Cattle market factors to watch in 2015 include herd numbers, imports

by The City Wire staff ([email protected]) 84 views 

This year has brought record cattle and prices across the U.S. as the overall herd shrinkage continues. Cattle expert Derrell Peel, extension livestock marketing specialist at Oklahoma State University, warns 2015 will likely see more record prices and imports with fewer exports and reduced packer production.

“For the most part, the same factors we have been watching in 2014 will determine how much higher cattle and beef prices will push in 2015,” Peel said.

While he expects the Jan. 30 Cattle Report to show some slight herd expansion, Peel said the projected 2014 increase ranges between 0.5% to 1%.
 
He said the herd expansion is expected to continue in 2015 and for several more years but it is not guaranteed because severe drought conditions persist in the far west and marginal-to-severe drought areas remain in the southern plains and southwest. The plains of Texas and southwestern Oklahoma and Kansas have the most potential for herd expansion, having been most depleted during the drought, he added.

Peel predicts feeder cattle supplies will continue to tighten into 2015 with a smaller 2014 calf crop, increased heifer retention and likely less cattle imports from Mexico and Canada. He said the 2015 calf crop may grow with limited herd expansion in 2014 but continued heifer retention in 2015 will keep feeder supplies tight.

Tyson Foods CEO Donnie Smith also predicts cattle supplies will be lower for the next several years. He said recently that it could be 2020 before fed cattle supplies return to their 2014 levels. He said Tyson is fortunate to have slaughter facilities in regions where there is more cattle available.

Cargill closed its plant Plainview, Texas, in February 2013 primarily because of the the tight cattle supply brought about by years of drought in Texas and Southern Plains states. The U.S. cattle herd is at its lowest level since 1952. 

Peel said beef processing production is expected to drop between 1%-to-2% in 2015 on the heels of the 6% drop sustained this year behind plant closures and reduced capacity reported by the major packers.

Smith said demand for beef has stayed relatively strong until recently, despite sharp price increases.

“If has just been recently that we have seen consumers trade down to a cheaper protein like chicken. We expected this would happen long before now, but consumers kept buying beef, maybe it was hamburger instead of steak; but now they are buying more chicken,” Smith said during a recent global consumer conference.

Peel agreed, noting that all eyes will continue to be on beef demand in 2015 as further reductions in beef supplies will push wholesale and retail beef values higher. Beef demand in 2014 was stronger than expected but additional meat supplies from increased pork and poultry production in 2015 will add additional pressure to retail beef markets. He said retail beef prices are expected to rise higher but feedlots and packers will struggle to maintain margins as increased feeder and fed cattle prices will outpace the speed of wholesale and retail price adjustments. 

Peel predicts cattle slaughter will decrease another 1.5% to 2.5% in 2015 with fewer cows and yearlings in the slaughter mix. He said steer and heifer carcass weights will trend a little higher in 2015, but are unlikely to increase much above current record levels.

Peel said international beef trade plays a role in supply and demand within the U.S. beef market.
 
“Beef exports are a component of total beef demand, enhancing value by providing markets for beef products, such as offals, which are undervalued in the U.S. and additional demand for muscle cuts,” he said. “In 2014, total beef exports so far are close to year earlier levels including lower exports to Canada; slightly lower to Japan; but up sharply to Mexico, South Korea and Hong Kong.”

He said record high U.S. beef prices are rationing export beef demand but only modest decreases in beef exports are expected in 2015. Beef imports supplement supplies of specific types of beef in the U.S. market; particularly lean beef for ground beef production to support the enormous U.S. appetite for hamburger. 

This year beef imports are up sharply from drought-stricken Australia and up modestly from other major import sources including Canada, Mexico and New Zealand. Peel said additional increases in beef imports are expected in 2015, primarily to partially offset continued reductions in lean beef supplies due to reduced cow slaughter. 

He said the strength in the U.S. dollar is making U.S. beef exports more expense and beef imports cheaper thus tending to decrease beef exports and increase beef imports.