-27%

-27%

-26%

-23%

-22%

-21%

-19%

-17%-17%

-16%

-15%

-15%

-14%

-11%

-11%

-10%

-9%

-8%

-8%

-5%

-4%

-3%-3%

-2%

0%0%

0%

0%

0%

3%

6%

7%

8%

8%

9%

9%

11%

15%19%

20%

20%

25%

31%

35%

45%

48%

-100% to -15%-15% to -3%-3% to 9%9% to 49%

Demand

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• From highs – Pork down 9.7% from September 2014

– Broilers down 7.9% from October 2013

– Beef down 8.9% from July 2015

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• Retail beef demand consistent with 2016– Average price was $5.21

• Likely see an increase of 1%in 2018

• Beef demand receiving price pressure from pork and poultry

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• Restaurant menu prices have increased 2.3%

• Price sensitive consumers buying beef but concerns about increased pork and poultry

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• RPI at 102.9 in December

• Beef benefits from improved fine-dining restaurant performance

• Retail promotions and discounts benefiting steaks but roasts suffering from lower priced pork and poultry

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• Seasonally increases at this time– Wide spread indicates a greater number of Select graded cattle relative to Choice cattle

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• Strong wholesale beef prices– Up 8% fro last year

• Strong load counts

• Indicates strong consumer demand

• Increasing prices with strong load count gives producers some leverage

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Trade

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• Global production continue to increase YoY in 2018

• US produces close to 20% of world production (Brazil – 15%)

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• Four largest exports (Brazil, India, Australia, US) account for 73% of world exports

• Brazil and India have increased market opportunities

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• Brazil dominant in EU, Middle East and now growing in China

• India now has direct access to China

• Australia is now rebuilding– Has access to China

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• US will see exports increase 4% in 2018

– Although as percentage of production it is down slightly

• Top 5 buyers (Japan, S. Korea, Mexico, Canada, Hong Kong) take 82.6% of US beef exports

– Increase share due to loss of Australian beef

• Trade policy is concerning

– NAFTA

– TPP

– China

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• US imports decrease 4% in 2018– Larger non fed slaughter decrease need for imports

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USD Index

•Currently at 90.21

•Value of US dollar decreased over last year

• Lower dollar is supportive of exports

Supplies

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• Accounts for 51% of meat disappearance in US•2018 will be 4th consecutive year of record setting production•Supplies were 0.2 lb/capita smaller due to lower turkey production

• Adding poultry slaughter capacity

– Increase production– Increased reliance on exports

•2017 exported 16% of production– Up approx. 1% over 2016– Mexico (-10%) big export market

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• 3rd year of record production• 2017 production up 0.8 lbs/capita

– 2018 up 1 lb per capita

•Export 21% of pork production– Mexico and S. Korea

• Beef production growing faster than pork or poultry•Record production in 2018

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Cattle numbers continue to grow

2018 - 94,399M (+1%)

Cattle numbers continue to grow

+1.6 Percent

2018 = 31.7 Million Head

+0.6 Percent2018 = 9.4 Million Head

+2 Percent2017 = 35.8 Million Head

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• The highest cattle prices usually occur during the accumulation (rebuilding) phase of the inventory cycle.

• That began in 2015

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February Cattle on Feed USDA Cattle on Feed Report – February 2018

Thous. Head 2018 as Pct of 2017

2017 2018 Actual

On Feed, February 1 10,782 11,630 108

Placed on Feed in January  1981 2068 104

Fed Cattle Marketed in January 1751 1858 106

Source:  USDA NASS, Dow Jones survey

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February Cattle on Feed USDA Cattle on Feed Report – February 2018

Thous. Head 2018 as Pct of 2017

2017 2018 Actual

On Feed, February 1 10,782 11,630 108

Placed on Feed in January  1981 2068 104

Fed Cattle Marketed in January 1751 1858 106

Source:  USDA NASS, Dow Jones survey

February Cattle on Feed USDA Cattle on Feed Report – February 2018

Thous. Head 2018 as Pct of 2017

2017 2018 Actual

On Feed, February 1 10,782 11,630 108

Placed on Feed in January  1981 2068 104

Fed Cattle Marketed in January 1751 1858 106

Source:  USDA NASS, Dow Jones survey

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Where are we headed?

• Cattle price outlook should be viewed as having potential to be much different than expectations shown here.

• Feeding industry will remain current, but carcass weights will continue to increase slightly

• Commercial slaughter will be – up 3.5% in 2018 – Up 1.0% in 2019

• Beef production will be – up 4.6% in 2018– Up 1.7% in 2019

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Continued struggles in 2018

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Where will Feeder prices go?

• YoY declines in prices700-800# 500-600#

1st quarter +12.5% +12.1%2nd quarter +1.2% +1.5%3rd quarter -6.8% -1.2%4th quarter -9.9% -8.6%

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Where will cow prices go?

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Continued struggles in 2017

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Where will Fed cattle prices go?

• Year over year decreases– 1st quarter +2.1%

– 2nd quarter -7.7%

– 3rd quarter -4.0%

– 4th quarter -3.7%

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2018

• Lower protein prices in 2018

• Tighter margins

• Declining land values

• Trade

• Greater need for a marketing plan

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Thank you!

• Any Questions?

• Brenda.Boetel@uwrf.edu

Graphs: LMIC – www.lmic.info

Data: LMIC,

USDA-NASS