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Live cattle futures - did the late-2015 revival set the scene for 2016?

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Live cattle futures tumbled by 18.0% last year, wiping out nearly all the gains of 2014.

The decline reflected in part a stronger dollar, which undermined US beef exports - which the US Department of Agriculture estimates hitting a six-year low in 2015, while seeing imports at a 10-year high.

This came at a time when US demand for beef was being undermined by prices which remained persistently high at the retail level.

Still, prices showed a marked recovery in the last two weeks of last month, fuelled by colder weather, which undermines weight gains for livestock, and by data showing that placements of cattle on feedlots had hit an all-time low.

At a December 17 low, futures were down nearly 30% for the year.

Will this revival extend into 2016? Or will ideas of herd rebuilding, fuelled by improved pasture condition and weak grain prices, bring fresh price lows?

Expert commentators give their views.

Darrel Good, Department of Agricultural and Consumer Economics, University of Illinois

Livestock prices reached a peak in 2014 due to reduced production resulting from high feed prices, drought conditions in cattle producing areas.

"Production is now rebounding and prices are declining.

"US beef production is expected to increase from 23.72bn pounds in 2015 to 24.85bn pounds in 2016 due to lower feed prices and the expansion in the cow herd that started in 2015.

"Annual exports are expected to increase from 2.2bn pounds to 2.5bn pounds while imports are expected to decline from 3.4bn pounds to 3.0bn pounds.

"Domestic per capita beef supplies are projected at 55.3 pounds in 2016, up from 54.4 pounds in 2015 and 54.1 pounds in 2014.

"Fed cattle prices averaged near $155 per hundredweight (155 cents per pound) in 2014 and are projected to average near $149 per hundredweight in 2015 and near $135 per hundredweight in 2016."

Goldman Sachs

"In the near term, competition from foreign beef and weaker seasonal demand poses further downside risks to our price forecast. Array

Three-month horizon: 130 cents a pound

Six-month horizon: 120 cents a pound

12-month horizon: 120 cents a pound

Forecasts for front Chicago contract

"Herd rebuilding keeps us bearish long term."

Paragon Economics, Steiner Consulting

"Beef supplies are expected to increase in 2016 thanks to a larger calf crop in 2014 and 2015, a larger supply of cull cows and lower feed costs that will allow producers to maximise the pounds they put on cattle before they get them to market.

"Pasture conditions are often a key factor going forward and we expect them to play a critical role in 2016.

"In 2014 and 2015 pasture conditions were above average and this allowed producers to put more pounds on cattle outside of feedlots, which in turn contributed to the significant carcass weight gains this year.

"There is increasing talk of weather patterns transitioning from an El Nino to La Nina, which in the past means less rainfall for key production areas of the US. Timing of such shifts will be key and could potentially impact both feed grains and pasture conditions.

"Drought in the summer of 2016 could bolster beef supplies in the short term - bearish for summer and fall markets - but it would slow down the pace of growth in the beef industry.

"However, ample moisture could further accelerate the expansion that is currently under way and set the stage for even lower beef prices in 2017 and 2018."

Rabobank

"Price erosion [in 2015] was driven by consumer resistance to record-high retail beef prices, a US import-export trade imbalance, and cattle feeding economics that caused feeders to feed to record carcass weights. Array

Q1 2016: 148 cents a pound

Q2 2016: 145 cents a pound

Q3 2016: 142 cents a pound

Q4 2016: 152 cents a pound

Forecasts for front Chicago contract, quarter average basis

"US cattle numbers are rebuilding, and visible effects of a larger cow herd are expected.

"Ongoing limited supplies of market-ready fed cattle will likely support prices into the spring. Increased availability of cattle and pressure from supplies of competitive proteins are expected to weigh on prices this summer.

"A conventional seasonal recovery is expected by the end of the year."

Societe Generale

"Given beef's continued above-average premium to pork prices, we continue to see US consumers as being disciplined in their spending. Array

Q1 2016: 135.75 cents a pound

Q2 2016: 135.16 cents a pound

Q3 2016: 134.88 cents a pound

Q4 2016: 132.66 cents a pound

Forecasts for front Chicago contract, quarter average basis

"Improved pasture conditions this summer have encouraged herd rebuilding, with many heifer calves being retained to be introduced into the breeding stock."

By Agrimoney.com

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