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2017 Cattle Outlook: Temper Volatility With Good Risk Management

With 2017 officially underway, there’s no shortage of predictions out there regarding the cattle outlook for the year.

Beef production is expected to rise, which will keep all categories of cattle prices down; beef exports are expected to increase; and beef imports are predicted to decrease. The factors driving these predictions are numerous, everything from changes in consumer demand (and their food budgets) to the new administration’s stance on international trade. So “volatility” will likely continue to be the watchword in 2017.

Chris Prevatt, Livestock & Forage Economist for the Range Cattle Research & Education Center in Ona, Florida says that while it’s tough to offer blanket advice on how to best approach 2017, good risk management is something everyone in the cattle industry should plan to practice.

“What’s most important to keep in mind is that the beef cattle industry is composed of numerous specialized production enterprises,” Prevatt points out, “so a market event that helps the cow-calf producer isn’t going to great for the stocker, for example.”

Prevatt says that what most people are missing is that people in the cow-calf sector of the cattle industry “need to be liking where cattle prices are right now.”

“We do have another 2-3 years of declining prices, especially low calf prices” says Prevatt. “It’s supply and demand. We will still be seeing increases in production from herd expansion. We need to make that work for us.”

The 2017 U.S. beef production is expected to increase to a total of 25.8 billion pounds; up about 0.9 billion pounds (3.4 percent) from 2016.  

Prevatt’s recent 2017 Outlook report also projects that imports are expected to decrease to 2.6 billion pounds due to larger domestic beef production.

That projected decrease in imports is also due to other domestic competing meats (pork, poultry).

“It’s always a battle at the meat counter,” says Prevatt, “until wages increase, people will be limit the beef they purchase and will likely choose other meats.”

On the brighter side, the tide seems to be turning for beef exports due to improving trade agreements, lower beef prices, and world population growth. Japan and Korea are among several countries that may present new export opportunities, and exports are projected to increase to 2.6 billion pounds (up 0.1 billion pounds or 4.9 percent from 2016).

To compensate for the price volatility expected to continue this year, Prevatt says cattle producers can’t simply depend on or wait for prices to improve.

“It’s got to be about a healthy balance of good levels of production and low levels of costs and investments,” suggests Prevatt. “Look at your equipment inventory. If you’re using something lightly, now is the time to sell it.”

“The same belt-tightening applies to feed. We’ve got to double down on forage and grazing days. Of course, we still need to meet the nutritional needs of the animals, but this is the time to begin the transition and make forage work for you.”

Bottom line? Prevatt says the focus now needs to be on how to get back to low input cattle production with high output. “It’s not about quitting or cutting out or doing without. We still need to have healthy animals moving through the industry. Beyond that, we have to destock in acres severely affect by the drought. This will also help forages recover and allow fresh planting.”

When low prices prevail, backgrounding often comes up as a potential stopgap. While Prevatt says he “loves the thought of putting more weight on cattle” the reward may not be worth the effort for some producers.

“There’s really no way to feed a profit into a cow, cattle prices will be what they will be,” says Prevatt. “That said, if you have experience in the area and you enjoy what amounts to a whole lot of work, it might be an option for you. But keep in mind, of the four phases of the cattle cycle, this is about the worst time for backgrounding and retaining ownership—a decline in prices is not a good time to experiment.”

One final question for Prevatt was what effect the new president might have on the cattle industry.

“I’d have to say there’s a lot of uncertainty with the Trump presidency in terms of trade” Prevatt says. “He has suggested he’s going to make a lot of changes…some of them could have short-term ramifications…especially in terms of imports/exports. However, most of the changes this new administration will make will have long-term implications on the beef industry.”

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