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Weighing The Market

published: January 24th 2020
by: Wes Ishmael

Cattle markets entered 2020 on stronger footing, buoyed by higher cash fed cattle prices and increasing optimism that calf and feeder prices this year should be at least somewhat more positive than last year.
    For perspective, cash fed cattle prices increased $22/cwt. (22.6%) from late summer lows to the end of the year, according to David Anderson, Exten-sion livestock economist at Texas A&M University. In a recent issue of In the Cattle Markets, he explains the five-year average (2013-17) price increase during the fall rally was $11/cwt. or 8.8%. It was $15 in 2018 for an increase of 14%.
    What’s more, Anderson points out, steer and heifer slaughter increased about 5% in December, helped along by Tyson reopening its fire-damaged processing plant in Kansas.
    “That contributed to packer demand for fed cattle, helping to boost fed cattle prices and slaughter,” Anderson says. “All cow slaughter was up almost 7%. All of the increase in cow slaughter during the quarter came from beef cows, as dairy slaughter declined from a year ago.”
    Moreover, it’s likely the USDA Jan. 1 Cattle inventory report (to be released Jan. 31) will show cyclical herd expansion came to an end last year.
    “In general, cattle numbers are expected to be down slightly year over year. Beef production is expected to peak fractionally higher in 2020, with heavier carcass weights offsetting a slight decline in cattle slaughter,” explained Derrell Peel, Extension livestock marketing specialist at Oklahoma State University, in his early-January market comments.
    Feeder cattle prices forecast by USDA’s Eco-nomic Research Service (ERS) in 2020 (basis Oklahoma City) are $144/cwt. in the first and second quarter, $147 in the third quarter and $145 in the fourth quarter. The annual average price of $145 would be $2.77 more than the annual average in 2019.
    ERS projects the average fed steer price (five-area direct) in 2020 at $117.50, slightly more than the estimated average price of $116.78 in 2019. Prices are forecast at $125 in the first quarter, $118 in the second, $112 in the third and $114 in the fourth quarter.
    “A smaller forecasted spring-born 2020 calf crop and a normal summer growing season sets the stage for fall-weaned calves (2020) to price near to slightly above 2017’s prices (i.e., above both 2018 and 2019 prices),” said analysts with the Livestock Mar-keting Information Center in a mid-December Live-stock Monitor.
    That’s based on low feed costs and fed cattle prices projected to be 1-4% higher year over year, strengthened by another year of declining domestic per capita beef supplies, as beef imports decrease and beef exports increase.
    The latest World Agri-cultural Supply and De-mand Estimates project beef production for this year at 27.44 billion lbs., which would be 289 million lbs. more (+1.06%) than in 2019.
    Total red meat and poultry production for 2020 was estimated at 108.15 billion lbs., which would be 2.94 billion lbs. more (+2.79%) than in 2019.
    So, domestic and international beef demand are even more critical.
U.S. beef export
prospects improve
    Although trailing the previous year’s record pace, U.S. beef export value through November was the second highest on record, according to data released by USDA and compiled by the U.S. Meat Export Federation (US MEF).
    “Beef exports are generally expected to be strong in 2020,” says Josh Maples, Extension livestock economist at Mississippi State University, in a mid-January issue of In the Cattle Markets. “The latest World Agricultural Supply and Demand Estimates projection for 2020 beef exports is 3.3 billion lbs., which would be a new record and about 9% above 2019 levels.”
    The bevy of trade deals, either recently signed or in progress and ultimately signed, should add support.
    •The Japanese Parlia-ment ratified the trade agreement with the U.S.
    •The European Parlia-ment approved granting the United States a country-specific share of the European Union's duty-free high-quality beef quota.
    •The U.S. and China signed a phase-one trade deal, with China agreeing to purchase and import, on average, at least $40 billion of U.S. food, agricultural, and seafood products annually for a total of at least $80 billion over the next two years, according to a factsheet from the U.S. Trade Representative. Importantly for beef, the deal expands market access with elimination of the 30-month age restriction, acceptance of current U.S. traceability and the ban on U.S. beef from cattle grown with commonly used and safe-proven growth hormones.
    •The U.S. Senate and the House of Represen-tatives approved the U.S.-Mexico-Canada Agree-ment (USMCA), which replaces the North Ameri-can Free Trade Agreement (NAFTA). Canada and Mexico are the first and second largest export markets for United States food and agricultural products, totaling more than $39.7 billion food and agricultural exports in 2018, according to USDA. Mexico and Canada account for about one-third of all U.S. red meat exports, according to USMEF. Shipments to Mexico and Canada in 2019 totaled about 1.25 million metric tons valued at $3.8 billion.
    Before ratification and signing of the latter two agreements, ERS forecast total beef exports in 2020 to increase about 6% year over year to a record 3.3 billion lbs.


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