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Will cattle futures see a bull market in 2018?

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Cattle futures fared better in 2017 than feared by many investors, who had worried that a rebuild in the US herd would, in easing supply tightness, depress prices.

 

However, with stronger-than-expected exports as well as US demand mopping up extra beef supplies, Chicago futures in live (ie finished) cattle recovered from late-summer stumble to end the year up 2.1%.

 

(This albeit after a tumble of 28% over the previous two years, as herd rebuilding kicked in.)

 

And, with feedlots clamouring for animals to fatten and meet this demand, feeder cattle futures fared even better, adding 11.9% over 2017, after a 41% plunge during 2015 and 2016.

 

Will strong demand continue to win out in 2018? Or will extra supply, following feedlot’s splurge on feeder cattle, dampen prices ahead?

 

Top commentators give their outlooks.

 

 

Mike Zuzolo, Global Commodity Analytics

“One major feature I have noticed the past couple years in the commodity trade, if fundamentals are ‘sloppy’, meaning that demand is not outpacing supply, fund flows can create greater price volatility.

 

“I believe this could be one of the key features of the 2018 livestock market. This means that, unless we see a reduction of dressed weights, downside potential could be larger than normal at times.

 

“For this reason, it’s important to lock‐in profit for cattle, feeders, and hogs when profit presents itself.

 

“The USDA expects that beef production will consistently build into the July-to-September quarter, which pulls [cash] prices down from $120 per hundredweight, toward $115 per hundredweight.

 

“I would disagree that ‘we’ve already factored‐in a lot of price negativity’ - unless Nafta does get torn-up.

 

“If Nafta gets dropped, it is going to be very difficult to maintain a sufficient supply of both live cattle and beef given the high amount we import from both Canada and Mexico.”

 

 

Goldman Sachs

“With several consecutive months of greater than 10% year-on-year [growth in] feedlot placements and cattle feedlot inventory now well above long-term averages, we believe slaughter availability will be very healthy in the first half of 2018, particularly after taking into account the marginal re-acceleration in heifer slaughter.

 

“With these figures suggesting bearish supply trends, we believe near-term US beef exports and domestic demand will be critical to balancing the short and medium term beef supply and demand picture, particularly following a robust 2017 export programme.

 

“Our stronger global growth forecasts for 2018-19 foresee this strong export demand trend continuing.

 

“But on balance, we maintain a moderately bearish view, and continue to see prices at 110, 100 and 100 cents a pound in 3, 6 and 12 months respectively.”

 

 

Rabobank

“US beef cow numbers are expected to expand in 2018, but at a much slower pace than the previous three years.

 

“Beef production in 2018 is expected to increase by 3%, largely driven by an increase in carcass weights.

 

“The underlying structure of the market appears to be solid for 2018 – available cattle supplies with modest growth, ample and affordable feed grains, and sold domestic and export demand for US beef.

 

“But there are risks to consider – any indications of a slowing economy, either domestic or global, a strengthened US dollar, and the uncertainty surrounding US trade agreements with Nafta, South Korea and Japan.”

 

 

Societe Generale

“A recovery in live cattle prices has led to a sharp decline in meatpacker margins from the beginning of November which could have a negative impact on demand for cattle.

 

“Feedlot margins have also remained near breakeven level due to higher feeder cattle prices.

 

“According to our estimates, the breakeven price of feeder cattle for feed yards is about 155 cents a pound, just above the current feeder cattle price.

 

“Weakness in live cattle prices due to weak demand from meatpackers could further tighten feed-yard margins leading to lower demand for feeder cattle from feed yards in 2018.

 

“Hence, we are slightly bearish on feeder cattle and largely neutral on live cattle prices for 2018.”

 

“We expect beef prices to remain range-bound at $190-215 per hundredweight as we anticipate an increase in beef supply in 2018.

 

“We expect strong demand to continue to lend support to beef prices at near $190 per hundredweight.”

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