A Few Thoughts – are cattle markets headed to 2014 prices or higher?
I spent this week and 2,100 miles driving across Nevada, Utah, and Wyoming presenting my industry outlook at sponsored cattlemen meetings. While my analysis and price projections for this year definitely would not suggest a replay of the 2014 – 2015 record prices, it may be impossible to get there – in 2023.
The critical variable on the supply side of the equation this year is drought. Current conditions in the southern Plains present a concerning picture. As we progress into spring, the question is whether drought conditions will extend into the north into the central Plains states and there are very dry areas in the West right now. I am not a meteorologist, but I do know the impact of drought on the number of cattle in the country. In 2021, beef cow slaughter was up 10% from a year earlier and the majority of those cows going to the packing plant was driven by drought in the West and northern Plains.
The U.S. cattle numbers were at a 60-year low on January 1, 2014 with the inventory pegged at 88.5 million. That drop in the inventory was the result of major drought in the south, southern Plains and central Plains states – major cattle producing regions – during 2011 and 2012. That 60-year inventory low was a 4% drop from the size of the cattle herd at the beginning of 2011. The current cattle inventory is 1% smaller than the size of the herd at the beginning of 2011. If we reduce the size of the herd nearly 2% this year as I am projecting, the January 1, 2023 inventory will be slightly smaller than the 2012 inventory.
So, yes, a significant drought in the Plains states this year as we saw in 2012 coupled with last year’s drought and herd liquidation in the West could bring U.S. cattle numbers down close to 89 million by the beginning of 2023. Does that create a scenario of a replay of cattle markets in 2014 during 2023? With regard to the supply side of the equation, the answer is yes. However, there is also the demand side and there are many considerations at play not the least of which is significant price inflation across the economy. At some point, the chickens will come home to roost and the Fed will have to deal with the highest inflation since 1982. That year Paul Volcker, newly elected President Reagan’s Fed Chairman did just that. He tightened the money supply and raised interest rates to a record high. The question is – how would those higher interest rates coupled with potential $7 gasoline prices at the pump affect consumer demand and the opportunity to reach record cattle prices?
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