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Understanding the 2020 market and a look at the future

published: September 18th 2020
by: Caitlin Richards

While 2020 has been anything but normal, the cattle markets have been disappointing but not surprising. During the 2020 Texas A&M Virtual Beef Cattle Short Course on Aug. 3, CattleFax Chief Executive Officer Randy Blach gave an overview of the 2020 market and a look at the future.
    The beef industry has had two major unfortunate events in the last year that have negatively impacted the markets. In August of 2019, the fire at the Tyson Foods beef plant in Holcomb, Kansas resulted in a fall in calf prices because of the uncertainty of when the plant would be back up and running. Then in March of 2020 COVID-19 hit.
    “We had the same situation this year in the March and April time period,” Blach said. “The market had no idea if these businesses [food service] were going to be kept closed for another 30, 60 or 90 days. It was changing every day on how quick we were going to open things back up. As a result, the futures markets had to discount some pretty negative scenarios.”
    The futures markets, he explained, discounted a-bout a 30-point drop in demand. With 55% of beef’s total disappearance occurring at food service and about 45% at retail, beef’s biggest market was cut to a large degree, causing much uncertainty in the futures.
    While the food service demand was down during the pandemic, the retail demand saw a climb. According to CattleFax, so far during the pandemic, starting March 15 through July 12, dollar sales for beef are up 35.9% and volume sales have increased 22.5% versus the same period last year.
    “We have seen a big enough increase in retail volume to offset a lot of that drop in food service, but not all of it,” Blach said. “It has really done pretty well with the hand we have been dealt. We have gotten along pretty good.”
    As more restaurant businesses are able to open and business picks up, beef demand should improve, or at least be well supported. Additionally, Blach shared within the retail side there was a 29% growth in sales of boxed beef loads at 22+ day delivery.
    “That tells you these retailers are going to feature more beef,” said Blach. “They’ve got the margin to feature more beef and they are going to drive more business through those stores.”
    As a result, future markets have settled down and that is always a good thing. He expects the market is going to improve through the end of the year.
    Assuming COVID-19 is managed, a positive is cattle prices have bottomed for 2020 and for the cycle. The industry is working through the front-end supply that was carried over from the packing plant back up in April and early May due to COVID-19. Cattle prices were driven down from the oversupply, but now, as the supply levels out, cattle prices are expected to rise from their bottoming out. 
    In early August, at the time of the presentation, seasonal fed steer prices were at about $100 per hundredweight. However, he expects to see continued improvement in fed cattle prices through the end of the year. By November to December, he thinks prices could be in the $115 to $118 per hundred weight range. As for 2021, Blach looks at the market to range from about $105 to $125 per hundredweight as a practical trading range for the year.
    Taking an even greater look at the future, Blach mentioned several key points. The United States cattle herd is shrinking. From 2019 going into 2020, the herd was down about 375,000 head and it is expected to be down another 300,000 to 400,000 head again in 2020.
    He added that producers can expect to see the implications of those tight-er numbers in 2022 and 2023. Therefore, slaughter and beef production will likely peak in 2021 and then decline for three to four years.
    In terms of demand, Blach said beef has re-mained strong despite COVID-19 challenges. From 1999 to 2019 beef’s market share of total spending has increased by 6%, where pork is down 2% and poultry is down about 5%. Additionally, over the past 10 plus years producers have met the demand of producing better quality beef with choice and higher grading cattle rising from 54% in 2006 to 82% in 2020.
    “It is important to understand how much the business has changed from basically producing commodity beef to producing high quality choice beef and prime beef,” stressed Blach. “This has been a major, major shift. We were producing 12 billion pounds of that on an annual basis in the late 90’s and early 2000’s. Now, we are on our way to producing 18 to 19 billion pounds of that product on an annual basis. So, a 50% increase in the production of what I call the good stuff.”
    Some of the latest market signals of what consumers are wanting today are value added programs. In recent years, value added programs have provided significant returns to cow-calf producers by returning additional value generated at the feeding, packing and consumer levels.
    Non-hormone treated cattle ranks the highest in premiums followed by weaning, progressive gene-tics, verified natural, and natural plus with natural – having no documentation – at the bottom. With all of these programs, Blach pointed out what the market is looking for is documentation. So, even a natural designation ranks at the bottom because there is no documentation verification. 
    “The reason I am sharing this with you is because it is going to become more and more important to you,” says Blach. “Whe-ther they are source verified or process verified, the more we can share with our consumers about how these animals were raised, how they were treated, what their origin was, etc., the better the payoff will be. The markets are differentiating here and I think there is going to be a value proposition for you and it is definitely going to be worthwhile as you look down the road.”
    The future remains uncertain, but the demand for beef is still strong ensuring a market for the industry. Despite all of the varying factors, producers will need to continue to rise to the challenge - just as they have done before.

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