Cattle Fax seminar gives beef producers a glimpse into future

A team gathered by CattleFax gave beef producers a peek into their U.S. global protein and grain outlooks during their early morning session, Feb. 6, in San Antonio, Texas, at the Cattle Industry Convention and NCBA Trade Show.

Randy Blach, CattleFax CEO, said as he looks back on what beef producers went through in 2019, it set the stage for what 2020 could be like. Weather in 2019 proved to be less than ideal.

“I know none of us in this room like to complain about too much rain,” Blach said. “As Dr. Douglas told us a year ago that we were going to be wet, wet, wet, and we were. And he’s been right on this weather situation several years.”

Wet weather had a tremendous impact on calving and mortality rates in many states.

“I think if you look at the inventory report that just came through that it obviously had an influence in the number of calves that were lost and in the culling rate in the nations cow herd,” he said. “Obviously it had a huge impact on performance of these cattle in feed yards too. Weights were down significantly. Took tonnage off the market.”

African swine fever is another one of those things that has been troubling. It has been traded on for about 18 months, Blach said.

“I remind you, we have $25 rally in the hog market in March, early April in 2019. That obviously put points on the cattle market as well,” he said. “I doubt that volatility is gone away yet.”

Cattle producers need to continue to keep that on their radar screens, along with trade deals.

“The market took some dings as we came through last year with a lot of good news as we finished 2019 in the early 2020, that most of these things have now crossed off the list,” Blach said. “They’ve been checked, they’re very positive as we go forward.”

Revisiting Tyson fire

The fire at the Tyson plant in Holcomb, Kansas, in August 2019, got a lot of press, and was a very emotional situation for some, Blach said. But one thing rang true.

“I just want to remind you all, markets work. Markets work,” he said. “We came through the situation with the fire. Obviously it had a negative downward bias on these markets and we came through here and we incentivize the packers with some record margins.”

There was “a lot of short-term pain,” he said, but the beef industry came through it.

“When the plants reopened we estimated that there was less than 75,000 head of cattle that was backed up through the entire situation,” Blach said. “Had we not incentivized the packers to harvest the cattle we did, we could have easily had several hundred thousand head of cattle.”

That backlog could have had a negative influence for the first half of 2020, maybe even the entire year.

“I want to tell you, I think the markets work,” Blach said. “We went through that. But in the long term, I think the markets did what they needed to do to work best in that situation.” 

Strong protein demand ahead

Blach sees strong demand being highly favorable to the entire industry, despite significant outside interest in protein production from the United States. This is positive for the future.

“The days of boom and bust in our industry are behind us,” Blach said. “Thanks to strong demand at home and abroad, we’re likely to see far less volatility in the market during 2020 than we saw last year.”

Rising global demand for most all proteins is strong, and that helps beef by funneling more dollars into the industry, leading to more profitability.

Blach noted that global demand for all proteins is strong, with beef being a major beneficiary of that demand. Packers have had a large part of the leverage, but Blach sees that shifting in the year ahead, with more money going into the live cattle sector. He sees packers adding more rail space in the plants.

“In turn, as supplies begin to flatten out, packing margins have likely peaked and we’ll begin to see margins at the packing sector begin to narrow as we move through 2020,” he said.

Challenges remain

Even though the market outlook is positive for 2020, Blach believes the beef industry needs to remain competitive and stay on top of things.

“There is strong demand for our product, but that’s the result of the fact that our business has paid attention to market signals and we’ve been producing a consistent, quality product that has gained a greater piece of that retail dollar,” he said. “We need to protect that.”

Blach also believes beef producers need to pay attention to what the consumer is telling them.

“That means conversations about topics like traceability and sustainability only become more important as time goes on,” Blach said. “We have to listen to the consumer and respond with action to meet their needs and demands if we’re going to continue to be successful in a hypercompetitive global protein market.”

Supporting roles

Art Douglas, professor emeritus at Creighton University, Omaha, Nebraska, echoed the impact of weather on the beef industry, and expects weather patterns to shift. After repeated El Niño events during the past five years, the U.S. will shift to a La Niña pattern. With the exception of the northwest and southeastern portions of the country, many parts of the U.S. will be slightly warmer and drier than last year, which will be favorable for planting and growing conditions during the spring and summer.

Mike Murphy, CattleFax vice president of research and risk management services, believes the corn and soybean acres will increase in 2020, noting corn plantings will rise 4 million acres to 94 million acres and soybean acreage rising 7 million acres to reach 83 million acres. Even with prices down 15 to 20 cents from 2019, he believes 2020 spot corn prices to trade in a range of $3.50 to $4.00 per bushel—unless weather hinders planting and growth rates. Murphy said trade could present an upside to the projected prices, particularly in light of the recently signed U.S.-China trade agreement.

CattleFax Vice President of Industry Relations and Analysis Kevin Good expects trade to significantly influence beef and cattle markets. He expects strong demand and increasing exports to offset higher total animal protein production. In 2020, Good expects U.S. beef production to reach a record 27.7 billion pounds. As well, he sees an increase in beef exports.

“With strong demand for U.S. beef at home and rising demand overseas, the modest increases in supply will be more than offset by a growing consumer appetite for our product,” Good said. “Higher wholesale beef values are a reflection of improving domestic and global beef demand.

Good projects a nearly $6 per pound average for all-fresh retail prices. CattleFax projects composite cutout prices to rise $3 during the year ahead to reach $222 per hundredweight.

Cattle prices will be supported by increased demand and higher beef prices at the consumer level, and leverage shifting from the packers as more space becomes available in 2020.

Good said CattleFax projects fed steer prices to average $120 per hundredweight during 2020, an increase of $3 from the previous year. Through the year, the downside risk could be at the $108 level, with resistance at the top near the $130 level. Calf prices are also expected to move higher in the year ahead, with 550-pound steer prices trading in a range of $155 to $180, averaging $170, up $6 per hundredweight from 2019 levels. Feeder prices will also rise, with 750-pound steers trading from $140 to $160, with a yearly average of $150, also $6 per hundredweight higher than last year’s average.

Good sees more utility cow supplies to challenge the cull cow market due to aggressive expansion the last few years. Projected prices range from the low $70 level to a fall low near $55, while averaging near $65 per hundredweight for the year, an increase of $5 per hundredweight over 2019 levels.

“However, increased demand for lean trim and a decline in the availability of imported grass-fed trim from Australia and New Zealand will be supportive of cow prices,” Good said.

Blach finished up the session by telling producers, “A major shift has taken place that is reshaping our markets. It’s moved from a supply driven market to a demand driven market.”

He said price discovery is adequate today, but the industry will likely have to address it relatively soon. Blach also sees more capital from outside of the industry will continue to invest in the U.S. protein industry, and foreign ownership is a hedge and provides access to the largest and safest supply. And finally, he sees U.S. agriculture positioned well with recent trade deals significantly helping the situation.

Kylene Scott can be reached at 620-227-1804 or [email protected].