ONA REPORT

published in

THE FLORIDA CATTLEMAN AND LIVESTOCK JOURNAL


January 2016

2016 Beef Cattle Market Outlook


For questions or comments regarding this publication contact: Chris Prevatt, University of Florida, IFAS


The U.S. cattle markets have enjoyed a roller coaster ride over the last 5 years as cattle prices moved higher and higher. Cattle prices have been supported by a declining U.S. beef cow herd and strong beef demand. The record setting droughts in 2011 and 2012 forced U.S. beef cow herd liquation leading to lower supplies of beef. U.S. beef demand has enjoyed moderate growth during the last several years despite a slow U.S. economic recovery.

The turning point in the U.S. cattle industry occurred on January 1st, 2015 when the USDA showed its first year-over-year increase in cow inventories since 2005. The breeding herd has entered the expansion phase of the cattle cycle and beef supplies will begin increasing in late 2016. Assuming continued high calf prices, adequate moisture conditions, above average forage production, and lower feed costs, then herd expansion will be expected to continue for the next several years. However, as herd expansion continues a transition to cyclically lower cattle prices on an annual basis should begin.

The 2016 cattle market will likely experience lower cattle prices compared with 2015 due to increased net beef supply, increases in competing meat production, and the continued weaknesses of the U.S. economy. Cattle producers should monitor several factors including changes in domestic beef demand, future strength/weakness of the U.S. economy, competing supplies of broilers and pork, export and import sales (beef, broilers, and pork), feedstuff prices, monetary exchange rates, interest rates, energy prices, and adverse weather impacts (the length, extent, and severity of the droughts, floods, extreme temperatures, etc.). The cattle markets will likely experience some volatile movements in price with abrupt changes in any of these factors and/or combinations of factors.

U.S. Beef, Broiler, and Pork Production are shown in Figure 1. The supplies of beef, broilers, and pork are expected to respond quickly to changes in demand. Any significant changes in domestic demand and/or foreign demand of these three competing meats could cause major movements in beef prices. Each industry is very capable of significantly altering production levels and is subject to wide changes in export and import levels.



The 2014-2016 U.S. net beef supply estimates are shown in Table 1. U.S. net beef supply is domestic beef production plus beef imports minus beef exports. The net beef supply is the amount of beef that is consumed in U.S. markets. The 2015 U.S. net beef supply is expected to show a slight increase of about 0.042 billion pounds (24.695B - 24.653B = 0.042B, 0.17 percent) compared with 2014. The 2016 U.S. net beef supply is expected to show an increase of 0.795 billion pounds (25.490B - 24.695B = 0.795B, 3.2 percent) compared with 2015. Minor changes in future U.S. beef import and/or export levels (due to beef demand, food safety, exchange rates, politics, regulations, etc.) can significantly change the U.S. net beef supply and consequently domestic beef prices. Additionally, the strength of the U.S. dollar will have a major influence on the levels of U.S. beef exports and imports during 2016. If the U.S. dollar trades stronger against the currencies of our trading partners, expect less U.S. beef exports to these countries and more lean U.S. beef imports.

Table 1. U.S. Net Beef Supply (Billion Pounds), 2014-2016.
Item 2014 2015 2016
 
(Billion Pounds)
U.S. Domestic Beef Production
24.252
23.565
24.930
U.S. Beef & Veal Imports
2.974
3.437
3.045
U.S. Beef & Veal Exports
2.573
2.307
2.485
U.S. Net Beef Supply1
24.653
24.695
25.490

1Columns may not sum exactly due to rounding.



Total 2015 U.S. net supply of beef, broilers, and pork is expected to increase about 2.7 billion pounds (3.7 percent) compared with 2014. Likewise the 2016 U.S. net supply of beef, broilers, and pork is expected to increase about 2.3 billion pounds (2.9 percent) compared with 2015. 2016 U.S. net broiler supply is expected to increase 0.9 billion pounds (2.8 percent) and net pork supplies are expected to increase 0.4 billion pounds (2.4 percent), while U.S. net beef supply is expected to increase 0.8 billion pounds (3.2 percent). The increased supplies of beef and competing meats will likely limit beef prices during 2016.

Factors to watch in 2016 that impact U.S. cattle markets include the growth of the U.S. economy, levels of unemployment, consumer confidence, domestic and international beef demand, exchange rates, interest rates, energy prices, levels of competing meats, weather events, and outliers (food safety, war, terrorists incidents, etc.). Any significant movement of one or some combination of these factors is believed to have an overwhelming effect on U.S. business and consumer spending as well as cattle prices. As should be expected, the 2016 cattle market has the potential for some big price swings. Abrupt changes in the levels of the factors mentioned above could add much volatility to 2016 cattle market prices. Cattle producers will need to search for ways to lower their unit cost of production (what it costs to produce a pound of beef) and ways to enhance market prices in order to achieve high levels of profitability during 2016.


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