Cattle and Beef Outlook

Randy Blach, CattleFax

Soybean Oil and LC Cattle impacted most

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Reduced longs 60,000 in 5 weeks

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Live Cattle Strip-Weekly

Live Cattle Futures plummeted to major support at $104-$105 .

2016 2017 2018 2019

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Record production with 35 mil. fewer cattle.

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The peak is in Beef Cows is in at 31.7 mil. for now!

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40 hour week

Can’t afford any more disruptions

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91 bil.

103 bil.

113 bil.2020 ProductionPoultry up 1.7 bil. 3.5%Pork up 1.1 bil. lbs. 4%Beef up 600 mil lbs. 2%

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2020 ForecastBeef +5%Pork +15%-30%Broilers +7-8%

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Red- PorkBlue-Beef

Japan and S Korea are two of the most important export destinations for U.S. protein.Must control the coronavirus soon or exports will likely be disappointing.

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Significant opportunities forU.S. beef exports to China.

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Brazil is a part of this “Other” category. The last three years the quota has been filled; Brazil will have to take market share from other suppliers. In 2020 the TRQ is 65,005 MT.Canada, Mexico have no limit while Australia, New Zealand, Uruguay, Argentina have quotas.

What Lies Ahead?

Grade and CAB 2005 2019 Change % ChangeChoice and Prime 55.7% 79.6% 23.9% 43%

Upper 2/3 CH. and PR. 16.6% 31.1% 14.5% 87%

Cab Acceptance Rate 15.6% 35.1% 19.5% 125%

Million HeadCH. and PR. 14.81 20.67 5.86 40%

Upper 2/3 CH and PR 4.41 8.07 3.66 83%Source: USDA, CattleFax

2005-2019 15 Years of Progress

The three major protein segments have grow spending $114 bil. in 20 years.

Beef: +$58 bil., +110%

Pork: +$29 bil., +77%

Poultry: +$28 bil., +71%

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Beef has the most exposure at food service if domestic demand declines sharply because of the coronavirus.

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-9 pts. -13 pts.-6 pts.

There are three other periods of “unexpected” demand erosion in the 2000s. The September 11 terrorist attacks, the Great Recession, and the West Coast Port Strike/Competing Protein Surge.

In each instance, there was an unexpected period of demand destruction.

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May/June Cutout Demand MatrixCutout DemandChange vs Year Prior

Supply Δ Per Cap -20% -15% -10% -5% 2%-1% 9.7 $182 $193 $205 $216 $2310% 9.8 $180 $191 $202 $213 $2281% 9.9 $177 $188 $199 $210 $2252% 10.0 $175 $186 $197 $207 $2223% 10.1 $172 $183 $194 $205 $2194% 10.2 $170 $180 $191 $202 $2165% 10.3 $167 $178 $188 $199 $213

Assuming the beef averages $197 for May and June and assuming leverage is 48% with a 2-3% increase in supply.

Futures priced demand down 10% compared to a year ago.

Futures pricing poor demand

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Jan 2017 to Present

This range not expected to change in 2020

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Executive Summary Weather Pattern shifting from El Nino to La Nina

Drought would be the Risk for Cattle Herd Reduction.

Record Production for Beef, Pork and Poultry: Export Growth Must Continue.

Need More Packing Capacity (beef and pork) Labor still a major issue.

Consumer Attitudes have been Excellent; Will Consumer Behavior Change?

Strong Domestic Demand: could Coronavirus be the Next Black Swan?

The Price Swings and Volatility is here to stay.

The most severe recessions the U.S. has experienced since the depression are 2008-2009 and 1981-1982.

Per capita meat supplies may be higher than previously forecast if exports are disappointing.

ASF is still a major factor that the global protein markets will have to navigate.

China businesses are mostly open 91.7%, but the last 8 weeks the PMI in China was worsethan the global meltdown in 2008-2009.

Critical how Japan and S. Korea can handle the major outbreak of virus- they are two of thebiggest export markets for U.S. products.

Is a Recession knocking on Door? or just a needed Correction in Markets! Futures have already priced a slowdown. Don’t bet thy whole wad!

Executive Summary