A Few Thoughts by John Nalivka: Optimism into 2021 and beyond

There is solid cause for optimism as the beef industry heads toward the fall of the year in spite of drought, fires, the uncertainty of COVID.

Demand has been strong and will continue to be supported by an improving U.S. economy going into 2021 as well as growing export markets. On the supply side of the equation, the cattle inventory has continued to contract during 2020 as indicated by cow and heifer slaughter year-to-date. I expect the size of the January 1 U.S. cattle herd to shrink by nearly 2% against this year’s inventory. So, let’s review the numbers.

The impact of drought-reduced forage supplies in the southwest further worsened by sharply lower cattle prices have marked 2020. Beef cow slaughter year-to-date this year is up 3 percent from a year earlier and the highest since 2013 when the cattle industry was liquidating the herd toward a 60 year low as the result of two years of significant drought. Dairy cow slaughter is down 4% year-to-date. Notably, last year’s dairy cow slaughter was up 4% for the same period and the highest since 1986. Milk prices will be the key to dairy cow slaughter during early 2021.

I will risk throwing too many numbers out and take a look at heifers. From the beginning of 2020 through the week of April 4th, heifer slaughter was the highest since 2011. Today’s pace of heifer slaughter began in August of 2018 as herd building stalled and eventually turned into herd liquidation. This year’s heifer slaughter likely represents 48% of this year’s beginning inventory of heifers going to slaughter and only second to 2019 which was the highest since 2013.

So, what does this all mean to the bottom line? I believe cow-calf returns will improve during 2021 as prices strengthen. There will still be relatively large cattle numbers to work through during the first quarter of 2021 and potentially extending into early second quarter. But, going into second-half 2021, this year’s smaller calf crop will become evident with fewer cattle on feed. One critical question regarding next year’s on feed supply will be the number of heifers retained from this year’s calf crop that may potentially become replacement heifers. If heifer retention increases as I expect, then that is fewer cattle on feed, tighter slaughter numbers, and higher prices. It may not be time to rush and celebrate quite yet, but the outlook is improving.