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Angus Journal

Copyright © 2016
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Supply & Price Shocks Should Be Past

CattleFax's Kevin Good discusses cattle supply, demand, price outlook.

SAN DIEGO, Calif. (Jan. 28, 2016) — “The supply shock was last year (2015). It’s important to realize we’ve had the supply shock and, with that, we’ve had the price shock. The market has absorbed the bulk of that shock.”

That was the message CattleFax’s Kevin Good shared during the CattleFax Outlook Session Jan. 28, 2016. The event was convened in conjunction with the 2016 Cattle Industry Convention & NCBA Trade Show Jan. 27-30 in San Diego, Calif.

Kevin GoodThe 2016 beef cow inventory is forecast at 1.1 million head larger than last year, totaling 30.8 million head, said Kevin Good.

Good noted that favorable weather and cattle prices led to rapid expansion the last couple years. As an indicator of this, in 2015 heifer slaughter was down 12%, adding 1 million head to the cattle inventory.

Going forward, Good said, “We’ll continue to expand in 2016, but at a slower pace.” The 2016 total cattle inventory was up 3.2% — equal to 2.8 million head — larger than last year. This is the biggest increase since 1981. The 2016 beef cow inventory was 1 million head larger than last year, totaling 30.3 million head.

With these numbers, Good said, “Expect more placements [on feed]. 2016 will have tight supplies early, but there is the potential to have increasing supplies the second half of the year.”

Overall, the production forecast for 2016 has all meats up — beef up 3%, pork up 2.7% and poultry up 1.3%.

Regarding demand, Good said 2015 retail demand was strong — up 8% on average, but the overall picture for the year shows a slightly different story. Demand was robust the first half of the year and declined in the second half. Retail prices peaked in July and declined through the last six months of the year.

With pork and poultry prices, 40%-50% cheaper than beef in 2015, beef demand is estimated to pull back 3%-5%. As supplies increase, retail prices are likely to dip. Average retail price for beef is projected in the $5.80s. In 2015, retail beef price averaged around $6.04.

Building demand will continue to be important. CattleFax data suggests each 1% increase in retail beef demand is worth $80 per head to the cattle market.

Good reported that beef in foodservice has trended positively the last few years, with sales in fine dining doing extremely well. Said Good, “We do think the domestic economy will continue to grow, but at a slower pace. However, foodservice should continue to do well.”

Good noted that beef exports have been the biggest challenge the past year. He said he anticipates beef export volumes to improve, but it won’t be as good as previous years. The decline in U.S. beef, hide and offal export values alone was worth a loss of $118 per head to the cattle market from fall 2014 to fall 2015.

Given the robust supply and lagging demand both domestic and global, CattleFax projects prices on all classes of cattle will work lower during the next three to four years. For 2016, Good said price averages will likely be as follows: calves $195 per hundredweight (cwt.); feeders $165 per cwt.; and feds $130-135 per cwt.

Regarding bred cows, Good said, “We should all recognize 2015 bred cow prices were extreme. Expect that to pull back and anticipate $1,600 to $1,900 per head as calf prices soften.”

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