Increasing Supplies Will Drive Cattle Markets

5/3/18 Red Meat Production Up 2 Percent in Q1
Cattle market prices the remainder of 2018 will be a “function of meat supplies, domestic demand, and export demand," says Jim Mintert, Purdue University agricultural economist. ( Wyatt Bechtel )

U.S. red meat and poultry production is increasing at a rapid rate, and market analysts warn cattlemen to be prepared for pressure on prices the rest of 2018.

Red meat and poultry production increased 2% year-over-year during the first quarter of 2018, and the latest USDA projections call for a 4.4% increase in quarter two. If accurate, that means an additional 1 billion pounds of red meat and poultry will be on the market during the spring months.

During the January-March period, pork production increased 3.7%, followed by beef with a 2.6% increase, and poultry with a 1.4% increase. Beef, however, will be the biggest contributor to second quarter increases. Last month’s USDA projection called for a 9% increase in beef production during the second quarter. That means beef production will account for 28% of all red meat and poultry production during the quarter, and contribute 60% of the growth.

Purdue University agricultural economist Jim Mintert says cattle market prices the remainder of 2018 will be a “function of meat supplies, domestic demand, and export demand. Looking ahead to the rest of this year, the biggest driver of prices will be meat production in the U.S. and it looks like beef, pork, and chicken production will all be larger than in 2017 throughout the rest of 2018.”

He noted that USDA’s April Cattle on Feed report pegged the inventory up over 7% compared with 2017, and was the largest April on feed inventory since 2006.

"The expected rise in fed cattle marketings will help push average slaughter weights up, resulting in a larger production increase than cattle slaughter alone would suggest,” Mintert says. “Increases in both beef and dairy cow slaughter will also help push beef production higher the rest of the year. The combination of larger slaughter and heavier weights could push beef production up 6 to 8 percent over the next six months.”

Strong beef export demand helped support prices during 2018’s first quarter. Data from January-February indicates total beef exports were nearly 13 percent larger than during the first two months of 2017. Although exports to Japan and Canada were weaker than in 2017, declines in those two markets were more than offset by increases in shipments to virtually all other export destinations. Mintert says strong export demand is expected to continue, unless trade friction leads to imposition of tariffs on beef exports to key NAFTA and/or Pacific Rim destinations.

“Domestic demand for beef showed signs of strength in early 2018. Continued strong economic growth in the U.S. should be supportive of beef demand, but large competing meat supplies will provide U.S. consumers with many alternatives during the rest of 2018,” Mintert says. “For example, pork production this spring and summer could rise 4 percent above a year earlier and chicken production could increase about 2 percent compared to the same period in 2017.”

Mintert projects increasing beef production, combined with larger pork and chicken production, will exert substantial downward pressure on slaughter cattle prices the rest of the year. Compared to 2017, the April-June quarter price average for slaughter steers could decline 10 percent or more. Summer and fall quarter prices are expected to remain below a year ago as well, although the percentage decline will likely be less than 10 percent.