The cattle industry is facing challenges and constraints as well as advantages pertaining to everything from trade issues to African Swine Fever to the recent Tyson plant fire. Derrell Peel, Oklahoma State University Cooperative Extension livestock marketing specialist, says the beef industry is trekking through a time of uncertainty we will have to weather until the markets rebound.
He says cattle inventories have been growing, but now they have started to plateau and hold steady. However, beef production continues to lag behind cattle numbers.
“We won’t see the peak in beef production until next year, but again on the trajectory we’re on, we’ll probably peak on production and more or less plateau,” he said.
He says as beef production has grown over the last four to five years, it has held together sufficiently given the amount of expansion in the industry. Beef demand has kept up with the increase in supply and in turn been more stable in this market than it would normally be with this kind of expansion.
Trade and African Swine Fever
“In a bigger picture sense, you get outside the cattle markets and the macroeconomy has some threats to it and we’re still wrapped up in a lot of trade issues,” Peel said. “Most of these are not resolved, but hopefully they will be some point. The new version of NAFTA (North American Free Trade Agreement)—USMCA (United States-Mexico-Canada Agreement)—has not been implemented yet because it hasn’t been ratified in the U.S. and Canada.”
Peel says since the U.S. pulled out of the original Transpacific Partnership almost three years ago, the new partnership, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, is starting to create some negative impacts on U.S. markets.
“We are losing ground as a result of that, particularly in Japan,” Peel said. “We have a partial agreement with Japan to try to replace not being involved with TPP.”
It is unknown what that will mean for the beef industry, but Peele expects it to be a positive move. Although the U.S. is not really involved with the fallout of the EU and Brexit, Peele says we may see some fallout depending on what kind of divorce they come up with. He says we could see some disruption in Europe depending on what develops from that break-up.
African Swine Fever is having a huge impact globally on protein markets as a whole, but obviously it is affecting the pork markets the most, and China in particular.
“China produces half of the world’s pork and the estimates are all over the place, but the number I’m hearing more and more amongst analysts is that they may have lost half of their pork production,” Peel said. “So that means 25% of the world’s global pork supply is gone. It’s a big number and it has all kinds of impacts on the protein market. Obviously in China they are trying to replace a huge deficit of protein with pork, beef and chicken from other places.”
Peel says the African Swine Fever will have direct and indirect impacts on markets foreign and domestic.
Tyson plant fire continues to hinder the beef market
The elephant in the room for the beef industry is the Finney County, Kansas, Tyson plant fire, which happened in August and caused some major setbacks.
“That plant fire took 5% of our available capacity out,” Peel said. “We were already operating at about 91% capacity because of the increase in cattle numbers we’ve had in recent years. So that fire pushed up very close to the limits of capacity.”
Nevertheless, Peel says the industry have done a remarkably good job of keeping slaughter rates up. However, it has not been easy.
“It’s caused a lot of contortions in terms of Saturday kills and shipping cattle lots of different places that we normally wouldn’t send them.”
According to Peel, Tyson expects the plant to be back on the line in late December or early January. This means the cattle industry will have to continue juggle cattle numbers and slaughter capacity.
“We’ve actually handled the reduction in capacity pretty well, so the biggest question is if we can sustain this through December,” Peel explained. “There’s labor constraints those packers face and they can’t run double shift Saturdays indefinitely.”
The bottom line is these markets will continue to recover, but we may see some additional stress.
Forage pros and cons
“I think here in the Southern Plains we are going to see significant stocker demands,” Peel said. “We are going to have plenty of calves this fall, so by the time we get into late October and into November, we’ll have a fall run and that always seasonally puts pressure on prices.”
Good forage conditions might actually push off weaning in some cases. With the significant rainfall this year, most cattlemen will have enough grass to have that as an option. Peel says one reason for weaker feeder cattle markets through the summer has been insecurity associated with the corn market.
“With the delays in planting, we’ve got a lot of late corn around the country,” he said. “The Livestock Marketing Information Center’s official estimate is 13.8 billion bushels of corn, but we won’t know for certain. We’ve got a lot of corn that’s anywhere from one to four weeks behind. A frost at any time during that period is going to cut off a bunch of that really late corn.”
Peel says if the current estimate is correct, corn prices will be a little bit higher this year but not dramatically higher. If it drops down lower it will start to be more of an issue.
“Obviously when it comes to ending stocks for 2019 at the end of the crop year, we’ll see the lowest ending stocks we’ve had in several years,” Peel said. “But at that level we’re still pretty close to 2 billion bushels, that’s not going to cause a lot of market rationing.”
If corn prices shoot up, it will affect cost of gain in feedlots and that plays back into feeder cattle markets. Peel says that has been part of the reason feeder cattle markets have been defensive all summer.
The adversities the beef industry is up against are coinciding with an expansion in beef numbers, which is sure to mount a formidable task for cattlemen. Peel says the expansion mode the cattle numbers are in right now shares some similarities to the way the expansion played out in the 90s.
“The one thing I think is different in the way it looks right now is I don’t think this thing turns into a sharp peak and goes right back down,” he said. “I don’t see a herd liquidation happening at the moment, but if we continue to deteriorate conditions in terms of trade and feeder markets it could turn into a liquidation. At this point we’re still close enough to imbalance between demand and supply that we can maintain the level we’re at for the foreseeable future.”
Lacey Newlin can be reached at 580-748-1892 or [email protected].