Cattle and beef markets are finishing 2014 at or near record levels, which is the way the year began…at or near record levels. However the advance in prices has been much more dramatic in 2014. Retail beef prices are up 15 to 20 percent, following a 5 to 6 percent year over year increase in 2013. Boxed beef wholesale values are up about 25 percent from one year ago, following a 4 to 8 percent increase in 2013. Fed cattle prices are up 28 percent after a 5 percent increase in 2013. Feeder cattle (750-800 lb. steer) prices are roughly 43 percent higher than one year ago after climbing 13 percent in 2013. Most dramatic of all, (450-500 lb. steer) calf prices are up 53 percent this year on top of a 30 percent increase in 2013.
Market conditions will be generally the same in 2015 with tight supplies continuing to be the major driver of cattle and beef markets. Beef production will decrease again in 2015 but considerably less than the 6 percent year over year decrease in 2014. Feeder cattle supplies will be tighter in 2015, at least until very late in the year. The smaller 2014 calf crop and continued heifer retention implies decreased available feeder cattle supplies, despite increased feeder cattle imports from Canada and Mexico in 2014. Cattle imports are likely to moderate in 2015, further squeezing U.S. feeder cattle supplies. The beef trade picture can be viewed as negative to market conditions, with high U.S. beef prices and a stronger dollar pushing beef imports up and exports down in 2015. However, in a relative sense, both may be viewed as positive. Beef exports have remained strong in 2014 and are expected to show only a modest decrease in 2015. U.S. imports of beef are up sharply in 2014 and will likely increase modestly again in 2015. However, Australian beef production, which has been increasing beef production due to drought liquidation the past two years, is expected to decrease in 2015 on lower cattle inventories and improved drought conditions. Australia accounted for nearly 70 percent of the year over increase in beef imports in 2014; a pace that is unlikely to continue through 2015.
Most of the factors that could moderate market conditions despite stronger supply fundamentals relate to the demand side. U.S. beef demand remains the principal concern regarding the ability for U.S. cattle and beef prices to push even higher in 2015. Despite a sharp increase in retail beef prices in 2014, not all the current wholesale beef price pressure is reflected in retail prices. Thus, even if additional supply declines were not expected, retail prices will face additional upward pressure in 2015. More price pressure is expected from calf prices upward to retail adding additional pressure to margins at the feedlot, packer and retail levels. Feedlots already face sharply higher breakevens in early 2015 due to high feeder cattle prices. Retail beef prices will likely increase in 2015 but there is considerable uncertainty if those price adjustments will be large enough and quick enough to prevent significant squeezing of industry margins. Beef demand will face additional headwinds from larger pork and poultry supplies which add to the challenge of raising retail beef prices. Marginal drought conditions that could redevelop is the principal factor that could affect the supply side of the industry. Reemerging drought could slow down herd expansion, resulting in moderation of short term supply tightness at the expense of longer term tight supply conditions. Though no feed market issues are anticipated at this time, there is always the potential for weather to have a negative impact on feed production in 2015.
Cattle and beef markets will start 2015 with record or near record prices and carry them through the year. I see little risk of any major market break and annual average cattle and beef prices will be higher than 2014. That said, it may be hard to extend the impressive market gains of 2014 much higher. With less of an uptrend in markets generally, cattle and beef markets may follow more of a seasonal pattern in 2015. Seasonal price peaks that exceed 2014 records are possible, perhaps even likely, but may be harder to sustain. All in all, I expect 2015 to be more of a sideways market, albeit with prices close to, if not higher, than record levels.
We wish everyone a happy and prosperous New Year!