Cattle Prices Gain Traction

THE 2021 FALL BULL SALE

OCTOBER 23, 2021 • 10:30 AM CAMERON, TEXAS 575 PERFORMANCE ANGUS BULLS

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“I think all commodities will stay expensive. Being long a commodity will probably reward you,” says Glynn

Tonsor, agricultural economist at

Kansas State University. “I’m optimistic prices will be higher this fall for spring-born weaned calves.”

Tonsor used beefbasis.com to run numbers the second week of June. The estimated sale price of a six-weight steer at Salina, Kan. in mid-October was $174/cwt.

“That would be a strong price, reflecting strong demand for beef and feedlots getting current, slowly but surely,” Tonsor says.

Likewise, Derrell Peel, Extension livestock marketing specialist at Oklahoma State University says there appears to be potential for calf and feeder cattle prices to increase the longer producers wait this fall. “Be prepared to be flexible and have the ability to push marketing later,” he says.

USDA’s Economic Research Service (ERS) projected the annual average feeder steer price (basis Oklahoma

City) this year at $139.33/cwt. That was in the June Livestock, Dairy and

Poultry Outlook (LDPO). Average prices were forecast at $139 in the second quarter, $141 in the third quarter and $143 in the fourth quarter. ERS pegged the average annual price for next year at $144.25.

“Feed costs are and will be an issue, but much of that impact is already priced into the feeder cattle market, so when fed cattle prices improve, feeder cattle prices can move with them.” Peel says.

Even so, Tonsor notes feed costs remain a risk. Besides weather and drought, he points out money poured into commodity markets as a hedge against inflation and supply chain bottlenecks.

In the June World Agricultural Supply and Demand Estimates (WASDE),

USDA lowered projected beginning corn stocks (2021-22) by 150 million bu., compared to the previous month, and ending stocks by 150 million bu. to 1.357 billion bu. Even so, the projected season-average farm price for corn was unchanged at $5.70/bu.

In the June Acreage report, after the WASDE, USDA estimated corn planted area for all purposes this year at 92.7 million acres. That would be 1.87 million acres more (+2%) than last year, but was significantly less than the trade expected. Of course, high feed prices also present opportunity to some producers. “At the end of the day, feedlots would rather buy pounds than put them on in the feedlot with expensive corn,” Peel says. “If you’re concerned, I’d think strongly about protecting the downside,” Tonsor says. He mentions Livestock Risk Protection (LRP) insurance as one price risk management tool. Unlike hedging with a feeder cattle futures contract, Tonsor explains producers can choose any number of cattle to insure with LRP. Plus, the dollars returned for a claim, relative to the premium, are higher than they were previously. “It’s more advantageous to sellers of feeder cattle today,” Tonsor explains. “For instance, you could protect half of your herd with LRP and avoid a catastrophic outcome. Lock in singles and doubles. A lot of lenders like to hear you’re doing that, by the way.”

Fed Cattle Backlog Clearing

This year is shaping up to be the tale of two halves Peel expected, but it’s taking longer to get to the other half. In this case, the point where cattle feeders are current in their marketings after being constricted by beef packing disruptions for going on two years.

“With any luck, we will work through the long tail of 2020’s cattle backlog in the third quarter of 2021. As such, year-over-year cattle prices will rise in the second half of 2021 and beyond,” explained Dustin Aherin, RaboResearch animal protein analyst for Rabobank. This was during invited testimony to the U.S. Senate Agriculture Committee in late June.

In the June WASDE, ERS forecast the annual average five-area direct fed steer price at $117/cwt. Average prices are projected at $120 in the second quarter, $115 in the third quarter and $120 in the fourth quarter. Next year’s forecast annual average price is $121.50.

That’s with estimated total beef production this year of 27.90 billion lbs.

Next year, WASDE projects beef

Drought Increases Beef Cow Slaughter

Although total cattle slaughter in May was more than last year’s pandemic-ravaged pace, it was 1% less than in 2019, according to the May LDPO. Cow slaughter, though, was 6% more than last year and 7% more than in 2019.

“While there have been improvements in drought conditions in some regions, pasture and range conditions in areas like the Northwest and North Dakota remain very poor compared to last year,” said ERS analysts.

Total U.S. beef cow slaughter in federally inspected plants the first week of June was 10.1% more year to date, compared to the same period in 2020, according to the Livestock Marketing Information Center (LMIC). Analysts there pointed out the percentage change was amplified by below-average slaughter levels the previous year.

“The start of pasture and range conditions (this year) was the worst since the 2012 and 2013 growing seasons. These early weeks are showing a large portion of the U.S. was already requiring supplemental feed to maintain herds,” LMIC analysts explained in a June Livestock Monitor. “For the West, this is a second year of continued hardship and will result in a second year of beef cow culling. As of this week (June 4) about 25% of the beef cow herd was in areas where pasture and range conditions were assessed as poor and very poor. This is an improvement from a few weeks ago, when 40% of the cow herd was assessed to be in those conditions. Still, pasture and range is not improving evenly.”

As of the middle of June, both Tonsor and Peel said it was too early to know how the current drought would impact Jan. 1 beef cow numbers.

“Drought impacts remain uncertain and the short-term and long-term impacts on cattle markets are unknown,” Peel says. “If enough herd liquidation is forced by the drought, short-term cattle slaughter and beef production will be higher than expected and beef production prospects beyond 2021 will be reduced.”

U.S. Beef Exports Shine

USDA projects U.S. beef exports this year to be record large for both volume and value at $7.6 billion, according to the latest quarterly Outlook for U.S. Agricultural Trade. That’s $200 million more than forecast three months earlier, based on both increased volume and unit values.

For that matter, USDA forecasts record-high levels of exports for other red meats and poultry, as well as for U.S. agricultural products overall. Total value of U.S. farm exports for fiscal year 2021 is projected to be $164 billion, which would be $28 billion more (+21%) than the previous year and the highest total on record. The

annual export record of $152.3 billion was set in 2014.

“U.S. agricultural trade has proven extraordinarily resilient in the face of a global pandemic and economic contraction,” says Agriculture Secretary Tom Vilsack. “Today’s estimate shows that our agricultural trading partners are responding to a return to certainty and reliability from the United States.”

U.S. beef exports set another new value record in April at $808.3 million (latest data available). That was 35% more than a year earlier, according to data released by USDA and compiled by the U.S. Meat Export Federation (USMEF).

Export volume was 23% more year-over-year and the fifth largest on record at 121,050 metric tons.

“Looking back at April 2020, it was a difficult month for red meat exports as we began to see COVID-related supply chain interruptions, and foodservice demand took a major hit in many key markets,” says Dan Halstrom, USMEF President and CEO. “While it is no surprise that exports performed much better in April 2021, we are pleased to see that global demand continued to build on the broad-based growth achieved in March.”

Beef export value per head of fed slaughter reached a new monthly high in April at $367.45.

Halstrom cautioned that the

U.S. BEEF Exports

COVID-19 pandemic is still a major concern for the U.S. meat industry, adding uncertainty to the business climate in many export destinations. Logistical challenges, including container shortages and ongoing vessel congestion at many U.S. ports, also present significant obstacles for red meat exports.

“Perhaps the most egregious action perpetrated by ocean carriers is their growing proclivity to decline to carry U.S. agricultural commodity exports, including meat and poultry exports, instead choosing to hasten empty containers to Asian markets to fill them with more lucrative consumer goods to export to the U.S.,” explained Julie Anna Potts, president and CEO of the North American Meat Institute. “In some instances, common carriers are collecting freight rates as high as $12,000 per container to carry cargo from Asia to the U.S., while containers carrying U.S. agriculture exports earn only $1,800.” That was part of the testimony she delivered in mid-June to the House Committee on Transportation and Infrastructure Subcommittee on Coast Guard and Maritime Transportation.

Further, Potts explained ocean carriers and marine terminal operators are charging excessive and unreasonable detention and demurrage fees.

“Beef exports represent a component of total beef demand in terms of quantity and value,” according to Peel. “Moreover, beef exports represent a wide range of product types and qualities exported to various markets and augment domestic beef demand by providing markets for products less desired in the U.S.” He explains exporting products that have more value to international consumers than domestic ones enables maximizing domestic beef value.

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