Nalivka: ‘Dismal Science’ And 2019 Beef Outlook

Scottish historian Thomas Carlyle described my profession as the “dismal science.” I don't claim exemption from this tendency, and my assessment for the 2019 beef industry outlook is positive. ( . )

I have been thinking lately about how economists have a tendency to be cynical.  I am not sure why this is, but maybe it’s just a caveat for an optimistic forecast that may not materialize - a downside warning.   Consider the analysts on the business channel.  Or, perhaps economists just have a tendency to be pessimistic. Scottish historian Thomas Carlyle described my profession as the “dismal science.”  So far, I am not bringing this up to claim exemption from this tendency as I have many times forecast markets with the more pessimistic caveat – “on the other hand.”

My assessment for the 2019 beef industry outlook is positive and I am not going to immediately preface that assessment with the statement, “barring any major trade disruption.”  That may occur but I think the likelihood is rather small, and in addition, we had the most critical trade disruption this year – retaliatory tariffs – and it definitely did not create a wreck in beef industry markets.

Global demand has been strong and again, I could preface that statement with “the global economy is slowing,” but I won’t.  We all know the caveats and I simply don’t think those caveats outweigh the positive aspects of the outlook with regard to demand.  In addition, I am confident that U.S. negotiators will reach a positive outcome in renewed talks with Japan to their lower long standing 38.5% tariff on U.S. beef.  Regarding U.S. beef consumers, I believe industry advances will continue to be positive and support demand.

On the supply side of the equation, I also believe the outlook for 2019 is positive for the market as I expect beef production to be up about 1.5% from 2018 as herd expansion slowed sharply during 2018 as producers reacted to drought-reduced forage supplies in the southwest and stepped up culling rates.  I have spoken of this numerous times this year (2019 cow slaughter forecast to be down 4% over 2018’s +7%).  This herd culling was coupled with a sharp decline in heifers calving and entering the herd this year – no surprise since those heifers would have been retained in 2016 when prices fell from 2014-15 record prices and profits. 

Consequently, I expect the January 1, 2019, tally to number 94.85 million and up only 0.5% from the prior year.  But more important to the outlook, I also expect the pace of heifer retention this fall (2018 heifer calves) to increase as producers respond to higher-than-expected prices.  The impact will be notably fewer heifers in the slaughter mix during 2019.

Pulling this beef production outlook into the context of supply and use, adding a U.S. beef import figure unchanged from 2018, and taking out of that supply 3% more U.S. beef exports over 2018 (+12%), leaves 2019 per capita beef consumption (use) at 57.5 lbs. compared to 57.2 for 2018. 

Consequently, my overall Sterling Marketing supply-use outlook is quite positive, particularly in terms of industry prices and profits.  And YES suffice it to say, I WILL stray from my training in the “dismal science” and not add, “on the other hand!”