A strong domestic economy and robust exports have buffered beef, and hence, cattle prices against near record large U.S. beef production and all-time highs in competing meats and poultry supplies. The U.S beef cattle sector is now well into the cyclical adjustment phase, transitioning from aggressive herd expansion to very modest growth.
U.S. beef production this calendar year is projected at 27.1 billion pounds, an increase of 3.3% yearover-year. Fed cattle prices are expected to average 3.0% to 3.5% below 2017’s, the lowest annual average since 2011. In contrast, 2018’s calf and yearling prices will be slightly above both 2016’s and 2017’s.
There are unknowns and potential headwinds for cattle markets during the next few years, not the least of which is the potential for U.S. beef, pork, and chicken exports to falter under a cycle of tariffs and retaliation. Also, any significant weakness in the domestic or global economy compared to the healthy conditions of the last 12 months could dampen demand for beef, and therefore cattle.
Smaller herd growth rates will translate into the rather modest year-over-year increase in beef production in 2019. Assuming normal weather conditions, expect U.S. beef output to be about 27.5 billion pounds, up 1.0% to 2.0% for the year. That would be the smallest percentage increase since 2015 (note, that year was the last to record a decline).
In the first quarter of 2019 fed cattle prices could be below 2018’s. In subsequent quarters prices are forecast to be similar to a year earlier. A normal 2019 Midwest corn crop would set the stage for steady to modestly higher yearling and calf cattle prices in the second half of 2019 compared to the corresponding quarters in 2018.
If recent trends persist regarding cow and heifer slaughter levels, 2020 could mark the end of the current U.S. cattle inventory build-up. Preliminary forecasts place beef output in 2020 unchanged to up 2% year-over-year. If the U.S. economy is still growing in 2020 and export markets do not deteriorate, expect modest year-over-year gains in prices forecast during that year.