2017 CATTLE OUTLOOK: PRICES HAVENT HIT THE BOTTOM.

The good news for cattle markets: The extreme volatility of the last couple years – the near-100% swings in prices – are behind us and probably aren’t coming back.

More good news: All industry segments are making a little money right now.
Then there’s the bad news: A wall of meat is coming soon – beef, pork, and poultry. It probably means that cattle prices haven’t hit bottom for this cycle.

That’s the summary of the CattleFax annual outlook report delivered at the 2017 Cattle Industry Convention. Here’s the group’s breakdown by industry segment.

Fed cattle

When finished cattle hit $170 per cwt a couple years ago, no one expected it to last. They were right. It bottomed out at about $98 in fall 2016. It’s rebounded since, and that is allowing some profits for feedlots that did a good job of buying calves.

This year, CattleFax’s Kevin Good expects fed prices to average $110, in a range of $98 to $124. It could be a couple more years before the full market bottoms are hit in this stage of the cattle-rebuilding cycle. For now, feeders can buy calves and hedge in profits for a few months, he says.

Feeder cattle

The price for 550-pound weaned calves is expected to average $150 per cwt this year, in a range of $135 to $165. “We believe the average break-even price for cow-calf producers is about $140,” says CattleFax CEO Randy Blach. “For the best producers, that breakeven is probably around $100. So, that segment of the industry stays profitable at least for this year.”

Longer term is more questionable. USDA numbers say we have added 2.5 million cows to the beef-breeding herd in the last three years, about half of that in the Southern Plains, and 230,000 head in Missouri. Credit that to restocking after the drought. We could add another 400,000 cows this year, says Blach. Those calves will hit sale barns in 2018 and 2019.

Cull cows

This segment hit the skids last year and is expected to average only $65 per cwt this year – or lower.

Bred cows

Replacement heifers are a different story. “Normally, we say a bred heifer should be worth about 1.5 to 1.65 times the value of a calf,” says Good.

If the calf is valued at $800, it means a bred heifer is worth around $1,300. While many bred heifer sales are at higher prices than that right now, he thinks they may be overpriced for long-term profit potential.

total meat supply

All three of the major meats are in expansion mode, and that’s scary, says Blach. In the last two years, U.S. farmers produced 5.5 billion pounds more beef, pork, and poultry, 25% of which was exported. The record supplies have cost farmers leverage in the retail market. Two years ago, about 24% of the retail price of beef went to farmers; it’s under 20% now.

In 2017, total meat supplies will be up another 3.2%, pretty evenly split between the three meats. Another sliver of good news: Beef carcass weights appear to have stabilized at 825 pounds, which is 50 pounds more than six years ago.

Trade

It’s the biggest unknown factor for cattle profits,says Blach.
“Keep your eye on it. How the trade deals are reworked by the Trump administration will be VERY important,” he says. BY GENE JOHNSTON.