CattleFax: Beef demand up, fed cattle prices expected to increase
CattleFax hosted a trend webinar, reporting record high beef exports in March, up 32.9 million pounds year over year. Troy Bockelmann, an analyst with CattleFax, said that growth was driven primarily by China. Exports to Canada and Mexico, he said are down slightly as both of those countries produce more beef domestically. Australia, in the face of devastating drought, is seeing greatly reduced slaughter numbers and their exports to Japan are down, allowing U.S. beef to fill that need.
Slaughter capacity, he said, is still slowed by Covid distancing changes, absenteeism, and some worker shortages. Last week’s 535,000 head per week fed slaughter pace is what will be needed through June to maintain leverage of working through the front-end supply.
With the balance of higher trade and lower imports, Bockelmann said per capita net beef consumption will remain equal with 2020 when exports were flat.
“I think it’s important to recognize that even with everything the country has gone through, beef demand has increased the last couple years in the U.S.,” he said.
With cattle trading this week at $119 to $120 and the spot composite at $320, he said the disconnect exists.
“The leverage ratio that we look at, which would be the fed price minus the drop credit as a percent of next week’s composite cutout, is sitting here well below the five-year average and well below 2019,” he said. “This is indicative of the front-end supply that we are marketing each week relative to the slaughter capacity. There are just more cattle that need to be harvested than there are hook spaces.”
He said this isn’t expected to be a long-term phenomenon, especially if the higher slaughter pace is maintained as the year wears on. As the leverage returns to the cattle feeder, fed cattle prices should increase. Another factor boosting fed cattle prices in the future, he said, is the forecasted decrease in beef cow herd inventories. He expects a 350,000 head decrease in the nation’s cowherd at the beginning of 2022.
“If you’re putting the pieces together, we have strong beef demand, strong exports, we have less imports, so over the next couple of years, we have tightening beef supplies in the U.S. on strong demand, and we have a capacity at the packing level that’s going to start to favor the cattle feeder,” he said.
In 2020, 112% more cattle were harvested than the Monday through Friday packing capacity allowed, translating to heavy Saturday slaughter numbers. This year’s slaughter capacity utilization was down to 109% and CattleFax projections not dipping below 100% until 2023 when new plants come online, social distancing measures are lessened, and the fed cattle supply is lower. With 2021 being a non-expansion year with decreasing cow herd numbers, Bockelmann expects the fed cattle high of $122 in April should be seen again in the second half of the year. His prediction is $166 during the fall run, with better prices potentially in the spot market versus video sales.
Drought, he said, will play a huge role in stock cow liquidations and corn prices. Exports to China are at record highs, which is likely to exceed USDA estimates. The practical range, he said, is $4.50 to $5.50 for new crop corn at a 10% stocks-to-use ratio. Hay stocks are lower in 2021 and are likely to tighten with drought conditions in cattle country. The remainder of the year, without worsening drought, is likely to maintain the $170/ton for the remainder of the year.
Tanner Aherin, who is also a CattleFax analyst, presented the data from the Cow Calf Survey. According to the annual survey, the average cowherd size is 378 head. This is larger than USDA estimates and Aherin said it is indicative of more operations depending upon the cowherd to make ends meet. The cash cow cost is down slightly from 2019 to $595, which does not include return to management or depreciation. Though this is down, it is in the $600/head range seen in recent years. Average weaning weights are remaining steady compared to 2019 with steers at 568 and heifers at 525.
Aherin said the survey asks producers whether they plan to expand. Last year, over 90% of producers anticipated expansion but, after the tumultuous 2020, that number is 84% for 2021, though 95% plan to maintain or expand in 2022.
In the Northern Plains, nearly 75% of producers lease pasture, which makes up about 60% of their pasture needs. These producers reported paying about $30/pair per month. In the Southern Plains states, about 60% of producers lease pasture, making up about the same amount of total pasture with an average of $20 per pair per month. Western states, much of which is federal, sees over 75% of producers leasing pasture, making up over 65% of total pasture at a rate of $22 per pair per month.
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