What to Watch and What to Manage in 2018

Source: Drovers
By Derrell S. Peel, Oklahoma State University Extension Livestock Marketing Specialist

Continued growth in beef production in 2018 is likely to pressure cattle and beef prices. Cattle producers have a number of economic conditions to watch that will indicate the impact of factors they cannot control and that will have implications for those factors they do control.

Domestic and international beef demand will continue to be critical factors affecting cattle and beef prices in 2018. The U.S. economy is currently strong with low unemployment and a stock market supported by lots of cash from earlier Federal Reserve stimulus. Economic growth has been rather plodding but steady over the past few years. Though inflationary fears have not yet materialized, the Federal Reserve began raising interest rates in 2017 as the economy gained strength. The recent tax cuts and proposed infrastructure investments could provide additional fiscal stimulus that adds to inflation concerns. This may pressure the Federal Reserve to raise interest rates more and faster in 2018 and beyond. Though no major change is expected at this time, macroeconomic conditions are a factor to watch in 2018.

Record beef production is expected to combine with growing pork and poultry production to result in record total meat supplies in 2018. Wholesale and retail beef prices held up well to growing meat production in 2017, indicating strong beef demand and there is no indication it is changing going into 2018. However, ample meat supplies will continue to be a demand challenge for beef in the coming year. Pork and poultry production and trade are factors to watch this year.

Beef trade provided much support for cattle and beef markets in 2017, led by growth in beef exports. Modest beef export growth is expected to continue in 2018 assuming no change in trade policy. However, the cloud of uncertainty due to NAFTA renegotiations continues to hang over meat markets. Beef, pork and poultry exports to Mexico and Canada represented 31 percent of total U.S. meat exports and included 26 percent of total beef exports for the first ten months of 2017. Both the U.S. and South Korea have suggested a possible renegotiation of KORUS-FTA, which could impact the number two beef export market. International beef markets and trade policy are also factors to watch in 2018.

Domestic and international beef demand will determine cattle and beef price pressure relative to increasing beef production. Modest price pressure is expected at this time but any threat to demand would quickly result in additional price weakness. Larger down-side price risk means that risk management takes on an added importance in 2018. While cattle producers cannot have much impact on overall market price levels, they may be able to reduce the risk of lower individual prices with risk management tools.

Producers will have challenges to maintain profitability in 2018.  Lower prices increase the likelihood of lower revenue and puts additional emphasis on production and cost management in the coming year. The beginning of a new year is a good time to evaluate all aspects of cattle operations for the coming year including major budget items such as forage management and use; harvested and supplemental feed use; and machinery costs. Overall production costs are expected to remain stable in 2018, though rising interest rates may impact debt management at some point. Maintaining profitability this year in the face of lower prices will require increased production and/or reduced costs.

Cattle producers are watching a variety of external factors that may impact cattle and beef markets this year while focusing management on resource use and cost of production. Profitability will likely be squeezed but decent returns are possible in 2018.

Best wishes for a happy and prosperous new year!

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