Economy, Energy and Feedstuffs Outlook

By Kasey Brown   |  

Despite the fact the government shutdown negatively affected the gross domestic product (GDP) by anywhere from 0.13% to 0.25% each week, the overall U.S. economy strengthened by about 2.8% in the fourth quarter. Unemployment rates are down again by 4%, and median household income has grown for the fifth year in a row, this year by about 2%. Mike Murphy, CattleFax market analyst, presented an outlook of the economy, energy and feedstuffs to attendees of the 2019 Cattle industry Convention & NCBA Trade Show in New Orleans, La.

A headwind of sustained inflation growth, interest hikes and lower personal-saving rates indicate an economic slowdown could be imminent, which would put consumer beef demand at risk. He admits that the volatile global market conditions could change things.

Many outside factors can affect trade, like the Brexit, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP, and hopefully a U.S.-Japan bilateral agreement later this year), the United States-Mexico-Canada Agreement (USMCA), and China-U.S. relations.

“The real key from an economic standpoint is China,” he said. China’s purchasing managers index has contracted within the last two months in correlation with the trade dispute, which shows that it is important for both parties to come to an agreement soon.

A boon is that the United States is energy independent, which was put into motion in the early 2000s. Seventy percent of global oil production is from the United States. Exports of crude oil, gasoline and natural gas are driving U.S. energy demand growth. Murphy predicted retail gasoline prices to trade from $2.30 to $2.90 per gallon, averaging $2.62, down 24¢ from last year. Retail diesel should trade from $2.60 to $3.27 per gallon, averaging $2.90, down 27¢ from last year.

With soybean exports down, Murphy predicted corn acres planted to be up for 2019. With record pork production and the potential for increased poultry production, feed corn will be needed.

“Expect corn acres to increase 2 million acres to 91 million this year, while soybean acres decline 2.2 million to 87 million acres and wheat acres increase 1 million acres to 49 million,” Murphy said.

USDA will give its annual Crop Report in early February, but Murphy anticipated no significant changes. The corn stocks-to-use ratio is at 11.8%, while soybeans are at 23.3%. Adequate supplies mean demand changes will dictate corn and soybean prices throughout the first half of 2019.

The practical range for spot corn futures is $3.60 to $4.10 per bushel for the first half of 2019.

Ethanol margins were the worst in history, so watch ethanol production in the future, he warns.

He didn’t predict much change in 2019 hay acres, but forecasted weather looks to be favorable for hay growth. This should allow on-farm stocks to rebuild as production increases to pressure hay and forage prices lower.