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Weighing The Market

published: February 18th 2022
by: Wes Ishmael

Fewer cattle and higher prices

Cattle prices continue to march higher, despite increased input costs, fueled by declining cattle numbers in tandem with continue beef demand strength.
    Beef cows of 30.125 million head Jan. 1 were 718,500 head fewer (-2.3%) than the same time last year, according to USDA’s Cattle report. That is the fewest number since 2015 and was the largest year-over-year decline since 1996-97, according to David Anderson, Exten-sion livestock economist at Texas A&M University. He adds the report included a significant revision of 314,000 fewer head in the previous year’s beef cow inventory.
    Beef heifers held for replacement of 5.611 million head were 191,600 head fewer (-3.3%) than the previous year.
    “That is the fewest re-placement heifers held back since Jan. 1, 2014,” says David Anderson, Ex-tension livestock economist at Texas A&M Uni-versity, in a January issue of In the Cattle Markets. “While fewer replacements would be needed with a smaller cow herd, a reduction this large indicates some expectations of more herd contraction.”
    The calculated feeder supply outside of feedlots of 25.537 million head was 676,000 head fewer (-2.6%) than last year.
    Dairy cows of 9.375 million head were 67,400 head fewer (-0.7%)
    All cattle and calves of 91.902 million head were 1.888 million head fewer (-2.0%).
    “The inventory report indicates that we are headed towards less beef production and higher prices,” Anderson says. “A cow herd of this size should also lead to some expectations of calf prices approaching the rarified air of the years following the Texas 2010-2012 drought. The current drought and its development over the coming months will dictate a lot about the cow herd over this year. But, good beef demand should also pull prices higher on top of available supplies.”
    USDA’s Economic Re-search Service (ERS) projects beef production this year to be 27.4 billion lbs., in the February World Agricultural Supply and Demand Estimates (WAS DE). The total would be 562 million lbs. less (-2.0.%) than last year.
    Total red meat and poultry production this year is forecast to be 106.6 billion lbs., which would be 183 million lbs. less than last year (-0.2%).
Cattle prices head higher
    In the latest WASDE, ERS projected the annual average five-area direct fed steer price for this year at $137.50/cwt. Prices are projected at $139 in the first quarter, $136 in the second quarter, $135 in the third quarter and $140 in the fourth quarter.
    CattleFax was even more bullish in its Outlook Seminar in Houston the first week of February.
    With cattle numbers declining, front-end fed cattle marketing approaching pre-covid levels and beef demand continuing strong, CattleFax projects the average fed steer price this year $18 higher year-over-year at $140/cwt. with a range of $130-$155. The organization forecasts the average feeder steer price (800 lbs.) at $172 with a range of $158-$184, and the average calf price (550 lbs.) at $205 with a range of $180-$230.
    Moreover, CattleFax forecasts utility cows at an average of $75/cwt. with a range of $65 to $85. Bred cows are expected to bring an average $1,850/head with a range of $1,700 to $2,000 for load lots of quality, running-age cows.
    The feeder cattle and calf supply will be 675,000 head fewer than last year, totaling 25.5 million head, according to CattleFax. Fed cattle slaughter will decline 400,000 head to 25.7 million head. Com-mercial beef production will contract over the next several years starting with a 2% decline in 2022.
    Kevin Good, CattleFax vice president of industry relations and analysis pointed out U.S. beef cow inventories declined more than 700,000 head last year and are nearly 1.6 million less than the cyclical peak.
    “Drought, market volatility and processing capacity challenges affected 30-40% of the cow herd over the last year. Without an improvement in weather and profitability, at least 250,000 more head will be liquidated in 2022,” Good says.
    The first week of Fe-bruary, 72.2% of the nation was either abnormally dry or in some stage of drought, according to the U.S. Drought Monitor. That was 7.8% more than the same time a year earlier; 9.5% more was experiencing moderate to exceptional drought.
    La Niña remains firmly in control of the ocean-atmosphere system, and that is unlikely to change this spring, said meteorologist Matt Makens, during the CattleFax Outlook.
    Barring any change to the La Niña outlook or sudden warming in the Gulf of Alaska, Makens explained that likely means dryness continues across the Southwest and South with warm temperatures. The Northern Plains and Corn Belt are expected to have wetness farther east this spring and drier conditions for this summer, with temperatures closer to normal versus last year.
Demand underpins prices
    Wholesale beef demand will likely slow in the coming year, but cutout value should hold steady near an average of $280/cwt., according to Good. In part, that is due to extraordinary international demand for U.S. beef. .
    Beef export volume was record-large last year at 1.44 million metric tons, according to data released by USDA and compiled by the U.S. Meat Export Federation. Volume was 15% more than the previous year and 7% more than the prior record set in 2018. Export value last year was 38% more than the previous year and record-large at $10.58 billion. Beef export value per head of fed slaughter equated to a record $407.22 in 2021, up 35% from a year earlier.
    Good explained global protein demand continues to rise, and U.S. beef exports are expected to grow by 5% this year to 3.7 billion lbs., supported in part by tightening global protein supplies.
    For broader perspective, total U.S. agricultural exports last year were the highest on record, in terms of value, according to the U.S. Commerce Depart-ment.
    Exports of U.S. farm and food products totaled $177 billion, topping 2020 by 18% and eclipsing the previous record (2014) by 14.6%.
    Likewise, CattleFax sees continued domestic consumer beef demand strength this year.
    Good explained inflation is also driving beef prices to a higher trading range. The USDA All-Fresh Beef Retail Price should average near $7.15/lb. this year, ultimately resulting in more margin in the system.
    While U.S. median household income increas-ed last year, historically high inflation is affecting low-to-middle income Americans the most, Good says.
SLS