[fusion_builder_container hundred_percent=”no” hundred_percent_height=”no” hundred_percent_height_scroll=”no” hundred_percent_height_center_content=”yes” equal_height_columns=”no” menu_anchor=”” hide_on_mobile=”small-visibility,medium-visibility,large-visibility” class=”” id=”” background_color=”” background_image=”” background_position=”center center” background_repeat=”no-repeat” fade=”no” background_parallax=”none” enable_mobile=”no” parallax_speed=”0.3″ video_mp4=”” video_webm=”” video_ogv=”” video_url=”” video_aspect_ratio=”16:9″ video_loop=”yes” video_mute=”yes” video_preview_image=”” border_size=”” border_color=”” border_style=”solid” margin_top=”-30″ margin_bottom=”” padding_top=”” padding_right=”” padding_bottom=”” padding_left=””][fusion_builder_row][fusion_builder_column type=”1_1″ layout=”1_1″ spacing=”” center_content=”no” link=”” target=”_self” min_height=”” hide_on_mobile=”small-visibility,medium-visibility,large-visibility” class=”” id=”” background_color=”” background_image=”” background_position=”left top” background_repeat=”no-repeat” hover_type=”none” border_size=”0″ border_color=”” border_style=”solid” border_position=”all” padding_top=”” padding_right=”” padding_bottom=”” padding_left=”” dimension_margin=”” animation_type=”” animation_direction=”left” animation_speed=”0.3″ animation_offset=”” last=”no”][fusion_text]By Larry Stalcup, Contributing Editor
While most closeouts were in the red as 2017 approached its end, small profits were on the horizon for early 2018. But with large cattle numbers keeping feedyards full, there are likely slim chances for extensive price increases throughout most of 2018, barring a major crisis that could impact beef, corn and other commodity markets.
With all that in mind, two cattle marketing specialists offer their outlook forecasts for 2018 cattle and grain prices. The analysts, Marc Nemenoff, market consultant and analyst with The Price Futures Group in Chicago; and David Anderson, Texas A&M University AgriLife Extension economist in College Station, also examine continued volatility and argue the case for risk management to protect prices.
Fed-cattle projections
Nemenoff forecasts first-quarter, fed-cattle markets in the $116-$122/cwt. range. “Prices should gradually work higher through March as the market gains seasonal momentum,” he says. “Weather will be an occasional force for price volatility, particularly in the February to March period.”
For the second quarter, he sees prices at $113-$127. “This period will be the opposite of the first quarter,” he explains, “with prices initially rising, peaking in March and April, and gradually declining as the market enters a historically seasonal price decline as weather warms and herds more readily gain weight and marketings increase.”
Nemenoff’s third-quarter projection is prices from $110-$118. “Prices should be under pressure early in the quarter as marketings increase through late June through early July,” he says. “Prices should start to firm by mid-August and see their peak for the quarter sometime in mid-September.
“For the fourth quarter, we project prices at $113-$120. This is pure speculation based on historical seasonal patterns. Also taken into consideration is the ever-increasing number of monthly placements of cattle on feed.
“Overall, I’m not showing much change in prices from 2017. My basis for this is the low price of corn and the possible tightening of disposable income. Current price patterns for metal and energy show a psychology of higher prices along with an increase in interest rates. This should hold prices back for red meat as the cost of living increases and the consumer looks to cheaper protein providers such as pork and chicken.”
Anderson has a similar projection for first-quarter prices. He pegs them at $117-$119, with second-quarter fed prices at $119-$123. His third-quarter forecast is $108-$112, with the final quarter at $109-$114.
“I have prices in each quarter below the same quarters in 2017,” Anderson says. “This is due to larger production as we continue to expand the cowherd. I expect we will have record-large beef production in 2018, about 27.3 billion pounds.
“On the good side, I think we continue to have a better demand situation, building on 2017 with more exports and good beef movement in the domestic market. I think we will see more pressure on fall and late-2018 prices seasonally, as more beef hits the market from calves born in the spring of 2017. I think the seasonal effects on production of a growing herd will be more pronounced.”
Feeder-cattle forecasts
Anderson sees bearish pressure on feeder-cattle prices. “Feeder cattle should be pressured by lower fed-cattle prices,” he says. “Feedlot closeouts finishing in the red will begin to pressure feeder-cattle prices lower.”
He forecasts first-quarter feeder prices at $139-$142/cwt.; second quarter at $135-$139; third quarter at $130-$137; and final quarter at $126-$131.
Further pressure is expected for calves in the 500 to 550-lb. range. “Calf prices are going to feel the effects of more calves on the market,” Anderson says.
His first-quarter calves’ prices are pegged at $153-$158/cwt.; second quarter at $155-$160; third quarter at $147-$153; and fourth quarter at $139-$146.
“These are low prices, but I don’t think these levels aren’t low enough to force widespread herd contraction, but certainly a sharp slowing in herd growth.”
Nemenoff sees little volatility in feeder-cattle markets for 2018. “A stable corn market should keep feeder-cattle prices in a narrow range of $142-$155/cwt. during the first quarter,” he says. “The second quarter should see prices in the $140-$152 range. I think that prices will show a slight decline over time as demand begins to decline after a year of increases in placements.”
For the third quarter, he projects feeders at $145-$155. “We should see a seasonal rise toward the end of the quarter,” he says, adding that his fourth-quarter projections are in the $142-$158 range.
“This is pure speculation. That being said, I am bullish for the end of 2018.”
Corn markets
With yet another huge corn crop expected for 2018, Nemenoff sees corn prices in the $3.30-$4/bu. range for the year. “Farmers tend to plant corn from fence post to fence post,” he says. “I suspect that 14-billion-bushel crops will become the norm, giving us a rather flat price projection.”
Anderson says low corn prices will continue to be welcomed by producers and feeders. “Corn ought to stay about where it has been [$3.20-$3.60],” Anderson says. “We have another large crop with a large carryover. Low and unprofitable prices should lead to fewer acres planted, but what are the alternatives to plant? Not much.
“So, corn farmers will continue to struggle with low prices and hope for some kind of international event, like drought in a major producing country, that leads to higher prices. Corn farmers should be very worried about potential reductions in the RFS and interruptions in the market for DDGS and ethanol.”
Volatility
Large grain supplies and carryover have eased volatility in feed markets. “But I think we continue to see volatility on the cattle side, particularly in the futures market just due to the nature of trading today,” Anderson says.
“The larger-than-usual spring 2017 rally in cattle prices really highlighted that, even in times of growing supplies, we can still find ourselves with temporary tight supplies, as we pulled cattle ahead. In doing so we pulled down weights, leading to tight beef supplies.”
He says that was largely due to booming demand for fed cattle by profitable feeders and the aggressive featuring of beef by retailers. “This was so successful that retailers found themselves short of beef and had to go out on the spot market and ‘ton-buy’ ribeyes and other cuts,” Anderson says. “Growing supplies should dampen some of that volatility, but perhaps create situations for more downside shocks in price.”
Nemenoff says volatility in the futures market is here to stay for the near term. “Ever-increasing contract cattle has caused somewhat of a lack of price transparency in the live-cattle market,” he says.
“This will continue to push prices out of line, both on the upside and downside as fewer cattle are being priced in the traditional auction markets.”
Price risk management
Nemenoff stresses that risk management has become an ever-increasing need in the cattle and corn markets. “The dramatic increase in prices over the last 10 years has made the industry ever more cash intensive, provoking a need for discipline in cash management in all segments of the business,” he says.
“Having traded and commented on cattle for the last 40-plus years, I have witnessed many changes in the industry. Of particular notice are vertical integration, contracting forward of cattle by packers, and an increase in volatility.
“I feel there is as much opportunity as ever for the producer, packer and speculator. What’s different are the large capital needs and expanded risk parameters. Hedgers take note.”
Anderson agrees that risk management is essential, even if traditional futures trades are not used. “For example,” he says, “for cow-calf or stocker producers, if you use futures markets or insurance products like LRP or LGM, there are opportunities to hedge some good feeder-cattle prices – over $150 for spring and $148 in fall of next year. Grab it.
“We have growing supplies of cattle, calves and a lot of beef. There’s an opportunity to do something. Why not take it? But don’t forget other kinds of risk management – production risk management. For feeders, we have over $120 through April for feds. Maybe do something here, too.”
Anderson notes the surprising thing about last spring’s markets was not that cattle prices increased, but how strong the market was. “You shouldn’t count on the same type of stronger-than-normal fed-cattle rally to bail out feeders that are too expensive relative to expected fed-cattle prices,” he says.
“We probably will see fewer corn acres planted due to low prices. That increases the risk for higher feed costs in the event of weather problems. So at least think about your plan and be ready to do something in a thoughtful, planned out way.”
For more information from Nemenoff, contact him at mnemenoff@pricegroup.com, or 888-908-4310. For more from Anderson, contact him at danderson@tamu.edu, or 979-845-8011.[/fusion_text][/fusion_builder_column][/fusion_builder_row][/fusion_builder_container]
