2018 did turn out to be a better than expected year for most of the beef complex, as most segments in the supply chain were profitable thanks to exceptionally strong exports. The question for next year is can beef demand continue to absorb the larger protein production without hurting market prices?
Now not to get too pessimistic but there are some significant risks that the beef and protein industries as a whole will face over the next year. That of course includes increasing production of beef, pork and poultry as well as the potential of a global economic slowdown which could undermine protein and especially beef demand. Also, trade tensions and disruptions are likely to continue at least for part of the year which limits our access to global export markets.
Interest rates have been on the rise in recent year and could be increased further next year. There is the potential for 2 to 3 more rate hikes which not only increases the cost of borrowing but may keep the dollar strong and hinder exports.
Also, we’ll be battling the cyclical risk for lower cattle prices over the next few years and the cattle producer’s leverage position versus the packing segment will be a concerning area over that time frame as well.
There are always headwinds to face, but challenges create opportunities and we have learned that this beef industry can surprise us in a good way occasionally. Here at the start of 2019, the beef industry is about as well positioned as we could hope for at this point in the cycle.