The Cattle Range Home Page
January 2nd, 2018
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2017 Prices Exceeded Expectations... 
Can They Do It Again?

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2017 Prices Exceeded Expectations... Can They Do It Again?
Ag Center Cattle Report

This year everyone knew the beef production machine was churning out larger numbers of cattle and after the disappointment in prices during 2016, the expectations were for the market to struggle and for the supplies to present a potentially burdensome amount of tonnage on the market and threaten price stability. The expectations for increased tonnage proved correct, and month after month, the weekly slaughter posted 5-7% larger numbers of fed cattle brought to market.

Hedge positions were recorded for most operations and many a wary operator watched as prices generally exceeded expectations for most of last year. While in the early months of 2017, the positive basis on hedges lessened the impact of hedge losses, overall cash on cash profits were diminished by hedge losses but most of the industry had a good year.

Beef processors didn't just have a good year, they had a banner year. The beef plants that were forced to close during the bottom of the cattle cycle, limited slaughter capacities and in the face of larger offerings of cattle all year, packers were able to hold on to record margins at the beef plants. Without any new or reopened beef plants to come on board in 2018, the processors can reasonable expect another good year.

The key to success for the market prices in 2017 was beef demand. Several important factors converged to increase demand at a time when fed numbers were increasing. Our economy is healthy and unemployment is low by historical standards and consumers ate a lot of beef and, for that matter, a lot of meat. Nutritional advice has slowly been changing to advise more protein in the diet and beef has been cast in a favorable light.

The dollar has weakened and at year end was on the low end of the trading range for the year. This, combined with rebuilding of the herd in Australia, and the Brazilian meat scandals, opened the door for greatly expanded exports of U.S. beef. Those exports will be a critical component of market prices for 2018. New increased tonnage of beef in 2018 will be heavily dependent on exports as a safety valve for excess supplies of beef.

The future for cattle prices in 2018 will be a challenge. Beef tonnage is expected to increase again as more cattle continue to be fed and slaughtered. Placements in late 2017 continue at a brisk pace and unfortunately carcass weights, that have been below 2016 most of this year, are expected to rise above 2017 next year. All protein sources are expected to continue growing in 2018 and there will be abundant supplies of chicken, pork and beef.

Once again the U.S. beef industry will look to the export markets for help from excessive supplies. It will be difficult to expand domestic beef consumption in a meaningful way. Expanding the export markets will require the industry to modernize itself and identify the U.S. cattle herd opening the door for expanded buying interest from the EU and other Asian sources where animal identification is required. Supply chain links must be completed to provide food safety and source integrity to the world's highest quality beef supplier.

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