Cattle futures have enjoyed firm, steady prices since September 2017 with prices well supported by demand. However in the past few weeks, cattle futures prices have eased slightly lower as expectations of hefty supplies of beef are on the horizon.
According to a recent USDA supply/demand report, the firm live cattle futures prices enjoyed from late 2017 and early 2018 were appropriate and justified. The market was supported by slightly smaller beef supplies and the March USDA report echoed that sentiment when it was announced that first quarter beef production in the United States was at 6.48 billion pounds, which was actually down from 6.57 billion pounds from the February USDA report. While that USDA supply report data was supportive overall, traders instead focused on the future. The USDA now has second quarter beef production pegged at 7.225 billion pounds, which is actually up from 7.175 billion pounds from the month prior. That is a lot of beef. In fact, if you look at quarterly beef production going back to 1970, the number of 7.225 billion pounds is an all-time quarterly record.
It is this expectation for larger supplies that brought an end to firm futures prices. However, do not lose hope. While the market may continue to correct lower in the short term, demand continues to be strong and should provide valuable underlying support to the cattle complex overall. Domestic demand is impressive and export demand remains phenomenal. In fact, cumulative export sales for 2018 have reached 291,900 metric tonnes, up 19.5 percent from last year’s pace.
For sure, some are citing fears of trade war and that exports might diminish, but friends, let’s be honest—there is no substitute for steak. Once you have it, you want it again. Those emerging economies overseas are enjoying beef and we feel that trend will continue. Plus, once the northeast U.S. thaws out from the barrage of winter blizzards, you can bet that those folks will still fire up their grills. And if those people have been cooped up all winter long, cooking inside, most likely eating soup, casseroles or baking chicken, you can be darn sure that their first grilling feat for spring will be steak.
Please do be mindful that most likely, packers will not buy much more than they need in the short term; just enough to fill orders now which is different than last year at this time. And why would they buy more than they need or be overly aggressive on purchases if the industry expectation is that second quarter supplies will be more than abundant. As long as demand stays strong, cattle prices will most likely stay in a simple sideways trading pattern on charts. Be mindful, because supply is plentiful, we have little reason for dramatic rallies, yet because demand is so strong, big picture price support seems quite firm.
Editor’s note: Naomi Blohm is a marketing advisor with the Stewart-Peterson Inc. and she is a regular contributor to the Iowa Public Television series “Market to Market.” She can be reached at [email protected].
