2018 has been both an interesting and somewhat steady year for the cattle market. Large supplies, record exports, and trade concerns are just a few of the topics that have dominated the headlines. We are now fully transitioning into the primary calf selling (and buying) time of the year for most producers in the southeast. I’m going to try to sum up a few of the more prominent factors and discuss how they could impact cattle prices this fall. Mixed in with my comments are comments from LMIC.
Larger beef production continues to put downward pressure on prices. Beef production rose by 6.8% in 2016, 3.8% in 2017, 4.2% projected for 2018, and 1.4% projected for 2019. Put it all together and that would be about a 17 percent increase in beef production in just four years. This would be the fastest four-year growth since 1973-1977. The good news for prices is that smaller expected increase in 2019. All signs are pointing to slower herd expansion in 2018 and 2019. The U.S beef cattle sector is well into the cyclical adjustment phase transitioning from aggressive herd expansion to very modest growth. Looking ahead, smaller herd growth rates will translate into the rather modest year-over-year increase in beef production in 2019 and 2020. Further, if recent cowherd trends persist, 2020 could mark the end of the current U.S. cattle inventory build-up.
While large supplies remain the biggest headwind to stronger prices, strong domestic and international demand for U.S. beef is supporting prices higher than might have been expected. A strong domestic economy is supporting beef sales despite larger supplies of beef and competing proteins chicken and pork. Internationally, robust exports have supported the demand profile for beef and hence cattle. January through May exports were 14.5% larger than the same period in 2017 — and 2017 was a great export year.
Interestingly, feeder cattle prices have fared relatively better than live cattle prices this year. Production and disappearance forecasts suggest fed cattle prices below a year ago. 2018 fed cattle prices are expected to average 2% to 4% below 2017 while calf and yearling prices are expected to be very similar to both 2016 and 2017 levels. One driver is lower corn prices. The latest USDA estimates for corn production call for another big corn crop on top of already large supplies. This is providing support for feeder cattle prices because it makes it less expensive to add pounds.
Looking at the rest of 2018, I expect that we will see prices a little lower than during the same period of 2017. We typically see seasonal declines heading into September and October and the large supplies of calves this year provide some reasoning for that seasonal pattern to hold this year. As shown in the chart above, 2017 was a strange year in that we didn’t see much seasonal price decline in spite of larger supplies.
Looking beyond 2018, the slower herd growth numbers begin to paint a brighter price picture for 2019 and 2020. If the domestic economy holds up or grows and exports continue to gain steam, it is not difficult to see higher prices in the Fall of 2019 compared to Fall 2018.