As analysts projected, beef production thus far in 2018 is higher year over year, with increased cattle slaughter and carcass weights in evidence.
“Beef demand has continued strong carrying forward momentum from 2017,” said Derrell Peel, Oklahoma State University Cooperative Extension livestock marketing specialist. “Cattle prices, both feeder and fed, along with wholesale and retail beef prices have generally been higher year over year.”
Despite the challenges of growing cattle and beef supplies – in addition to seasonal pressure ahead in many markets – cattle market fundamentals appear to be supportive and stable at this time. Still, cash cattle prices recently dropped sharply, led by weaker feeder and live futures.
“This reflects the biggest threat to cattle markets, an increasingly turbulent and murky macroeconomic environment,” Peel said.
Times are turbulent for the cattle market.
By some measures, the U.S. economy is quite strong after many months of steady if plodding recovery and growth. Unemployment has continued to decline and is projected to average less than 4 percent in 2018. The Federal Reserve, eyeing potential inflationary pressures as growth continues, raised interest rates recently for the sixth time since 2015.
“The recently enacted tax reform measures are an additional expansionary push for the economy that adds to Federal Reserve concerns about inflation and makes additional interest rate increases likely and more frequent,” Peel said.
The Federal Reserve currently is projecting the economy to grow at 2.7 percent in 2018.
Simultaneously, the black cloud of trade uncertainty which has hung over markets for months has erupted into a storm. The U.S. announcement of tariffs on imported steel and aluminum roiled markets and has prompted much speculation about potential retaliation among trade partners.
“While recent administration announcements significantly weaken the metal tariffs with numerous exemptions, uncertainty remains high,” Peel said. “Subsequent announcements of tariffs on U.S. products and the extent of a possible trade war are adding to the anxiety, as are the fate of the North American Free Trade Agreement and other trade policies.”
Peel explains recent negative reaction in the stock market and futures markets is only the initial impact of a wide range of potential ripple effects in the economy. These negative trade impacts could threaten economic growth going forward.
“It’s as though the economy has one foot on the accelerator and another foot on the brakes, making it extremely difficult to figure out what happens next or, perhaps more importantly, what happens after that,” Peel said. “Markets, in general, are increasingly scared and running for cover. The fear of the unknown may be the worst of it but the reality of the unknown could be far worse.”
The result is an external environment for cattle markets that is especially difficult to sort out and anticipate. Should cattle producers be running for cover as well?
“Probably not yet but I recommend figuring out where cover is and how you can get there at a moment’s notice,” Peel said. “Cattle producers need to closely monitor the broad range of macroeconomic and global conditions and be prepared to abruptly switch to a strongly defensive business strategy.”
Markets are increasingly volatile and Peel said it will be important for cattle producers to maintain as much short-term flexibility as possible to deal with rapidly changing conditions.