Industry chatter still tormenting beef demand clues

Industry chatter still tormenting beef demand clues

Beef supply remains tight but more pork and broilers will stiffen competition.

Tight beef supplies and strong demand pushed 2014 beef and cattle prices record high. It's likely not over, either.

The 1.4% uptick in cattle on feed Dec. 1 reflects feedlots holding cattle longer to feed them to heavier weights. A smaller 2014 calf crop and cow-calf producers retaining more heifers to expand breeding herds will further tighten beef supply. Lower production should support beef, fed cattle and feeder cattle prices.

USDA data pegs these trends:
• 2014 beef production at 24.254 billion pounds, down 1.466 billion from 2013.
• 2015 beef production at 23.670 billion pounds, down 584 million from 2014.

Beef supply remains tight but more pork and broilers will stiffen competition. (Photo by Scott Olson/Getty Images)

Beef fundamentals remain constructive for prices. But expansion cannot put more beef in the system before 2017. However, beef faces more competition from pork and poultry this year.

USDA expects these changes:
• 2014 pork production at 22.792 billion pounds, will be down 395 million from 2013.
• 2014 broiler production at 38.486 billion pounds, will be up 656 million from 2013.
• 2015 pork production at 23.620 billion pounds, will be up 828 million from 2014.
• 2015 broiler production at 39.630 billion pounds, will be up 1.144 billion from 2014.
Projected 2015 combined pork and broiler production should be up 1.972 billion pounds from 2014. That hike is more than 3.3 times the 584-million-pound projected reduction in beef output.

Industry chatter still tormenting beef demand clues

The buoyancy from tight supplies suggests fed-cattle prices should advance further this year. Beef supply should tighten further as cow-calf producers retain more cows and heifers to expand herds. USDA projects the 2015 annual average 5-area direct steer price in the $160 to $172 range, up from 2014's average of roughly $155.

However, beef and cattle will face more downdraft from rising supplies of competitively priced pork and broilers. USDA projects the 2014 annual average hog price will fall into the $63 to $68 range, well below the 2014 annual average near $76. The 2015 broiler annual average is pegged in a range of $1 to $1.08 per pound, in line with 2014's annual average of $1.05 or so.

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Continuing pricey beef and tighter supply is likely to trim 2015 U.S. beef exports 74 million pounds below 2014. Pork exports are projected up about 284 million pounds. Broiler exports are projected up about 81 million pounds. Higher exports for pork and broilers will dampen a bit of the price pressure on the domestic meat market from higher supplies of those two meats. A wild card for meat exports remains how much further the dollar might strengthen.

Industry chatter still tormenting beef demand clues

On the plus side, sharply lower oil and gasoline prices free up a huge chunk of the family transportation cost budget which consumers can spend elsewhere. Meat demand remains strong. Livestock producers will capture a portion of those extra dollars.

Talk about stagnant household incomes will persist. However, some trade chatter suggests the most price sensitive beef consumers have already been priced out of the market. Those who remain are thought to not be particularly sensitive to higher prices. Lower gas prices could lure back some consumers who may have been priced out of the market earlier.

While European economies and parts of Asia remain sluggish, the US economy is building steam. That should help build beef demand. Talk about stagnant household incomes will persist. However, some trade chatter suggests the most price sensitive beef consumers have already been priced out of the market. Those remaining should be willing to pay.

Otte is the farm management editor for Farm Futures magazine.

TAGS: Regulatory
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