Large supplies, record exports, and trade concerns are just a few of the topics that have dominated the headlines in 2018. Amidst all of these factors, calf prices have shown relatively consistent strength throughout the year. 2019 will likely bring a flat year in national herd growth which will position the industry at a pivotal point for supplies and prices moving forward.
Cattle and Calf Supplies
Cattle and beef supplies have been growing since the price peak in 2014-2015 and this continues to be the primary headwind to higher prices. The 2018 U.S. calf crop will be about 8.5% larger than it was in 2014 – that is nearly 3 million more calves on the ground. However, that growth has been slowing recently with 2019 expected to be close to flat for cow herd growth. It takes time for the expansion that has already occurred to work through the cattle and beef supply chain. The stage is already set for modestly larger calf and beef supplies in 2019. We can look to 2014-2015 as a mirrored example. 2014 was the low point for most of the cattle supply numbers (number of cows, calf crop, etc.), but 2015 was the lowest year of beef production.
Beef Production and Supplies
Beef production has increased by over 13 percent since 2015. Combined with a modest increase expected in 2019 and that would be an approximately 15 percent increase in beef production in just four years. This would be the fastest four-year growth since 1973-1977. Following the cattle supplies, the beef production increases are slowing. Looking into 2019, the current forecast is for a 1.9% increase in beef production in 2019. This would be the first increase of less than 2 percent since 2015.
With respect to the cattle cycle, recent cowherd trends suggest 2019-2020 could potentially mark the end of the current U.S. cattle inventory build-up. It is worth noting that this is looking like a unique cattle cycle. History might suggest that after herd growth stops, herd declines will follow. But the ingredients for herd declines are not obvious at this point. While calf prices are no longer at the “rapid-expansion” levels, they have remained at or above profitable levels except for a period during late 2016. There is also no evidence to suggest drastically lower prices in the near future. This does not provide much incentive for herd declines in the near future. 2019 could be the first of a few relatively flat inventory years.