USDA released its 10-year ag outlook last week, and there was much good news in the report -- even for the short term. Admittedly, one must realize that, while looking out 10 years is a good exercise, it's likely not a very accurate one. Just consider the last 10 years to see how unanticipated events, such as terrorists declaring war on the U.S. and the corresponding jump in crude prices, China's emergence, BSE, ethanol's rise, drought, Wal-Mart's reshaping of the retail industry, and the remaking of the packing industry, just to name a few, can turn expectations topsy-turvy. Very few folks factored these changes into their calculations 10 years ago.
It's similar to a weather forecaster attempting to predict global climate change when next month's weather can't even be predicted with any real degree of confidence.
The really good news is the expectation of a continuation of demand growth in domestic and export markets for high-quality beef. That, in turn, will drive prices higher and encourage expansion in the meat sector once again.
Without question, uncertainty about the Middle East (oil prices and economic growth), and ethanol (corn prices) are areas of concern. However, outside of input costs and overall economic growth, the fundamentals of supply and demand look amazingly strong.
The short-term outlook is just as bright. Fed cattle are trading at $92; the futures board closed last week with only August below $90. Packer margins are excellent, and kill levels should remain strong, allowing the industry to gain some currentness.
The severe winter storms that swept cattle-feeding country will be felt for quite some time, reducing weights in their wake. Improving moisture conditions will create strong demand for calves for grass programs, and the price differentials between above-average and below-average cattle are exploding.
When one factors in the new corn dynamics, the premiums for healthy, fast-growing, efficient cattle that can efficiently hit the optimum targets at appropriate weights can only grow. The premiums for quality grade are also likely to move higher.
Of course, it's a little disappointing that the three biggest issues facing our industry -- Mother Nature, the Middle East and Washington, D.C. -- aren't exactly under our control.
-- Troy Marshall