February 26, 2016
Look for beef production to increase about 4% this year as more cattle are placed on feed and beef cowherd expansion continues, says Shayle Shagam, livestock analyst with USDA’s World Agricultural Outlook Board.
At this week’s annual Agricultural Outlook Forum (AOF), Shagam explained record and near-record calf prices the past couple of years, along with dramatically improved forage conditions, set the stage for increased production.
“Although recent declines in feeder calf prices may have tempered returns, it is likely that herd expansion will continue through 2016,” Shagam says. “Feeder cattle prices in 2016 will likely be less than those in 2014 and 2015, but returns for cow calf operators should be sufficient to support continued herd expansion.”
USDA projects the 5-Area fed steer price for this year at $133-$142 per cwt, compared to last year’s average of $148.12.
“As fed cattle supplies increase during 2016, prices are likely to be pressured, but feedlot margins are negative and cattle feeders are expected to attempt to leverage their position by slowing the pace of marketings and attempting to reduce bids for feeder cattle,” Shagam says.
As occurred last year, he expects slower marketing to increase the average carcass weight—to an average of approximately 827 pounds this year.
“With adequate forage available, cow-calf operators and backgrounders may be more resistant to feedlots’ attempts to pressure feeder calf prices, but supplies of cattle outside feedlots are 5% higher and many of these cattle are expected to be placed during 2016,” Shagam says. “Feeder steer prices are forecast to average $176-$185 per cwt, down from the record prices of almost $203 in 2014 and 2015.”
The upside to the lower prices is that consumers should find beef and meat more affordable. Even with an anticipated uptick in exports, USDA expects production of all major meats—beef, pork, broiler and turkey—to increase this year. That would be the first time since 2008 that production of all major meats increased during the same year.
“While meat prices rose by 3.0% annually in 2015, the January year-over-year change is down 4.7%, suggesting lower meat prices will persist in 2016,” explained USDA Chief Economist Robert Johansson, at the AOF. “With continuing lower commodity prices and falling energy prices, it is likely that annual food inflation in 2016 will remain at or below the long-run average of 2.8%.” Food inflation was 1.9% in 2015. USDA forecasts food inflation at 2-3% this year.
Trading soybeans for corn
“Corn area is expected to increase by 2 million acres to 90.0 million in 2016 with lower fuel and fertilizer making corn more attractive relative to other crops,” Johansson said.
With growing global stocks from record and near-record crops of corn, wheat and soybeans the last three years, Johansson explained production continues to outstrip demand for many grains and oilseeds.
Overall, USDA estimates the 8-Crop Area planting total in 2016 to fall by 2.5 million acres.
“Further price reductions are expected for the 2016-17 marketing year for corn, soybeans, wheat, and cotton,” Johansson says. “Wheat prices are estimated at $4.20 per bu., a decline of 16% from the current year. Corn prices are projected to fall to $3.45 per bu. for the 2016-17 marketing year. Soybeans prices are forecast at $8.50 per bu.”
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