Planning for the future

Some overriding forces are shaping the economic environment for U.S. cow-calf operations. From a longer-term strategic perspective, some planning may pay large dividends for cattle producers. Interest costs are rising, albeit at a measured pace. In terms of basic supply and demand market forces, there is the uncertainty regarding demand for beef and hence cattle, given the international trade environment of tariffs and retaliation that has developed in recent months. Still, stepping back, the U.S. beef sector has so far faced mostly indirect impacts, and U.S. beef export tonnage was record-large for this year’s first quarter. On the domestic front, the economy has been robust so far this year.

For producers, the clearest market signal is on the supply side. The U.S beef cattle sector is well into the cyclical adjustment phase transitioning from aggressive herd expansion to very modest growth. Looking ahead, smaller herd growth rates will translate into the rather modest year-over-year increase in beef production in 2019. If recent cowherd trends persist, 2020 could mark the end of the current U.S. cattle inventory build-up.

If the general trends of the first half of 2018 persist, as of January 1, 2019, the U.S. cowherd likely will be up well less than 1.0% year-over-year. That suggests cyclically stronger calf prices are ahead (e.g., calf prices in the fall of 2020). Pre-planning may position a cattle operation to take advantage of this market transition.

Source: Drovers