Guessing Cattle Prices Is A Lot Like Gambling
DR. ANDREW P. GRIFFITH
KNOXVILLE, TENN.
I am going to assume the title is an accurate statement. I have never gambled in the form most people consider gambling. However, I have attempted to predict or guess cattle prices while also farming and owning cattle which is a pretty big gamble in itself. I would think most people who farm or ranch consider it to be a gamble to be in a business that is highly dependent on weather and broader market forces which are completely out of their control.
The agricultural community has developed many technologies that improve efficiencies and that influence production, but no one has figured out how to keep a hail storm from obliterating a corn field or drought from negatively influencing cattle production. Thus, farming and ranching is a gamble and folks with cattle are guessing or trying to predict cattle prices whether they put any effort into it or not. This article is for those who want to take an active role in their gambling habit while those who are passive may still garner some information.
The price of 500 to 600 pound steers in Tennessee based on weekly auction averages as provided by USDA-AMS ranged from $129 to $163 per hundredweight in 2019 with 32 of those weeks having a weekly average less than $145. These prices compare to a range of $138 to $166 in the previous year with only seven weeks of the 2019 marketing year outperforming the same week in 2018. A more compact way of stating all of this is that cattle prices in 2019 were not favorable.
The one good thing about having a year of extremely low prices from a selling standpoint is that at some point prices will increase. That increase is likely to occur this marketing year. This is not a statement that cattle prices will make a great resurgence, but it is a statement of optimism compared to the dismal year that many in the cattle industry recently navigated.
The price expectation for next year is for weanling calf prices to increase three to six percent compared to 2019 which will result in 2020 prices being close to 2018 prices. This price expectation is based on the expectation that there will be fewer breeding females to start off 2020 and that a large percentage of heifers will continue to be sent to the feedlot the next 12 months. This will result in a smaller calf crop in 2020 which means fewer cattle in the feedlot in the second half of the year and lower beef production in 2021. This analysis does not account for expectations in trade negotiations which are on thin ice and always subject to change at a moment’s notice.
If one thinks these price projections have any validity then one can begin planning for the 2020 marketing year. Some producers are losing money in today’s market and the expectation for slightly higher prices may do very little to turn red ink into black ink. The only course of action in this scenario is to try to limit losses by managing costs and/or adding value to the calf crop by changing management. Those that are at or near breakeven should begin to see small profits moving into 2020, but could likely still benefit from managing costs and/or adding value to the calf crop.
The bottom line is that cattle prices have most likely hit the bottom for this price and production cycle. The expectation is for cattle prices to slowly increase the next few years before another downturn becomes evident. These statements may seem foreign to some given the turbulence and volatility that was in the market place from 2013 through 2016. However, the last three years have demonstrated some consistency in the cattle markets which provides enough information to have an expectation of a return to “normalcy” with “normalcy” meaning there is some degree of predictability compared to wild and erratic. ∆
DR. ANDREW P. GRIFFITH: Assistant Professor, Department of Agricultural and Resource Economics, University of Tennessee