A Few Thoughts by John Nalivka – optimistic 2022 outlook for the beef industry
The outlook for cattle prices and substantially higher returns to cattlemen is looking positive for 2022. Low prices and significant cost inflation have had a significant impact on cow-calf producer decisions toward herd numbers over the past 2 years. In addition, this year’s severe drought across the West and North Dakota have only added to an already bad situation. Consequently, beef cow slaughter was up 10% through the end of July and the highest since 2011. Dairy cow slaughter year-to-date through the end of July was up 1/2% leaving total cow slaughter through the end of July 5% higher than a year earlier. Total cow slaughter during 2021 will likely be 4% higher than prior year.
The other part of the herd building equation of course is heifers. With heifer slaughter 8% higher than a year earlier through July, there’s no question that heifers have not been retained and bred. In fact, I am not even sure if the 1% increase in the number of heifers that were intended to calve this year as indicated on the January 1 inventory report even happened. For 2021, I expect heifer slaughter to be up 4% from a year earlier.
Herd liquidation during 2021 will result in a 1% smaller calf crop this year. This calf crop is next year’s cattle supply. Furthermore, indications are that heifer retained from this year’s calf crop will also be limited so reduced cattle numbers are likely to be realized for at least the next 3 years.
So, the supply side of the equation is positive, but the other half of the equation is demand and right now, demand is looking quite positive as well, both from the U.S. consumer perspective as well as global customers. Of course, I still believe caution is the watchword as prices in restaurants and retail are rising substantially.
U.S. beef exports during 2021, through the end of June were up 22% from a year ago with sales to China up 1,076%. Export sales will end the year record high and up 15% from a year ago and though expected to slow and post a minor decline during 2022, will still remain strong.
Declining cattle numbers coupled with lighter carcass weights will lead to 2% less beef production in 2022 than this year’s record production. As with all forecasts, uncertainty is always present and that spells risk, but the outlook for sharply higher prices and returns to cow-calf production and feedlots is greatly improved for 2022. Given the current situation, I expect calf prices to end 2021 8% higher than a year ago followed by a 5% increase in 2022, with 400 – 500 lb. calves averaging $191/cwt and the highest since 2015. 750-800 lb. steers will be up 9% for this year followed by an 8% increase in 2022 and an average of $159/cwt, also the highest since 2015. Slaughter cows will remain strong into 2022 with 12% higher prices against this year’s projected 10% increase over prior year as demand for lean cow beef remains strong.
How will my price projections for 2022 impact cow-calf returns? Even against increasing costs of production, I expect returns against cash costs to show the most improvement since 2015 and an opportunity for industry optimism!
The stars are aligning – feeding margins are positive and cow-calf margins are headed toward a replay of 2015. And, while not necessarily positive, I might add USDA is now positioning to manage the industry…
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