Profits to dip until 2019 rally: expert

Analyst says an expanding U.S. herd and lower Asian demand will cause a continued price slide

Cow-calf operators will make a lot less money in 2016 than 2015, but they’ll still make good money.


That was the message from analyst Jim Robb of the Livestock Marketing Information Center in a presentation at Manitoba Ag Days Jan. 20.


“Very seldom do we cover our total economic cost of production in the cow-calf business,” said Robb, noting that 2016 would see most U.S. farmers earn net profits for the third year in a row.


The average U.S. cow-calf producer will earn $200 per cow per year above cash costs and pasture rent, following $300 in 2015 and $500 in 2014.


Canadian producers should see about the same results, adjusted for the Canadian dollar, he said.


Prices will continue to grind lower until the end of 2018 but then stabilize and set the table for the next rally, he said.


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An expanding U.S. cow herd and weak Asian demand have combined to reduce prices. 


Asia and the rest of the world might regain some growth by 2019 and lead the market higher again, Robb said.


Calf prices slumped in late 2015, and while Robb thinks they will soften further in 2016, it won’t be as dramatic.


“We think the biggest price adjustments are behind us,” said Robb. “If I got a bid for my calves (for late 2016) that was $10 to 15 per hundredweight lower than 2015, I’d probably take that.”


If a farmer was offered prices in early 2016 for fourth quarter delivered calves at the same price as in 2015, “I’d take that in a heartbeat.”


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There will still be a couple more years of lower prices, but nothing disastrous.


“We see cyclically lower prices through 2018, but not a repeat of 2015.”


The slow process of moving higher could begin by 2019 unless something significant such as a lingering world recession in-trudes, he added.


Farmers might want to soon consider expanding herds again.


“It’s not too early to start planning,” said Robb.


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A pleasant development of this price cycle has been the lingering profitability after the price peak passed. It was once assumed that producers would inevitably lose money as the cycle wound down, but “that’s no longer a required aspect of this industry.”