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Economy, Energy & Grain

By Kasey Brown   |  
02/08/2018

Due to more money coming back into the United States from large companies, the new tax reform is projected to provide an average $900 benefit to the middle class. This good news was shared by CattleFax analyst Mike Murphy at the CattleFax U.S. & Global Protein & Grain Outlook Seminar at the 2018 Cattle Industry Convention & NCBA Trade Show in Phoenix, Ariz.

Murphy shared that the U.S. economy is rebounding, with the unemployment projected to be historically low for 2018, between 4% and 4.5%, and the GDP is projected to grow between 2.5% and 4%. He attributed business investments and personal spending to cause about 85% of this GDP rate.

“We are on the right track with economic growth,” Murphy said, though he questioned how the Federal Reserve will respond to the potential of greater inflation. He shared that interest rates will likely increase three or four times this year with the potential of increasing by a full point total. However, inflation does not have a negative effect on retail beef values.

Retail prices have stabilized from the 2014 peaks, and should keep steady dollars entering the beef industry.

The prices of oil are stabilizing, with a slight increase projected, Murphy observed. The Organization of Petroleum Exporting Countries (OPEC) cut production in the second half of 2017, and that played a part in the stabilization.

Seven countries produce about half of the world’s oil, and the United States is one of them, he noted. U.S. crude oil production is nearly record high at 12% of the global production, and petroleum product exports are driving U.S. energy demand growth.

Retail gasoline prices are expected to trade from $2.48 to $3.27 per gallon and average $2.88, up from last year’s average of $2.53, Murphy shared. Retail diesel is expected to trade from $2.60 to $3.48 per gallon and average $3.04, up from $2.64 last year.

The United States continues to be a smaller player in the global share of corn production, and Murphy projected that to continue for the next five to 10 years. The grain supply has stabilized in recent years and he projected the stocks-to-use ratio at 17.1%, allowing it might end up closer to 15%-16%.

“However, with 8% more cattle on feed, we will likely see feed usage increase by about 100 million bushels,” Murphy noted.

He did not predict that corn yields, acres or demand would change significantly in the 2018-2019 market year.

“Expect spot corn futures prices between $3.25 to $3.95 per bushel as supplies remain adequate,” he said.

Murphy warned that managed money trading funds have a large short position, meaning increased volatility and upside price risk if these positions are liquidated.

Hay stocks are the tightest they’ve been since 1976, and the 2017 acreage was also the smallest on record, Murphy reported. With more livestock to feed, he suggested expecting 2018 hay prices to increase by $10 to $15 per ton, which could of course be affected by weather-related price risk, as well.

Editor’s Note: This article was written as part of Angus Media’s coverage of the 2018 Cattle Industry Convention in Phoenix, Ariz. Jan. 31-Feb. 2. See additional coverage in future issues and online at www.angus.org