Cattle markets that have outperformed expectations have bewildered cowboys and economists alike the past two years. Even as beef supplies have grown to near-record levels, resilient consumer demand has helped support cattle prices at levels few imagined 24 months ago.
“So far, so good,” says Oklahoma State University Extension Livestock Economist Derrell Peel. “The cattle markets have performed remarkably well, all things considered, and beef demand has held really well.”
Maintaining that robust consumer demand remains critical for cattle and beef prices in 2019.
“Since 2017, demand has kept up with increasing beef supplies,” Peel says. “Demand, both foreign and domestic, has supported cattle prices even as we have seen increasing supplies of beef and competing meats.”
U.S. beef production will increase 2.8% to 3% for 2018, according to estimates. That means total supplies will near 27 billion pounds. Another 1.8% increase is projected next year by Sterling Marketing, Vale, Ore.
“Demand has been excellent, and our growing beef exports continue to support prices and profitability,” says Sterling Marketing president John Nalivka. “Beef exports increased 11.9% in 2018, and I project another 3.1% next year.”
In terms of value, beef exports will exceed $8 billion in 2018, and account for more than $300 to the value of every fed steer harvested in the U.S.
Supplies of beef are likely to reach a peak for this cattle cycle during 2019, as economists say expansion is near its end. USDA’s recent estimates put the 2019 beef cow number at 31.9 million, which would be a 0.5% increase.
“I believe that we’re at, or very near, the peak cycle cow number,” says Kansas State University extension economist Glynn Tonsor. “I don’t see the economic driver for cow-calf producers to expand from here.”
While no one expects windfall profits for cow-calf operators next year, the general consensus is that modest profits will be the norm.
“For 2019, I’m expecting prices to be sideways to slightly stronger,” Peel says. “That presumes we will continue with the current beef demand, and, while I don’t think it’s outstanding, I think there is some profit potential there for cow-calf operators.”
Tonsor projects 2019 calf prices to be “flat,” but ranchers may see gains on the cost side.
“Projected prices are in the range of $164 to $174 for fall calves in 2019,” he says. “Using that mid-range price of $169, that’s basically steady with 2018, and any increase in profitability would be found through lower production costs.”
Moderate profits for cow-calf producers should continue for 2019. (Source: Sterling Marketing)
Nalivka says lower costs play a factor in his cattle price and profitability projections. Grain, hay and fuel prices are all projected to be lower in 2019.
“I have cow-calf profit margins at $170 per cow in 2019, strictly on a cash basis,” Nalivka says. “That’s not a home run, but it’s certainly higher than what we would expect at this point in the cattle cycle.”
Tonsor and Peel both contribute to the Denver-based Livestock Marketing Information Project (LMIC), which combines the knowledge and resources of several university economists. LMIC projects small profits for cow-calf operators in 2019, again, better than expected.
“Calf markets in 2019 will basically be on par with 2018,” Tonsor says. “If we see a profitability improvement it will be in the cost corner. Barring any unforeseen developments, such as drought or trade issues, I expect that scenario to hold, which is really a good position for cow-calf operators at this point in the cattle cycle.”
Read more stories from the 2019 Outlook series:
2019 Outlook: Corn Markets Hinge On Acreage Battle
Bull-Bear Outlook 2019: Headwinds Ahead For Grain Marketing Plans
Bull-Bear Outlook 2019: A New Reality For Grain Markets