Peel Provides Second Quarter Cattle OutlookTue, 07 Apr 2015 15:26:12 CDT
The first quarter of 2015 is now in the rear view mirror. Radio Oklahoma Ag Network Farm Director Ron Hays sat down with the Oklahoma State University Extension Livestock Market Economist Dr. Derrell Peel to discuss the state of the beef cattle industry when it comes to supply, demand, profitability and outlook for the balance of 2015. Click on the LISTEN BAR below to hear their conversation that covered a lot of territory when it comes to cattle prices, exports and the rebuilding of the US and North American beef herds.
Cattle prices have been highly volatile since late 2014. As cattle prices have settled down, Peel said these levels more accurately represent the fundamentals of the market. Domestic beef demand was a pleasant surprise in 2014, but he said there are still concerns what will happen with beef demand for the rest of 2015. Peel said so far there is no indication that beef demand will weaken at this point.
With a stronger U.S. dollar, global beef exports are slowing down. Peel said it is somewhat a bigger concern for U.S. pork and chicken sectors because of their increase in domestic production. That means more pork and chicken will be put onto the domestic market, which creates more competition for the beef industry.
"Our exports will be down a little bit because of the strong dollar impacts, our imports will be up a little bit, but more importantly we'll face those increased domestic supplies of pork and poultry, because they are not exporting as much," Peels said.
Wholesale meat prices are the most direct indicator of beef demand. Over the last three weeks, Peel said cutout values have increased, which reflects the tight beef supplies and retailers getting ready for spring beef demand. Peel said retailers are already ramping up for the Memorial Day weekend and demand will continue to strengthen as through the summer.
The cash cattle market has been very thin. Peel said this is the time of year on a seasonal basis that cash cattle trade is slow to develop as there more captive supplies with more formula type cattle. He said that thins cash trade more than other months. For the first quarter of 2015, he said feedlots and packers are facing negative margins.
"There's not a case of one getting it at the expense of the other, there just isn't any margin for either one of those sectors," Peel said. "That will change as we go through the year. It can't last indefinitely, so we have to wait and see kind of how that plays out. The real key to all of it again is beef demand and how high can we keep those wholesale and retail prices."
In looking at Mexico, Peel said there isn't much herd expansion going on. Last year a lot of the feeder cattle coming out of Mexico were spayed heifers and so far this year the weekly data has shown heifer exports to the U.S. have declined. Mexico has received some moisture, so that is stimulating heifer retention and herd rebuilding. Peel expects cattle numbers from Mexico to further tighten, as he doesn't think Mexico can continue shipping cattle at those levels into the U.S.
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