Feedlot Prospects

Demand Magic, Avoid Pitfalls

John Harrington
By  John Harrington , DTN Livestock Analyst
The danger of higher feed costs seems remote, but the industry is just one disaster away from that not being the case. (Progressive Farmer photo by Jim Patrico)

So you want to know the secret of profitably feeding cattle in 2018? The winning formula is as easy as containing North Korea, forging a national consensus on gun control and convincing President Trump to switch from his Twitter account to a locked diary. To further stoke the fires of equity building, feeders have to recreate the demand magic of 2017 and avoid a series of potentially ruinous pitfalls.

Beef demand was an absolute tiger last year. Despite the fact that total beef production in 2017 was 4% larger than the previous year, the annual five-area steer average managed to climb 2%. Whether this was enchanted by job growth, improved wages, global economic strength, an export-friendly weakening dollar or a surging stock market, a similar kind of voodoo will be needed again this year, given expectations for another 6% hike in beef tonnage.

WEATHER

A heaping plate of corn leftovers (2.4 billion bushels) and the likelihood of new plantings of 91 million acres make the danger of higher feed costs seem remote. But, devastation of the Argentine crop via drought should give all livestock feeders pause, reminding them how fickle Mother Nature can be. If the Southern Plains moves into serious drought this year, the possibility of herd liquidation and forced feeder placement could become all too real.

TRADE

Many analysts believe beef exports this year could grow as much as 5%. Some speed bumps ahead look troublesome, including: successful renegotiation of NAFTA; international competition for access to China's markets; and no access to tariff advantages that come with a place in the TPP (Trans-Pacific Partnership).

TOTAL MEAT SUPPLIES

The sobering supply reality is that all meat production is aggressively expanding. Pork tonnage is set to be up 5%; broiler output, 2%; total poultry, 2%. Per-capita supplies of all meat could hit a new record of 222.6 pounds.

DISCIPLINE

Even if feeding year 2018 is blessed with another bumper corn crop, green pastures, respectable export growth and fully adequate domestic demand, the real economic success of cattle feeders in the months ahead is likely to hinge on margin management and disciplined marketing. Too often, operators become their own worst enemies, recklessly pouring profits into feeder cattle that create impossible breakevens down the road.

(AG/ES)

John Harrington