Agricultural News
Dr. Derrel Peel on Cattle Market Factors to Watch in 2020
Mon, 06 Jan 2020 13:23:22 CST
Mondays, Dr. Derrell Peel, Oklahoma State University Extension Livestock Marketing Specialist, offers his economic analysis of the beef cattle industry. This analysis is a part of the weekly series known as the "Cow Calf Corner" published electronically by Dr. Peel and Dr. Glenn Selk. Today, Dr. Peel talks about the Cattle market factors to watch in 2020.
The new year brings with it several changes in ongoing market dynamics, some new opportunities, and some new risks and continuing challenges for cattle and beef markets. The watch list of beef and cattle market factors includes the typical suspects including trade; domestic demand; supply dynamics; competing meats; and feed and input markets. However, changes in several factors towards the end of 2019 suggest a somewhat different tone for markets in 2020.
The international market situation is somewhat clearer now after trade disruptions and uncertainty strangled many agricultural markets for much of the past two years. The likely completion of the revised NAFTA agreement (USMCA) in the coming weeks removes a significant source of uncertainty for agricultural markets. A new bilateral trade agreement with Japan will restore a more competitive position for beef and should stop the erosion of U.S. market share, which became very apparent in that important beef export market in the second half of 2019. Though details are currently lacking, the anticipated Phase 1 trade agreement with China is expected to significantly improve the trade situation for numerous agricultural markets and may allow beef to begin building a meaningful market position in the rapidly growing beef market in China.
African Swine Fever will undoubtedly be a major factor affecting protein markets globally in 2020. The disease has caused a current pork deficit in China and other Asian markets and is found in numerous other countries in Europe and Africa. The exact magnitude of impacts are uncertain and there is no indication that the disease will be effectively controlled any time soon. The reduction in global meat production will support all protein markets and is expected to boost U.S. exports of pork, poultry and beef in 2020.
The beef supply situation is expected to be more supportive in the coming year with cyclical herd expansion over and beef production peaking. The current status of the cattle cycle will be confirmed in the Cattle inventory report to be released the end of January. In general, cattle numbers are expected to be down slightly year over year. Beef production is expected to peak fractionally higher in 2020 with heavier carcass weights offsetting a slight decline in cattle slaughter. Carcass weights finished 2019 above year earlier levels and will bear watching in the coming year.
Total U.S. meat production will once again push to new record levels in 2020 with beef, pork and poultry all at or near record levels. Trade improvements will be critical to provide a strong international component of meat demand in addition to domestic demand. Overall, improvements in net meat trade (more exports and fewer imports) are expected to offset a significant portion of increased meat production and limit the growth in domestic meat consumption.
There are risks that could challenge beef markets in the coming year. Global trade tensions, though reduced, will continue to add uncertainty to markets. Geopolitical tensions, the U.S. presidential election, energy prices and currency values will all contribute to market volatility and could negatively affect input costs and consumer spending. The U.S. economy is projected to slow a bit more year over year in 2020 and continues to be vulnerable as sluggish growth, which is riding on low unemployment and strong consumer spending, masks underlying weakness in manufacturing and investment. In summary, 2020 offers better opportunities for cattle and beef markets but producers are advised to keep an eye on a host of macro-economic and global factors, as well as evolving cattle market conditions, and proceed with caution.
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