Outlook Positive

Beef Quality the Key to Holding Line on Profits

Victoria G Myers
By  Victoria G. Myers , Progressive Farmer Senior Editor
Randy Blach emphasized the importance of responding to what consumers want, as the CattleFax team presented this year's outlook for the beef industry at the National Cattlemen's Beef Association meeting in New Orleans. (Photo NCBA)

Things could be a lot worse. Beef cow numbers are up to 31.9 million head. Beef production is projected at 27.4 billion pounds, up 1.6% over 2018. Pork and poultry production is growing too--pork up 3% for 2019, poultry up 1.2%. Fed slaughter numbers for beef continue to climb, the pipeline is full and packing plants are at capacity. So where's the upside for beef prices?

The upside is there's minimal to no downside. In fact, profitability is in the cards for most of the industry through 2019. It's all thanks to improved quality, which has reached some amazing benchmarks as more and more of the industry emphasizes marbling. Widespread adoption of Beef Quality Assurance (BQA) principles for handling have also played a key role in producing a better quality product.

"Consumers have rewarded us for higher quality," Randy Blach told a packed auditorium at this year's annual meeting of the National Cattlemen's Beef Association (NCBA). Blach is CEO of CattleFax.

Mark McCully, vice president of Certified Angus Beef, provided some eye-opening facts that underscored the shift the industry has seen in quality. In a presentation at Cattlemen's College the day prior, he reported that since 2010 there's been a 158% increase in average weekly production of beef graded Prime, an 87% increase in Premium Choice, and a 19% increase in All Choice.

Blach stressed, however, that this transformation has to continue if the industry is going to maintain its advantages.

"Today we have more new consumers and preferences coming," he said. "Are we willing to make the next changes?" He mentioned source verification and traceability as opportunities for producers to continue to respond to market shifting demands.

PRICE PROJECTIONS 2019

As the industry moves into 2019, some specific projections by Kevin Good, CattleFax analyst, looked at demand and prices. He expected to see profitability in the packer, stocker and cow-calf sectors through this year. However, looking at a few specifics, he noted there will be resistance in the market. This will be especially true moving into the second half, when supplies may pull down prices.

For 2019, Good projected a range of $130/cwt to $160/cwt for 750-pound feeder steers; $140/cwt to $185/cwt on 550-pound feeder steers; $42/cwt to $62/cwt on cull cows; and between $1,200 to $1,800 for bred cows at auction. All of these marked downturns in price. Composite cutout, however, is projected up by $4, to around $216/cwt. The fed steer market, as a whole, is projected steady at around $117/cwt.

Demand, Good said, would continue to be well above average. Exports will be "very friendly" with some $360 of the value on each head supported by the export value.

WATCH LIST

There are a number of things that could shift the outlook for the beef sector this year. Blach stressed that trade will be at the top of the list, with negotiations between China and the U.S. critical. In addition, the USMCA agreement still needs ratification in Congress. And bilateral agreement for exports with Japan is a priority.

"Long-term, the profitability of our industry is tied to trade," Blach noted. "We must have open markets and science-based trade standards for our products if we're going to continue the run of profitability we've experience in recent years."

While the U.S. economy has been strong, Blach noted there are likely two more increases in interest rates (each a quarter of a percent) ahead for 2019. The stock market is expected to continue to be volatile, but overall should be profitable. Margins at the farm-level have been breakeven, and consolidation continues to increase. This will impact how business is conducted moving forward.

As beef continues to compete with the other meats, Blach said African Swine Fever could shift the pork industry's numbers significantly. He also mentioned that fake meat would become more cost competitive and gain market share, stressing that the beef industry shouldn't fool itself about the viability of this new market rival.

"We are still in a cattle cycle, and price spreads will narrow at the cycle lows," he concluded. "We aren't looking at a train wreck in 2019, but cyclical price swings are something we should all expect."

(AG/CZ)

Victoria Myers