Tim Petry

Tim Petry

Following the release of USDA-NASS’s annual cattle inventory report in late February, there is plenty of reason for optimism within the cattle industry, according to Tim Petry, NDSU Extension livestock marketing economist.

“We have a lot to be thankful for in the cattle industry,” he said. “The one bright spot in terms of prices in Northern Plains agriculture is really cattle prices.”

According to Petry, fed cattle prices the last week of February averaged $2 higher than last year at that time and lighter-weight feeder cattle are seeing good demand now as well because of the potential for grass production in the southern states. He also says heavier-weight feeder cattle are a bit lower than last year because the fed cattle futures market really drops off from April into the summer months, but that’s a normal seasonal market pattern.

“That’s in spite of last year where we had 645,000 more calves in 2018,” he said. “We have all those calves to sell, as well as record beef, pork and chicken production. We’re thankful that we have slightly higher to the same prices compared to a year ago.”

Beef cow herd expansion continued during 2018, but at a moderate rate. U.S. beef cows on Jan. 1, 2019, at 31.77 million head were up 299,500 from the 31.47 million on Jan. 1, 2018. That followed increases of 253,000; 1,047,000; 864,000; and 217,000 head in the previous four years. The total five-year increase in beef cows since the last cyclical low recorded on Jan. 1, 2014, was 2,680,600 head.

As of Jan. 1, 2019, the United States had the largest number of beef cows since 2009.

The two big drivers affecting the feeder cattle market are fed cattle prices and corn prices. Producers are going to have more calves to sell this fall with beef cow numbers up almost 300,000 head on Jan. 1.

“Then it all depends on what fed cattle prices do and what corn does,” he said. “Looking ahead to this fall, futures market prices for fed cattle in December 2019 are the same as what cash prices were in 2018.”

While things look positive at the moment, Petry stresses there’s a long way to go until fall.

“The demand side is helping out fed cattle, both domestically and with exports,” he said. “For domestic demand, our unemployment continues to decline and the income tax cut put more money in people’s pockets, which is always good for the meat industry.

“Export demand has been booming as well. We’ve had record beef exports the last few years, and we’re projected to have another record again this year. We have to have that for the fed cattle prices,” Petry continued.

Beef cow expansion also occurred in several important beef cow states in the Northern Plains. The fifth largest beef cow state, South Dakota, tallied the second largest increase in the U.S. only behind Texas. Numbers there increased 62,000 head to 2.15 million. On Jan. 1, 2018, South Dakota had a record number of beef replacement heifers which helped fuel the increase. North Dakota, the ninth largest beef cow state, also saw a 21,000 head increase in beef cows to 985,000, the highest number since 2002.

Neighboring Montana, the seventh largest beef cow state, bucked the trend with a 49,000 head decline to 1.448 million. That was the largest decline of any state. Beef cow numbers there were the lowest since 2007 and likely impacted by both winter and summer weather issues.

A sign that beef cow herd expansion may continue to moderate was the decline in U.S. beef cow replacement heifers. The 5.93 million head on Jan. 1, 2019, was down 183,300 head or three percent from 2018. The only top 10 beef cow state that increased beef cow replacements was an additional 6,000 head in North Dakota.

Though the cattle market outlook is a positive one at the moment, Petry notes there are still issues that are going to lead to some volatility moving forward such as trade negotiations with Japan, as well as ratification of negotiations between the United States, Mexico and Canada, some of our top customers.

“Just because I’m saying right now that futures prices are similar to last year, that doesn’t mean we’re not going to have volatility moving forward,” Petry explained.

The second big driver, corn, has been estimated by USDA to have 2.9 million more acres planted this year due to problems with soybeans. That said, much can still change.

“Assuming corn stays fairly steady with acres and we get a good crop, fall calf prices could be off a few dollars because we’ll have more to sell,” said Petry. “A lot can change between now and the fall.”

Weather will be the big wild card for how much, or even if, beef cow herd expansion occurs in 2019. Currently much of the U.S. beef cow region is experiencing good moisture conditions, but severe drought occurred in 2018 in the Southern Plains and in 2017 in the Northern Plains. Parts of Southwestern U.S. are experiencing drought right now.

“Weather in the corn belt is something to watch,” said Petry. “If we get a bunch more soybeans going to China, which doesn’t look likely, but it could happen, prices would spark and producers would probably cut back on corn and plant more soybeans. Also, if we are wet early and can’t get corn in and it gets later and later, farmers may plant less, so we’ll have to watch corn prices.”

A similar situation occurred last summer where there were trade issues present, as well as the potential for a really good corn crop. Corn futures fell $0.80 and feeder cattle futures went up $20.

“There’s an opposite relationship there,” said Petry. “In the big cattle states, there’s deep snow here and rain to the south. Last year we got really dry in the Southern Plains and had to sell cows early. Two years ago we were really dry in North Dakota, and while things look good now, that could change. Weather is the biggest wild card we have to watch until fall.”