CATTLEFAX TRENDS
LONG-TERM CALF OUTLOOK The IBBA is proud to bring you the CattleFax Trends Publication that is sponsored by Ritchie Industries. Look for this article each month in the Brangus Journal and Frontline Beef Producer. If you would like to learn more about CattleFax, please go to www.cattlefax.com. To say 2020 has been a disappointment for cow-calf producers is an understatement. While this year has been a challenge, there is light at the end of the tunnel. Because of the long life cycle for cattle, it is important for producers to always be forward looking and planning for the next few years down the road. A breeding decision that is made today or next spring likely will not generate revenue for at least another fifteen months or more. The following discussion will provide an outlook with emphasis on the calf market, so producers can start developing business plans for the next three to four years. The two major variables that drive expansion and contraction in the cow-calf segment is profitability and precipitation or available grazing resources. In 2019, margins were thin, especially in the fall, which caused the beef cowherd to liquidate 374,000 head. Unfortunately, this year profitability has not improved much, or at all for some, and Mother Nature has dealt the western half of the country a bad hand with drought conditions. Consequently, further contraction is expected again this year. Unlike the past liquidation phases of the respective cattle cycles, this one should be shorter and shallower with the lowest beef cow numbers likely occurring in 2022 or 2023. Obviously, with
a reduction in the cowherd, annual calf crops will decrease, which in turn will limit total beef production. Economics suggest tighter supplies should push prices higher, given constant demand. Based on how resilient domestic beef demand has been the last several months, one must assume the demand side of the equation will not be a major issue. Also, any significant gains in global demand will be a positive to move more product out of the U.S. to support prices. In addition, the quality of beef being produced continues to improve, which should help in the market share battle versus competing proteins. Through September, 83% of fed cattle graded Choice or Prime. During the same period in 2019, 79.5% graded Choice or better and the five-year average is 77.2%. While the year-over-year change may not be as large, the trend should continue, especially if older and lower performing females are culled during the next couple years and younger, higher quality genetics make up a higher percentage of the U.S. cowherd. The fundamentals have been laid out implying calf prices should be higher the next few years, but how much improvement can be expected is now the question on everyone’s mind. Measuring the amount of money coming into the beef industry at the consumer level will set the foundation for the price discussion. First off, USDA All-Fresh retail beef prices are on pace to average roughly $6.30/lb. in 2020 – a new annual record. While retail values will likely experience a pullback the next few years, they should still remain elevated from a historical standpoint. During the past six-plus months, the U.S. consumer has been conditioned to pay more for beef. (continued on page 42)
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November 2020
