The livestock industry enters 2019 playing a high-stakes poker game, with at least a couple of wild cards still in the deck.
The past year has seen record beef and pork production, strong demand and lower prices. The pork industry remains profitable and beef exports are soaring.
Lee Schulz, Extension livestock marketing economist with Iowa State University, says there are concerns looming in 2019, specifically tariff impacts and disease threats. Both could temper optimism heading into the new year.
He expects the hog industry to continue to grow and be profitable in 2019.
“The breeding herd was up 3.5 percent in the last (USDA) report, and farrowing intentions continue to increase as well,” Schulz says. “We still have profitability in the industry, so we are likely to continue to see some expansion. Much of that was put into place over the last several years.”
He says demand will likely dictate profitability levels. Schulz says domestic and export demand continue to be strong, and he expects that growth to continue in 2019.
For the year, Schulz expects hogs to average $65 per hundredweight on a lean basis over the first quarter, $75/cwt. over the second quarter, $77/cwt. in the third quarter and $61/cwt. in the fourth quarter. That equates to a yearly average of around $70/cwt.
He estimates breakevens to average around $65/cwt. in 2019.
Uncertainty over foreign trade clouds the hog outlook for 2019, says Don Roose with U.S. Commodities in West Des Moines.
“There is really a battleground between the large supplies of pork and demand,” he says. “Is China going to come into the market and buy? Hog prices are forecast to be up again next year, and that’s good because we are going to produce a lot of pork.”
Roose says the threat of African swine fever generates some uncertainty.
“Every week, it seems the disease is spreading,” he says. “China produces about 50 percent of the world’s pork, and about 47 percent of that is produced in backyard facilities. What will China need to buy?”
Beef demand continues to grow, and Roose expects that to continue in 2019.
“The demand for beef has been tremendous,” he says. “Consumer confidence is at an 18-year high, which is positive for increased demand.”
Roose warns the bears are ruling the equity market, a factor that could soften beef demand.
Schulz says fed cattle prices should average $123/cwt. over the first quarter, $122/cwt. in the second quarter, $114/cwt. in the third quarter and $113/cwt. in the fourth quarter, for a yearly average of around $188/cwt.
He adds break-evens are expected to be in the $121/cwt. range.
“The cattle market is kind of a short-term, long-term thing,” Schulz says.
“At the moment, supplies are large, but if you look at cattle that will be market-ready in 90 to 120 days or longer, it’s much the same as it was in 2018. So there’s a bit of a hole in the supply, which should result in some premiums and aggressive bidding from packers.”
He says demand for feeder cattle will be predicated by fed cattle prices.
“Demand is pretty strong now considering the fed cattle prices,” Schulz says. “We may have had some cattle placed earlier than usual, and we expect prices to strengthen as we move into 2019.”
Cheap feed is helping to boost feeder cattle prices, Roose adds.
“Feeder cattle prices are tied to feed values at the moment,” he says. “We pretty much have control over feed costs at the moment, and the futures market definitely supports the market.”
Roose says with some uncertainty in the livestock market, a sound risk management strategy is necessary.
“Futures prices are well over or at the top end of the range for profitability, so when you put in the uncertainty over trade, the trade dispute with China, Brexit and larger supplies, you might want to protect yourself,” he says. “You’re going to need to manage your risk.”