Watch These Things To Predict Cattle Market Behavior Next Year

Watch These Things To Predict Cattle Market Behavior Next Year

Bottom-up push on cattle prices will keep testing consumer price tolerance in 2015.

Beef markets set price records throughout this year and one economist thinks the same factors as this year will drive beef markets in 2015.

Derrell Peel, Oklahoma State University livestock marketing specialist, said on Monday that he expects cattle and beef prices to maintain 2014 levels in 2015, but not increase as much or as fast as in 2014. The average for next year should be higher than the average for 2014, and it's likely we'll see new record prices seasonally.

Bottom-up push on cattle prices will keep testing consumer price tolerance in 2015.

"The beef cow herd almost surely began expanding in 2014, though final confirmation will come in the annual cattle report due out January 30, 2015," Peel said. "The question is more one of how much herd rebuilding happened in 2014. An increase of one-half to one percent in the beef cow herd is expected."

Related: Economist: Livestock's 'Mini-boom' Likely to Last for a While

Peel said it's a good bet herd expansion will continue in 2015 and for several more years but it is by no means guaranteed. Severe drought conditions persist in the far west and marginal to severe drought areas remain in the Southern Plains and the Southwest. These areas have the most potential for herd expansion, having been most depleted during the drought and continued drought or slow recovery in these areas will limit herd expansion in 2015, he said.

Peel noted that feeder cattle supplies will continue to tighten into 2015 with a smaller 2014 calf crop, increased heifer retention and likely less cattle imports from Mexico and Canada.

The 2015 calf crop may grow with limited herd expansion in 2014 but continued heifer retention in 2015 will keep feeder supplies tight.

Decreased production
He also said beef production is expected to decrease another 1-2% in 2015 following the 5-6% year-over-year decrease we have seen this year. This likely will be brought about by a decrease of 1.5-2.5% in cattle slaughter, with fewer cows and yearlings in the slaughter mix.

"Steer and heifer carcass weights will remain large following the sharp increase in late 2014 and will average higher in 2015 but are unlikely to increase much above current record levels," Peel said.

Beef demand under these tight supply conditions will be the topic again this year as it was all this year, Peel said. It appeared stronger than expected in 2014 but additional meat supplies from increased pork and poultry production in 2015 will add pressure. Retail beef prices are expected to continue increasing but feedlots and packers will struggle to make a profit as high feeder- and fed-cattle prices will outpace wholesale and retail price adjustments.

International trade>>

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International beef trade will remain important to domestic prices and could have problems because of high prices and the relatively strong dollar.

Beef exports are important to overall U.S. beef demand because they offer strong markets for products such as offal, which are undervalued in the U.S., Peel said. They also add demand for whole-muscle cuts, including high-end products like branded steaks.

As we near the end of 2014, Peel said total beef exports are close to year-earlier levels, a tally which includes lower exports to Canada, slightly lower exports to Japan, and sharp increases into Mexico, South Korea and Hong Kong.

Record high US beef prices are rationing export beef demand but only modest decreases in beef exports are expected in 2015.

Related: Beef Herd Poised For Expansion; Price, Consumer Demand Remains High

Peel explained that beef imports supplement supplies of specific types of beef in the U.S. market; particularly lean beef for ground beef production to support the enormous U.S. appetite for hamburger.

Beef imports this year are up sharply from drought-stricken Australia and up modestly from other major import sources including Canada, Mexico and New Zealand, he said. Additional increases in beef imports are likely in 2015, primarily to partially offset continued reductions in lean beef supplies because of reduced cow slaughter.

Further, continued strength of the U.S. dollar against other currencies exaggerates the trade impacts of exchange rates, Peel said. That makes U.S. beef exports more expense and beef imports cheaper, which tends to decrease beef exports and increase beef imports.

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