U.S. cattle prices expected to fall slightly

Prime Cuts with Steve Kay

Forecasting live cattle prices is always tricky but most analysts were close to the mark at the start of last year. U.S. prices were better than expected in the first quarter but mostly followed forecasts the rest of the year. Prices this year will likely be slightly lower than the average price in 2018 of US$117.08 per cwt (basis USDA’s five-area steer price) despite a year-on-year increase in steer and heifer slaughter.

Prices ended last year on a strong note, with a US$3.71 per cwt live price rally in the Christmas week. Tightening supplies and weather (snowstorms) contributed to the surge. Prices will likely remain strong through much of the first quarter, especially if weather remains a factor this month and next, and are likely to average around US$120 per cwt or slightly higher for the quarter. This average is likely to be the quarterly high for the year by a wide margin, as was the case in 2018.

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Prices in the first quarter last year were stronger than expected, averaging US$125.60 per cwt. They dropped to US$116.72 per cwt in the second quarter and to US$110.83 per cwt in the third quarter. But they rallied to average US$115.16 per cwt in the fourth quarter, in part because of higher prices in December. The last week of the year saw prices average US$122.52 per cwt, versus US$118.81 per cwt the week before. This was the highest weekly live price since the first week of May last year. Whether quarterly prices will follow last year’s pattern is unclear. Four of the five analysts surveyed in early January by the author have the quarterly high in the first quarter. Their average and USDA’s for the year is just under US$116 per cwt.

As noted in my previous column, demand and tariffs are key issues for the U.S. beef industry this year. Two other clouds hanging over the industry in 2018 are likely to remain this year. One is availability of enough skilled workers to staff the industry’s hundreds of processing plants. This is the number one issue facing the beef industry, according to most of the industry’s 30 largest beef processors that I surveyed last November.

Especially revealing was that the shortage hampers their ability to operate at maximum efficiency. Absent a change in immigration policies to allow more foreign-born workers to enter the U.S., beef processors will again struggle to run plants at desired levels this year. Canadian beef processors will also continue to face the same issue.

Another cloud is burgeoning transport costs caused by a nationwide shortage of truck drivers in the U.S. that appears to be worsening. In a business where the old adage is “sell it or smell it,” getting meat and poultry to customers and end-users on a timely basis is critical. Companies coped with the issue last year but at significant added cost. The shortage will likely remain all year and keep adding to processors’ business costs.

Should beef demand at home and abroad remain strong, beef processors can expect to repeat their record-breaking results of 2018. Tyson Foods, the industry’s largest beef processor in terms of sales, certainly thinks so, after it achieved in 2018 what seemed impossible only a few years ago. It became the first U.S. beef processor to make more than US$1 billion in a year.

About the author

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A North American view of the meat industry. Steve Kay is publisher and editor of Cattle Buyers Weekly.

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