Promising markets: CattleFax predicts promising market trends for 2020
Published on Feb. 15, 2020
According to the recent CattleFax Trends+ Cow/Calf webinar, published Jan. 29, upcoming trends in 2020 agriculture markets look promising as producers transition out of a tough and disappointing year in the industry.
“Due to the record low in planted acres we had last year because of the wet spring, we definitely pressured soybean acres to the lowest levels we have seen since 2013,” says CattleFax Analyst Tanner Aherin. “However, as we move forward we expect corn, soybean and wheat to see an increase in acres.”
Aherin notes corn is up around 94 million acres, wheat remains fairly steady and there has been a fairly significant increase in soybeans.
“When we couple the extra acres we expect to see this year, with trend line yields of roughly 178 bushels per acre, we have a pretty good chance of seeing record corn production of 15.3 to 15.5 billion bushels when looking at the corn market,” he says.
“On the demand side of the equation, we are seeing some expansion across all three of these major protein segments, which should keep feed usage steady, if not higher, going into 2020,” Aherin continues.
Aherin notes the ethanol market has been pretty poor the last few months, but we may start to see an improvement. He also notes the export market may start to pick up.
When it comes to hay, Aherin notes the Dec. 1, 2019 stocks number was up seven percent compared to that of Dec. 1, 2018.
“When we combine this with our projection of increased production, its suggests we might see prices steady to lower through 2020. This accounts for all hay and all regions,” he says.
“This brings us into the latest weather outlook from Dr. Art Douglas, professor emeritus from Creighton University,” Aherin states. “Douglas says March through May is going to shift from an El Niño weather pattern to a La Niña weather pattern. This means we will see parts of the U.S., especially the West and Southwest, starting to dry out and warm up with a chance of receiving less precipitation.”
He continues, “The spring outlook shows average precipitation, suggesting we have a pretty good chance of not running into planting complications like we had last spring. The summer outlook shows warmer temperatures and less precipitation across the U.S. but since summer is months away, this may change.”
Beef production and slaughter levels
Aherin says optimal grazing conditions and increased profitability led to an expansion in the U.S. beef cow inventory over the last five years.
“Our forecasted number for 2020 is upwards of 50,000 head. We think the expansion is essentially over and we will probably flatten out and stabilize as we move forward, assuming we don’t face any challenges and undergo major liquidation,” he says.
He notes regardless of the USDA’s beef cow inventory report, steer and heifer slaughter supply is basically set for 2020.
“We forecasted about a 250,000 head increase, up one percent from last year,” he says. “With this increase in steer and heifer slaughter, the leverage component still remains a challenge for the cattle feeding segment.”
He continues, “Because the actual weekly average has been above our slaughter capacity in past years, it gave bargaining power and leverage to the packing segment. However, if we look at the change from 2019 to 2020, our capacity is increasing about 20,000 head a week compared to actual kill numbers which are only increasing 5,000 head a week.”
Aherin notes this relationship is different than what we have seen the last few years.
“The last few years we have seen slaughter increase faster than capacity, so as a result, leverage might start changing trends and shift back to the cattle feeder,” he states.
“We aren’t seeing an issue with carcass weights as of right now, but we have started off the year running about 20 pounds above 2019. We can say 2019 was a little deflated because of weather impacts which hurt performance and carcass traits,” Aherin explains. “Another reason we are seeing these carcass weights elevate is because we have seen some cattle pushed back into the new year following the Tyson packing plant fire.”
Aherin then notes CattleFax expects a 10 pound increase in weights for the annual average. He also says this is something to keep an eye on if the increase lasts into the fall, as it may be a price limiting factor when putting cattle on the market.
“It’s not currently a problem, but it is definitely something we are keeping our eye on,” he states.
Aherin notes fed slaughter is up from last year 250,000 head or 0.9 percent at 26.7 million head. Non-fed slaughter is up 50,000 head or 0.7 percent at 7.1 million head, total slaughter is up 300,000 head or 0.9 percent at 33.8 million head and beef production is up 600 million pounds or 2.1 percent at 27.7 billion pounds.
All protein production
When it comes to the other two major protein sources, Aherin notes there will also be an increase.
“The pork industry has expanded their packing capacity about 10 percent since 2015 and their global demand has remained strong,” he says. “As a result, producers are incentivized to keep the pig herd growing and produce more product. We expect to see a 2.5 percent increase in pork production in 2020 at 700 million pounds.”
He explains the poultry industry will likely see a similar outcome.
“The broiler segment will most likely see an increase in processing capacity of about six percent form 2018. As a result, we will see plenty of poultry on the market at 3.4 percent growth to 1.7 billion pounds,” states Aherin.
After adding the three major protein sources up, Aherin points out the U.S. is estimated to produce an extra three billion pounds of protein, which is a 2.8 percent increase from last year.
“Because of the increase in protein production, our global trade and balance of trade is going to be so much more important,” Aherin points out. “After a few years of double digit growth, we actually had a disappointing year in 2019 with exports down about five percent.”
Aherin notes because of this, the U.S. was actually a net importer, meaning we imported more in 2019 than we exported.
“As we move forward we expect exports to rebound to a five percent increase and imports to undergo a five percent decline,” Aherin explains. “This means we would go back to being a net exporter like we were in 2018, with a predicted export of 19 billion pounds of protein in 2020.”
He further explains one of the reasons for this is because CattleFax expects to see growth in the Japanese market.
“Our bilateral trade agreement with Japan will bring our tariffs down to the same level as the rest of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) countries. There is also a protein void in China due to African swine fever, and we will see less imports from Australia and New Zealand because their production has tightened up,” Aherin explains.
“China also recently lifted a ban on U.S. poultry products so we expect to see some growth in that market as well,” he adds.
Protein consumption outlook
According to Aherin, per capita net beef consumption is calculated by adding imports to and subtracting exports from production. He notes CattleFax predicts the U.S. consumer will consume about 58.4 pounds of beef per person in 2020.
This is an increase of 0.4 pounds, although it is a smaller increase than we saw from 2018 to 2019, notes Aherin.
When it comes to total red meat and poultry consumption in the U.S., Aherin says CattleFax is expecting a 1.8 pound increase in 2020 compared to a four pound increase in 2019.
“Basically, we are going to end up just shy of 223 pounds per person,” he says.
According to Aherin, even with an increasing supply and demand, composite cutout for boxed beef prices will actually increase a few dollars in 2020.
“If we meet our projections as we move through the first quarter, cattle feeders will continue to stay profitable and maybe even go into the second quarter with positive margins. This is supportive to the feeder and calf market and they should pass profits down to other segments and the rest of the supply chain,” explains Aherin.
He then mentions with the feeder market, represented by a 750 pound steer, the expected average is $150 in 2020 with a range of $140 to $160.
When looking at the average 550 pound steer calf, CattleFax predicts an average of $170 with a range of $155 to $180. Aherin notes this is a few dollars higher than last year.
Hannah Bugas is the assistant editor for the Wyoming Livestock Roundup. Send comments on this article to firstname.lastname@example.org.