Cattle producers could find themselves singing an old Bob Dylan tune in 2016. Dylan’s 1964 anthem “The Times They Are A Changin’” seems to aptly capture the cattle market forecast ahead.
The trend of ever-higher calf prices is shifting, with 2015 marking the turnaround, according to Jim Robb, Livestock Market Information Center agricultural economist. For 2016 and forward, Robb projects “cyclically lower prices through 2018 – and probably through 2019.”
Likewise, Duane Lenz, Cattle-Fax general manager says market data suggests 2016 cattle prices will see a “significant” drop. He reports Cattle-Fax anticipates prices $4-5 lower per hundredweight. He tempers that by saying, “We’re not going back to 2008-2009 prices on calves, but producers will have to settle for less.”
Robb also reminds producers that the drop in prices “feels bad compared to 2014,” but he says, “That was an anomaly. This year  still represents the second highest fed cattle market in history.”
Both Robb and Lenz shared their outlook comments at the Range Beef Cow Symposium held mid-November in Loveland, Colo.
Robb attributes the drop in prices to global economics. He notes that the macro economy in the U.S. is growing and rather sustainably. But he says, “The problem is the rest of the world is not doing this.” He points out that China is in a recession and the Russian and European markets are also stagnant.
Specifically, Robb says the decreasing export market has taken dollars off of carcass prices. “Beef exports are struggling because key customers are in recession.” Additionally, he says the value of hide and offal “is a wreck.”
Robb doesn’t anticipate a lot of growth in beef exports until possibly 2017. But, Cattle-Fax’s Lenz is bullish for the opportunities ahead when the global economy rebounds. He says, “The global potential for U.S. beef is very good.” He notes that the global middle class is beginning a major wave of growth and is projected to expand from 2 billion people in 2012 to 4.9 billion by 2030. Lenz emphasizes that as the middle class grows, they have more income to spend on protein, including beef.
If export growth and demand resurges, by 2020 export and offal values could be worth $500 head, according to Cattle-Fax.
But in the meantime, continuing U.S. beef industry expansion will increase beef supplies, which typically causes prices to dip as well. Robb reports July 2015 data indicates that breeding heifer retention was up 6% from the previous year, and the retention rate has increased since the report was issued. With this trend, Robb anticipates by 2017 U.S. beef production will return to 2013 levels.
However, Robb does not expect expansion to last long. “We’re on a pretty aggressive expansion this year and next, but then that is going to slow down.” Why? Robb attributes to the high cost of operating.
He cautions, “It takes more capital than ever to play this game. He estimates annual production costs can soar as high as $900/cow. Robb notes that pasture rent has gone up dramatically, and calls this a major component holding expansion back.
Regarding corn, Robb does not anticipate prices going higher again unless the U.S. experiences a drought.
Plan and prepare
Going forward, Robb advises cattle producers to remain astute. He says, “This is a market we need to learn from. We need to learn how to respond in cattle country.”
Robb anticipates a return to the more “normal” seasonal price fluctuations of previous calf cycles and advises producers to plan their marketing accordingly. “That means fed cattle peak early spring and calf prices are lowest in the fall,” says Robb.
He also says to producers, “Price calves realistically. Set acceptable bids early. If you’ve got good calves be responsible. Know the potential of your calves and costs.”
He also cautions that volatility will still be a part of the scene, so he advises producers to be ready for “recognizing and dealing with market price downdrafts.”
Robb adds, “These are hard to get through. Remember 9-11 and BSE when the market went into recession.” Robb reminds producers it took about 8 weeks for the market to rebound, so he says when you get into an unraveling, irrational market be prepared to “act early and don’t wait, or have enough feed reserves to come out the other side.”
As a final piece of advice, Robb encourages cattlemen to “invest 2015 profits wisely.”