So Where Does the Beef Market Go from Here?
Each month USDA’s World Agricultural Outlook Board prepares World Agricultural Supply and Demand Estimates (WASDE). The WASDE report provides recent and current balance sheets, plus forecasts for the next couple of quarters. Separate estimates are made for components of supply (beginning stocks, imports and production) and disappearance (domestic use, exports and ending stocks). The monthly Livestock, Dairy, and Poultry Outlook provided by USDA’s Economic Research Service adds detail and projects prices for feeder steers and cull cows in addition to the fed steer prices provided in the WASDE report. Prices tie together both sides of the balance sheet.
Impacts of 2020 abnormalities
Before we get to 2021, we’ll review 2020 by quarter. First quarter fed and feeder prices faced pressure compared to 2019 due to more beef production and early impacts of COVID-19.
In the second quarter, insatiable ground beef demand continued to spur cull cow prices. But slaughter steer and heifer prices plunged as second quarter beef production plummeted. That seemed to defy economic relationships. But remember, capacity to convert cattle into beef was the constraint, not live cattle available.
Third-quarter 2020 production climbed to record levels for the quarter. A combination of higher imports and lower exports lifted beef consumption to 15.6 pounds per person, an amount not seen since 2009.
Fourth quarter 2020 saw lower year over year fed and feeder cattle prices. Cull cow prices averaged a bit above to similar to 2019 for the quarter. Early expectations among cow-calf producers that 2020 would be an improved year gave way to fleeting profits.
Where to in 2021?
USDA projects lower first quarter 2021 U.S. commercial beef production, but higher per capita disappearance. The reason is international trade. USDA projects higher beef imports and reduced exports. So even though first quarter 2021 U.S. beef production is expected to be lower than first quarter 2020, fed and feeder prices are forecasted lower.
USDA projects the reverse in the second quarter―higher year over year production and higher year over year prices. These projections may be more about recovery and return to normal fundamentals than anything else. Quarter two 2021 fed cattle price projections fail to capture a return to normal seasonal patterns. That is not lost on CME live cattle futures.
Quarter three 2021 could see less beef production, higher exports and lower beef imports. The resulting disappearance (less beef per person) could support fed cattle prices.
As of this writing USDA has not released 2021 fourth quarter forecasts. On balance, 2021 beef production is forecast to be similar to 2020 levels. Beef trade is expected to rebalance with smaller beef imports and higher beef exports in the coming year. These will combine with steady production to reduce per capita beef consumption in 2021.
–Iowa State University Extension
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