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!”