– Dr. Kenny Burdine and Dr. Greg Halich, University of Kentucky
As I write this article for December, there seems to be as much frustration among cattle producers as I have seen in years – not so much about the overall market, but how quickly things have changed. Less than 12 months ago, the cattle market was shrugging off all negative news. Now, it seems that anything that can be construed as negative sends the board limit-down and continues to feed the market pessimism that exists. In November, I focused my article on winter backgrounding prospects, which I typically do each fall. In October, I focused my article on the impact of increasing slaughter weights, which has been a factor in the recent downturn. This month, I want to focus on competing meats and the impact of international trade, as I think these factors are the most significant to understanding the 2015 beef market.
It might surprise many people that beef production will actually be lower in 2015 than it was in 2014. We are in still in the early stages of herd expansion and that process takes time. But, beef production was above 2014 levels for the 4th quarter, which is evidence that the trend is changing. At the same time, beef exports are projected down over 13% from 2014 (see graph below). It is also worth noting that beef imports are up significantly as well. Still, the impact on beef consumption per capita is relatively small for the current year. I think the real story has more to do with pork and poultry, than beef.
It is important to remember that 2014 was a good year for all species, so we are seeing growth in production of competing meats. Pork production is up over 7% with roughly a 3% increase in exports. Even more astounding, broiler production is up 4% in 2015, while broiler exports are down around 14%. Exports have been sluggish for several reasons including bans on US poultry from some countries due to Avian Influenza, sluggish economies, and a significant increase in the value of the US dollar. Regardless, the net effect is that there is significantly more pork and poultry on the domestic market. This combination has applied downward pressure to boxed beef prices, which are off 20% from last year. Of course, lower boxed beef prices are passed on to the fed cattle and feeder cattle markets.
As we look ahead to 2016, production increases are likely to be seen for all three major meats. Current USDA forecasts are for beef production to increase by more than 4% and pork and broiler production to increase by roughly 2%. USDA is currently forecasting increases in export volumes across the board, likely due to an expectation of regaining access to some markets, lower price levels, and an assumption that the US dollar will not see another value increase of the magnitude seen in 2015. With production increases likely, the export trade picture will once again have a significant impact on prices.
Data Source: USDA-ERS and USDA-FAS
Livestock Marketing Information Center