More Market Thoughts

Although cattle prices have been on the rise the last three or four months, we must remain vigilant.   I believe there continues to be a tremendous amount of volatility in our markets.   It won’t take much to send prices higher or lower.   Unfortunately, the odds of prices going lower seem to be much greater than the odds of them going higher.   In fact, I am surprised cattle prices are as high as they are.

As we hope for the best… we should always be prepared for the worst.   Before I share more thoughts on the cattle markets, I would like you to ask yourself two very important questions.

  1. What is the worst that could happen?
  2. What am I doing to prepare for the worst?

 CattleFax CEO Randy Blach provided a big-picture view of the cattle industry market outlook for those attending the 2018 Cattle Industry Convention in Phoenix, Arizona (Jan. 31-Feb. 2).   Blach said, “2017 was the second best in history for profitability.   Every sector made money.   This year won’t be as good, but it still should be a profitable year in total.”

If you don’t mind me asking… were you satisfied with your 2017 profits?   I suspect most cow-calf producers were not overly thrilled with their 2017 profits.

Cow-calf profits have averaged $165 per head from 1998 to 2018.   Blach said, “If we can continue to grow demand domestically and globally, we’ll be in good shape.”

That is a pretty big IF!  

With that said, Blach encouraged producers to “remember where we came from.”   He pointed out that beef demand dropped 50% from 1980 to 1998.   As a result of declining consumer demand, cow-calf profitability during that two-decade period averaged only $2.04 per head.  

WOW… I had forgotten how bad it was during the 1980s and 90s.

Looking ahead to 2018, Blach said he and his CattleFax team are monitoring the record-large beef supplies in the United States – and the impact they could have on the marketplace.   Blach shared that 2018 beef production will be the largest ever – and supplies will continue to grow through 2020.

“When you add increasing pork and poultry supplies to that, we’ll have plenty of everything,” Blach noted.   Specifically, meat supplies are expected to top 102.2 billion pounds in 2018.   For comparison, supplies in 2016 were 96.4 billion pounds.

With a growing supply of all meats, the potential for falling prices is much greater than most cow-calf producers realize.   What are you doing to prepare for the possibility of much lower cattle prices through 2020 and beyond?

Blach said, “The global marketplace wants what we have…   Demand, however, is going to have to be very good because protein levels will continue to increase.”   Without exports, we would need to consume 40 more pounds of protein per person per year in the United States.  

The only possible way to increase consumption by that much is to substantially decrease price.   Would you still be profitable if cattle prices drop by 50% or more?   With proper planning, you could be.

The general consensus is that 2018 will be another good year.   However, several things could happen that would quickly change that outlook.   As always, we suggest you hope for the best – while you prepare for the worst.   Hiding your head in the sand is NOT a good management strategy!

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