The 2015 cattle market is fundamentally strong with expectations of reduced beef production and modestly higher cattle prices, according to Walt Prevatt, Auburn University Extension economist and professor.

“There will likely be periods of cattle price volatility when markets react to the many factors affecting beef prices,” said Prevatt during the 2014 Southern Region Outlook in Atlanta.

Cattle farmers should monitor several factors, he says, including changes in domestic beef demand (future strength/weakness of U.S. economic recovery), supplies of broilers and pork, export and import sales (beef, broilers, and pork), feedstuff prices, monetary exchange rates, interest rates, energy prices, and adverse weather impacts (the length, extent, and severity of the droughts, floods, extreme temperatures, etc.).

“The cattle markets will likely experience some volatile movements with abrupt changes in any of these factors and/or combinations of factors,” said Prevatt at the 2014 Southern Region Outlook in Atlanta. 

“Cattle market prices for 2015 should remain fundamentally strong and average 2 to 5 percent higher than in 2014,” says Prevatt. “As should be expected, the 2015 cattle market has the potential for some big price swings. Abrupt changes in the levels of the factors mentioned above could add much volatility to 2015 cattle market prices. Cattle farmers will need to search for ways to lower their unit cost of production and ways to enhance market prices in order to achieve higher levels of profitability during 2015.”

Net beef supply during 2015 is expected to decrease to a total of 23.8 billion pounds, down 0.57 billion pounds (-2.3 percent) from 2014, according to Prevatt. “The 2015 decrease is the result of a decrease in domestic production, an increase in beef imports, and a decrease in beef exports. Beef and veal imports are expected to be about 2.70 billion pounds, while exports are expected to be about 2.53 billion pounds during 2015. Thus, a beef trade deficit of about negative 0.18 billion pounds is expected to be realized during 2014,” he says.

Any changes in these production levels or export levels of pork and broilers could have a significant effect on U.S. beef prices, says the economist. “Additionally, any further increases/decreases in feedstuff prices will likely alter these 2015 production projections.  A watchful eye on the production and export levels of competing meats and feed prices will help identify potential changes in beef prices.”

U.S. beef exports during 2015, says Prevatt, are expected to decline slightly due to higher beef prices and possibly a stronger U.S. dollar.

“Exports during 2015 and beyond are expected to be somewhat variable as world economies adjust to their prevailing economic conditions, political events, and any world chaos causing consumers to change their spending habits. As should be expected with approximately 10 percent of U.S. beef currently being exported, any increase or decrease in the levels of U.S. exports of beef and/or competing meats, such as pork and poultry, will have a significant impact on U.S. domestic beef prices.”

U.S. cattle farmers, says Prevatt, have decreased most categories of their inventory of cattle and calves. The major factors responsible for causing cattle inventory declines include a combination of previous droughts, high production costs (feed, fertilizer, fuel, labor, land rents, etc.), higher animal replacement costs, large levels of competing meats, cattle farmers seizing the opportunity to reduce their herds or exit the industry during the current higher cattle market prices, and reduced availability of pasture acres due to alternative uses of land, he says.

“However, given the current higher levels of profitability, some herd expansion should be realized in the near future.” 

Beef demand to be further tested

U.S. beef demand has felt some challenges the last three years due to high unemployment and tightening consumer grocery budgets, notes Prevatt.

“Domestic beef demand is expected to be further tested during 2015, as consumers continue to experience rising prices for most goods and services. If consumer disposable income does not rise proportionally, shopping habits and choices will shift if prices continue to rise, forcing consumers to substitute and/or reduce the bundle of goods and services they consume.”

Per capita consumption of beef is expected to decline during 2014 and 2015, he says. The combination of lower domestic beef production, a modest increase in imports, and slightly higher exports are expected to decrease domestic net beef supply in 2014.

Domestic disappearance will result in beef per capita consumption to around 53.9 pounds per person in 2014. Per capita consumption for 2015 is estimated to be about 52.1 pounds per person.  “Also, as the U.S. population increases in the future, per capita beef consumption will likely be lower unless U.S. beef production increases or exports decrease, or imports increase or some combination of these factors.” 

Average retail beef prices are expected to increase 5 to 8 percent during 2015 with fewer supplies available in the marketplace, says Prevatt.

“Additionally, it is very important that the U.S. continues to sustain and/or grow beef export markets. The beef export market currently adds about $336 to the value of a steer marketed.  Growth in beef export markets will also help to moderate the price impacts of any weaknesses in U.S. broiler and pork exports.”

Current expectations are that the January 1, 2015 cattle and calves inventory estimate will be about even with January 2014 or show a slight decrease of about 1 percent.  A significantly lower level of slaughter cows being marketed during 2014 may be enough to maintain cattle inventory when combined with replacement heifers retained during the second half of 2014. 

Expansion seen with lower grain prices

Turning to the 2014 growing season of the major corn-growing regions, Prevatt says it started with a slower planting schedule and fewer acres planted.

“Above-average weather and growing conditions have caused yield levels to return to or exceed trend levels in most major grain-growing areas. Industry expectations are for a 14-billion-plus bushel corn crop. Additionally, harvest weather is currently adequate in most areas for a timely harvest.”

If estimated production levels are realized, corn production will be about 0.47 billion bushels larger than a year ago (3.4 percent) and soybean production will be about 0.64 billion bushels larger than a year ago (19 percent), he says.

Corn and soybean futures prices for 2014 have decreased corresponding to the forecasted larger crops that were projected this season.

“Corn and soybean prices are expected to move slightly lower as the 2014 harvest season continues.  Therefore, livestock farmers should take advantage of these lower prices and buy their feedstuffs during the 2014 crop harvest.  If these lower grain prices continue, all sectors of animal agriculture will likely expand,” says Prevatt.

Another factor that affects feed prices and feeder calf and feeder cattle prices is the level of export demand for corn and soybeans, he adds. “Any major changes in world grain supplies and/or export demand for these commodities could significantly move cattle market prices. Economic growth in several Asian countries has begun to slow down which may affect export grain demand.  Additionally, the strength of the U.S. dollar is certain to influence the world grain export demand.”

Total 2014 U.S. hay production is expected to be larger than a year ago, says Prevatt. “Most states in the Southeast will show higher levels of hay production compared with 2013.  Additionally, high input and transportation costs will contribute to continued high hay prices. Therefore, alternative winter forages and feedstuffs will likely continue to be in much demand this winter as cattlemen seek to feed their cow herds, stocker cattle, and slaughter cattle.”

Fortunately, he adds, pasture and range conditions have been better over many of the cow-calf states this year. “These improved pasture and forage conditions coupled with increased hay supplies should begin to lead to herd expansion given the higher cattle prices being realized during 2014.”