aerial view of feedlot cattle

LIVESTOCK MARKETS: A new year for cattle markets

Uncertainties surround how incoming Trump Administration will affect trade.

Oklahoma State University Extension livestock marketing specialist Derrell Peel says cattle prices in 2017 are expected to average close to fourth-quarter 2016 levels, although they will be lower than 2016 for year-over-year averages.  

“Several factors may have a significant impact on cattle and beef markets in 2017 and may change current price expectations. These factors bear close watching in the coming year,” he said.

Uncertainty and volatility, from a variety of sources, will continue to hover ominously over cattle and beef markets in 2017, Peel explained.

“Current U.S. macroeconomic conditions are encouraging; the stock market finished strong, and unemployment was low at the end of 2016," he said. "However, the economy is gearing up for higher interest rates and potentially higher inflation moving into 2017.”

Additionally, uncertainty surrounds changes that have been suggested by the incoming Trump Administration. “The economic impacts may be positive or negative or, more likely, some combination of both, but the uncertainty surrounding coming changes is, without question, a negative,” Peel said.

In addition to U.S. macroeconomic uncertainty, Peel also noted that global market uncertainty will likely continue in the coming year.  

“The Brexit vote of last summer has been followed by several additional populist moves in Europe that add to global economic uncertainty. Separate but related to macroeconomic uncertainty, volatility in live and feeder cattle futures has significantly reduced the effectiveness of these tools for price discovery and risk management and contributed to additional cash market volatility, which appears likely to continue in 2017.”

U.S. beef production is also expected to increase an additional 4% during 2017, which will add to the 6.1% year-over-year increase in 2016.

Peel said cattle slaughter exceeded expectations throughout 2016. “Changes in cattle slaughter and carcass weights from current expectations may cause adjustments in beef production levels and timing in 2017 and could impact current price forecasts,” he said.

Herd expansion through 2016 ensured increased beef production through 2018, Peel explained, adding that herd expansion may slow or stop completely in 2017. This will will affect heifer flows in 2017 and will determine beef production expectations beyond 2018, he said.

According to Peel, feedlots will continue to enjoy a low cost of gain as the record 2016 grain crops will keep grain supplies plentiful through the current grain marketing year. However, he added, “Dry conditions across much of the southern part of the country are consistent with La Niña conditions and could be an issue for 2017 forage and crop production if current conditions persist into spring.”

Increased beef production will combine with increased pork and poultry production for another record total meat supply in 2017, Peel said. Domestic per capita meat consumption is not expected to be a record but is expected to increase another 1.5% year over year in 2017, on top of the 1.4% year-over-year increase in 2016. However, Peel said per capita consumption will depend critically on continued exports of all meats.

He said retail beef prices will continue adjusting downward in 2017, which is key to helping the market absorb additional beef in the face of large total meat supplies.

Peel also said international trade in beef and cattle is a critical component of price expectations for 2017. “Expectations for continued growth in beef exports, simultaneous with decreased beef imports, will significantly offset a portion of increased beef production in 2017,” he explained.

According to Peel, one of the bigger uncertainties surrounding the Trump Administration is the direct impact on current trade patterns as well as potential future beef and cattle trade policies. The dollar is also expected to remain strong, which he said will continue to pose a headwind to faster and stronger improvement in cattle and beef trade.

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