By Kayla Sargent
The highly anticipated CattleFax 2020 Market Outlook was well received by Cattle Convention attendees in San Antonio, Texas last week. The message offered optimism for the year to come with all segments of the beef industry predicted to be in the green.
“We estimate that there is going to be nearly $500 of profitability for the industry to split up as we come through the course of the year,” CattleFax CEO Randy Blach said, summarizing the morning’s presentation. “That’s one of the best numbers we’ve seen in history.”
A graph broke down how much of the $500 profit would fall to each of the four industry segments – cow-calf, stocker, fed cattle, and packer. Blach pointed out that while he hears, ‘some segments of the industry are making too much money’ the fact that all segments will be profitable this year is what matters.
“The bottom line that I’d like you to see in here is, when we look at 2020, all industry segments will be profitable,” he said. “How many times do we get an opportunity to say that?”
He admitted that he’d like to see the cow-calf producers with a bigger share of the profit, as “it’s been a little bit thin.” But as trade deals play out and cattle herd expansion plateaus, the CattleFax team offered some increased price predictions.
Specifically, CattleFax VP of Industry Relations Kevin Good presented the hard numbers that all producers were eager to hear. The average annual price for fed cattle is forecasted to be $120/cwt, ranging from $106 – $130. Seven-fifty weight feeder steers are predicted to bring $150/cwt on average, ranging from $140 – $160. Steer calves weighing 550 pounds are expected to leave the ring at $170/cwt, ranging from $155 – $180. Utility cows are forecasted to bring an average $65/cwt., ranging from $55 – $72. And finally, bred cows are expected to be worth $1500 per head, ranging from $1200 – $1800.
Good discussed the supply and demand situation that eluded to the fed cattle predicted price. He praised the industry for producing more with less, witnessing record high production with 30 percent fewer cattle from a headcount standpoint. Good said CattleFax expects harvest numbers to be up on the fed side and level on the non-fed side. He said packers are predicted to be much more efficient “after what happened last year,” killing around 250,000 more head over the next year. Still, leverage is expected to shift back to the feeder.
“Even though the packing industry is going to have a very robust year from a profitability standpoint, the leverage component is starting to swing, and in our opinion from a long-term perspective, back into the cattle feeders favor,” Good said.
Combine slaughter numbers with carcass weights that are expected to “easily” increase by ten pounds per carcass due to better feeding conditions, CattleFax predicts 2020 beef production to be up about 2 percent. There are still ample supplies in the pipeline, according to Good, but including today’s trade circumstances in the picture helps bring some optimism, and increased prices to the forecast.
“We’re more optimistic about trade this year as we think about opening access more so into China as well as better tariffs as we think about going into Japan,” Good said.
China’s Protein Problem…
CattleFax VP of Research and Risk Management Mike Murphy said the long-term, he is “very optimistic” about opportunity in China. African Swine Fever (ASF) has decimated China’s pork industry by roughly half, leaving a need for more protein globally since about half of the world’s hog herd was in China. Only about 18 million pounds of pork are traded across the globe, according to Murphy, so “even if China wanted to fulfill their hole, there’s no way you could really do that.” He said it could be anywhere from 24 to 36 months before China is able to rebuild their hog herd back to pre-ASF levels.
“As we start to think about protein prices for all three key proteins – beef, pork, and poultry – the market has tried to position itself to create a signal across the marketplace that we need to produce more protein,” Murphy said.
American pork producers responded with a predicted 7 percent production increase since 2018 and into 2020, but the challenge has been the ongoing trade war with China. The protein shortage in China “showcased” the growing demand for beef, Murphy said. In fact, the global demand for beef at this point in time is higher than the supply available, according to Murphy. Still, due to the trade war, America has not been able to play a major role in fulfilling the beef demand, particularly with China.
“That obviously is changing here with the trade agreement we’ve had in the course of the last 45 days and that’s a very big positive for the United States,” Murphy said.
Murphy said the Phase One Agreement boast some big number increases – “we’re talking about billions of dollars.” The impact on agriculture products is expected to include corn, soybeans, pork, beef, and ethanol which in turn could have a longer-term impact on the corn industry. Specifically, for beef, the agreement does three important things including the acceptance of hormone usage in beef production; acceptance of the U.S. traceability system; and implementation of an analyses on ractopamine to make a decision on usage down the road.
“The China thing overall, when we look at the trade agreement and we think long term, we feel like it’s a very optimistic situation,” Murphy said. “The most important message that we have is that we will be positioned to be able to provide and supply grain-fed beef.”
That, Murphy said, is a demand our competitors cannot meet. With the export market expected to grow and optimism surrounding an agreement with China, CattleFax predicted a 5 percent increase in exports in 2020. At the same time, they predict a decrease in imports, according to Good.
“That balance of trade of 10 percent on three billion pound is roughly 300 million pounds,” Good explained. “As you think about that from a big picture perspective, we’re suggesting that beef production is going to be at 600 million, so the balance of trade this year could easily take 50 percent of that production increase off the market, keeping our domestic supplies more manageable.”
Bringing Demand To the Equation…
This coupled with a “strong demand story” helped the team arrive at prices that see a slight year over year increase in all segments going into 2020.
“Kevin and Mike talked about the demand growth that we’ve seen, especially over the last 10 to 15 years,” Blach said.
“The quality of product that we’re producing as an industry today and the way consumers are responding with their pocketbook, that’s what you have over here on the right hand side,” Blach said as he motioned to a chart that illustrated industry profitability over since 1980.
Between 1980 and 1998, the four segments of the industry were sharing, on average, a profit of $32 per head, with many segments falling into the red. Since 1999, industry profit has averaged $239 per head as fed cattle and stockers occasionally land in the negatives. This year, industry profitability is expected to hit $500, with all segments on the upper side of the line.
“That goes to a lot of the work that each and every one of you do,” Blach said to Cattle Convention attendees.
Blach also suggested that due to the superior product and good demand in the beef industry, the days of boom and bust cattle cycles could be in the past. He said clear back to the 1930’s the cattle cycle chart simply followed supply. Each decade, supply would run up for the first five years until the market was oversupplied, then the second half of the decade would see liquidation.
“We’d do it over and over again, you could set your clock to it,” Blach said. “Demand wasn’t really part of the equation, it was just supply, supply, supply.”
A Major Shift Calls For Proactive Producers…
“I think we’re going through a major transformation in our industry where we’re moving away from the boom and bust, supply-driven market to a demand-driven market. A market that waits for the signal. We’re listening. We’re looking at what the consumer wants and we’re trying to respond to that message,” Blach said.
A dramatic change has occurred over the past 20 to 30 years, according to Blach. In 1975, there were 132 million head of cattle in the inventory. Today, just 95 million head are achieving record production.
“There is a great sustainability story there,” Blach said. “We need to tell the story.”
A demand-driven market requires responding to the consumer. Today, Blach said, the industry is focused heavily on yield and quality, but he predicts a shift in value in the upcoming years.
“I think there is going to be value associated with being able to tell the story of the animal,” he said.
This includes animal care, traceability, source verification, food safety protocols, and sustainability.
“I know some of you don’t want to hear this, but this is what consumers are telling us,” Blach said. “This is important to them and I think it’s a great opportunity for us. I challenge you that if we don’t handle this sustainability message, this is what we could be dealing with again.”
He showed a graph of the “War on Fat” where a diet scare fueled by “fake news” cut beef demand in half from 1980 to 1998. At the same time, the cattle industry plummeted by 20 million head, beef cows decreased by 7 million head, and cow operations in the nation were cut by 403,000. This is the same time period when there was no profit in the cow-cow segment.
“Again, I believe this is our greatest risk as an industry,” Blach said. “That’s how important I believe it is that we get out and we tell this story – we’ve got a great story to tell. The United States has the most environmentally efficient beef production system in the world, but we are always on the defensive – we’ve got to take the offensive.”
He challenged attendees to “get involved.” He said it is as simple as starting at the local level and sharing beef’s sustainability story in schools, chambers of commerce, and community events. Blach even suggested that if “alternative meats are going to gain any real steam” it will be on the false narrative of beef’s impact on the environment.
“We’ve got a great story. There are some incredible experts out there that we can rely on to pull this data together and together, I think we can tell the story and consumers will hear our message,” Blach concluded.BACK