Feeder Perspective

The Friends You Know

Feedlots will likely continue to finish cattle at heavier weights this year, holding supplies very close to year-ago levels. (DTN/Progressive Farmer photo by Pam Smith)

Knowing the importance of relationships to personal happiness, my parents long ago taught their little boy a singable ditty that served his networking needs more than he can say: "Make new friends and keep the old, one is silver and the other gold."

Not bad advice creaking from the pre-Facebook universe.

But while my own mix of old and new friends warms my heart and gives life meaning, I can see such an expanding circle of support is not so easy for a market. In fact, my 2015 cattle outlook is largely based on the sobering reality that even the best of friends come and go.

Record-setting fed and feeder cattle prices last year owed much to the equally explosive hog trade, a market set on fire by the supply devastation of porcine epidemic diarrhea virus (PEDv). Both in terms of imploding red meat tonnage and bullish psychology, it quickly became a golden friendship made in heaven.

COMPETITIVE SHIFT

Yet, with 2015 nearing the halfway mark, it's clear members of this old support group have gone their separate ways. Whether to credit the effectiveness of new vaccines, a greater immunity in the sow herd or simply a capricious lull in the PEDv storm, commercial pork production has aggressively shifted into passing gear. Not only has the cattle market lost its best buddy of 2014, this former bro has turned into a value-robbing nemesis.

P[L1] D[0x0] M[300x250] OOP[F] ADUNIT[] T[]

Before examining the potential of pork's negative influence more specifically, let's take a brief look at 2015 cattle and beef fundamentals.

As the cattle industry moves through the second year of its new expansion cycle, I think you can expect annual slaughter to shrink by 1% to 2% (i.e., 29.8 million head). If seasonal rains continue to check the threat of drought across significant parts of ranch country, particularly aggressive heifer retention could limit the year's total kill by another 200,000 to 300,000 head.

LITTLE CHANGE

On the other hand, feedlot managers will probably continue to finish steers and heifers at heavier weights. More bang for the buck in this regard could mean commercial beef production in 2015 turns out to be only fractionally smaller than last year, around 24.2 billion pounds or so.

Indeed, once the impact of foreign trade is factored in, per-capita beef supplies this year could be essentially unchanged from 2014 (i.e. 54.2 pounds). Between historically high beef prices, softer foreign economies and the colossal strength of the U.S. dollar, I'm projecting that our imports (2.9 billion pounds) will be off just 1% and exports (2.39 billion pounds) by 6% to 7%.

Turning to the potential for beef spending in 2015, one could argue that consumers will line the meat counter with fatter wallets than they toted last year. We know the ranks of the employed continue to expand at an impressive rate. Furthermore, disposable income this year will be significantly less taxed by the high price of gasoline.

In short, everything else being equal, cattle and beef basics should be as price supportive or more so as they were in 2014. But that gets us back to the great unequalizer with which I started the discussion, that troublemaking turncoat known as pork.

Beef's former sideman has definitely left the band, launching a solo act jazzed by record profits and incredible hedging opportunities. By the time smaller sow slaughter, greater gilt retention, heavier carcass weights, and recaptured production efficiencies finish compounding in 2015, commercial pork tonnage could surge past last year's level by 8% or more.

Did I mention that the broiler industry is also cruising along in the passing lane?

If bird flu doesn't become a major problem for exporters, chicken production this year should easily exceed 2014 levels by 6%.

In short, the primary barriers 2015 cattle and beef prices face in holding close to year-ago levels aren't homegrown but rather competitive meat supplies gone rogue. Consumers tend to be comparative shoppers. The ultimate attractiveness of beef values is judged by the friends they keep, or lose.

(VM/CZ)

P[] D[728x170] M[320x75] OOP[F] ADUNIT[] T[]
P[L2] D[728x90] M[320x50] OOP[F] ADUNIT[] T[]
P[R1] D[300x250] M[300x250] OOP[F] ADUNIT[] T[]
P[R2] D[300x600] M[320x50] OOP[F] ADUNIT[] T[]
DIM[1x3] LBL[article-box] SEL[] IDX[] TMPL[standalone] T[]
P[R3] D[300x250] M[0x0] OOP[F] ADUNIT[] T[]