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CATTLEFAX 2022 INDUSTRY OUTLOOK
2022 INDUSTRY OUTLOOK
February 2022
Executive Summary: Moving Into a Growth Mindset
Cattle price and profitability trends for producers are pointed in the right direction, even as challenges and uncertainty persist with continued disruptions from the pandemic.
The market-ready cattle supply is more balanced entering 2022 as pandemic-related carryover has been minimized and three years of cowherd contraction have added less cattle to the system. Issues around labor and packing capacity have lingered, but both are expected to improve through 2022. Expansions, additions, and newbuild packing investments have been announced to increase packing capacity in coming years. An additional 2,500 head/day is planned to be in use by late 2022 and another 8,000 head/day or more is in various stages of planning.
These expansions in capacity will help foster growth in the cattle and beef industry. Global and domestic demand has strengthened and is expected to continue to increase over time, which should bring more dollars into the industry. Even as cattle supplies and leverage cyclically shift, more money flowing into the system suggests room for more profitability across segments and allows for a more stable and healthier industry.
Extended Range Weather Outlook
La Niña remains firmly in control of the ocean-atmosphere system, and that is unlikely to change this spring; however, it remains possible that there will be some changes throughout summer.
The latest set of analog years resulted in about a dozen potential best-fits. Of those, roughly one-third remained in La Niña for another year, another third transitioned into a neutral phase, and the remaining turned into El Niño by the following summer and fall.
NOAA’s data suggests there will only be slight warming in parts of the Equatorial Pacific – meaning more La Niña on the way, and European climate modeling suggests neutral conditions as the Pacific begins to warm.
Out of these solutions and analog-year indicators, the lean is more toward a continued La Niña to neutral phase and with a lower probability of a true El Niño forming this summer, fall remains to be seen.
With that said, the drought situation across southern Brazil to Argentina remains an issue. Conditions across Australia will remain favorable. In western Mexico, the monsoon should develop by late spring and spread northward toward the U.S. In Canada, there is the influence of troughing to keep the weather variable.
For the U.S., barring any change to the La Niña outlook or sudden warming in the Gulf of Alaska, dryness continues across the Southwest and South with warm temperatures, too. The Northern Plains and Corn Belt are expected to have wetness farther east this spring and drier conditions for this summer, with temperatures closer to normal versus 2021.
Although the climate effects of the recent Tonga Volcano are currently unknown, it bears watching this year.
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Feed Grains and Energy Oil and Energy
• Average crude oil prices in 2021 ended 73 percent higher than 2020, with average prices forecast another 20 percent higher in 2022. • Expect COVID-19 related demand and production challenges to continue to add volatility. • Labor constraints and supply chain issues will continue to delay new well activity in early 2022. • Global production will be comparably higher by mid-year, balancing stocks-to-use levels for the first time since the pandemic began. • OPEC+ output will increase through 2022, working to reach pre-pandemic capacity and regain a slim margin of market share from U.S. exporters • WTI crude oil is expected to average $84/barrel, with a forecasted range between $66 and $108/barrel in the next year.
Corn
• The USDA Annual Crop Production report estimated corn 2021 planted acres at 93.4 million acres with 91.4 percent of acres harvested. Corn yield was a new record at 177.0 bushels per acres, placing production at 15.1 billion bushels. • For this year, exports are expected to remain large yet expanded interest from China could easily push exports higher. • Expect current corn stocks-to-use levels to continue to support the market near $5.50/bu. and providing resistance near $6.40 into the summer. Less acres or production issues could open the topside of the market. • With the expectation of normal weather next spring, CattleFax is forecasting planted acres at 91.8 million, with a trendline yield expectation of 180 bu./acre for the 2022 planting season. • Current market year stocks to use are estimated at 10.4 percent, and the forecast for new crop stocks-to-use is 10 to 12 percent.
Any issues on the production side due acres or yield being below expectations will be met with strong demand. • Summer weather patterns – and their effect on corn yields – will be the focus of market participants throughout the growing season this summer.
Soybeans
• The January WASDE showed U.S. Soybean ending stocks-touse at 8 percent. This is a 2.3 percent increase from the year prior, building off record production in 2021. • Soybean acres are expected to remain near steady at 87.2 million acres for the 2022/23 market year. • With 52.0 bu./acre yield stocks to use would be between 7-9 percent given current demand expectations. • Expect spot soybean futures to trade in a practical range of $13 to $16/bu. for the next 12 months.
Hay and Forage
• Dec. 1 on-farm hay stocks were down 6 percent nationally from the previous year, at 79 million tons. • All-hay prices averaged near $176/ton in 2021, and 2022 average prices should be steady to $10 higher due to tighter supplies and stronger demand. • Weather risk is likely to continue influence hay prices with much of the central plains and West battling some level of dryness or drought.
CATTLEFAX TRENDS
Supply & Demand
Supply
• U.S. cattle inventories have fallen 400,000 head from last year and are off nearly 1 million head from cycle highs. This year will see the beef cowherd near 30.7 million head. • Drought affected 25-30 percent of the beef cowherd over last year. Without an improvement in weather or profitability, at least 250,000 more head will be liquidated in 2022. • Feeder cattle and calf supplies outside of feedyards will be 250,000 to 300,000 head smaller than last year, at 25.4 million head. • Cattle on feed inventories have declined to 14.6 million head and recently placements have trended lower. This suggests the front-end supply will be more manageable into spring and summer 2022. • Fed slaughter in 2022 is expected to be 26.1 million head. This is 500,000 head lower than cycle highs in 2019. • Commercial beef production will contract over the next several years – declining 2 percent in 2022 to 27.2 billion pounds. • Reduced beef supplies in 2022 will lead to nearly a 2-pound decline in net beef supply to 56.2 pounds per person.
Domestic Beef Demand
• Consumer beef demand increased 5 percentage points in 2021 on record-high retail prices. Demand should remain near recent highs in 2022. • Historically strong inflation has driven beef prices to a higher trading range. The USDA All-Fresh Beef Retail Price should average near $7.15/lb. this year. Ultimately, resulting in more margin in the system. • U.S. median household income increased in 2021, recovering two-thirds of the three percent lost the year prior. Low-tomiddle income Americans will be most affected by rising inflation. • Easing pandemic related restrictions benefitted the foodservice industry, however consumers have not backed away from the retail meat case purchases. • Wholesale demand will likely pullback in the coming year, but the cutout should hold steady near $280/cwt. on average for 2022. • Beef prices from end-users to consumers are likely to continue higher in the coming years due to strong demand and tightening supplies.
Global Protein Demand
• Demand for all proteins has continued to rise around the world. • Following the 18 percent increase in 2021, U.S. beef exports are expected to grow by 5 percent this year to 3.7 billion pounds. • Beef exports to China were an estimated 500 million pounds in 2021. Though the growth rate may slow, China will continue to be the primary factor in U.S. beef export growth. • Pork exports will be limited by production in 2022. Moderate growth of 2 percent is anticipated to 7.4 billion total pounds. • Strong global petroleum prices will support global poultry demand with U.S. poultry exports experiencing 2 percent growth. • Tighter global supplies of red meat and poultry should support prices in 2022.
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Price Outlook 2022
• All-Fresh Retail: $7.15/lb., up $0.20 – With the highest beef demand in over 30 years, prices are expected to average $7.15/ lb. for 2022 and remain at historically elevated levels. The 2022
USDA All-Fresh Retail Beef price will be 20 cents higher, on average, with a $7.00 to $7.30 range. • Composite Cutout: $280/cwt, up $4 – Higher demand, combined with limited hook space, has elevated cutout values.
After a 2021 USDA composite cutout average of $276, strong demand is expected to push prices about $4/cwt higher next year on average; trading in a practical range from $260 to $300. • Fed Steer: $140/cwt, up $18 – The fed cattle market averaged $122/cwt in 2021. Tighter fed cattle supplies, and a stronger bargaining position should benefit cattle feeders. The 2022 U.S. average fed steer price should be $18 higher, with an expected range from $130 to $155. • 800-Pound Steer: $172/cwt, up $28 – Stronger fed cattle values and smaller calf crops over the last three years should support feeder cattle prices this year, after averaging $144 through 2021. Expect a 2022 U.S. average 800-pound steer to trade $28 higher, with a trading range from $158 to $184. • 550-Pound Steer: $205/cwt, up $35 – A smaller calf supply supported prices in 2021 for a $170/cwt average. Recent cowherd liquidation will further reduce future calf crops. U.S. average 550-pound steer values should increase $30/cwt next year – trading from $180 to $230, with support near $195 this fall. • Utility Cows: $75/cwt, up $9 – There is more cowherd liquidation this year, but stronger lean beef trimmings demand has supported higher cull cow prices. After averaging $66/cwt in 2021, values should be $9 higher in 2022, with a range from $65 to $85. • Bred Cows: $1,850/hd., up $225 – Herd contraction and calf values have pressured bred female values the past several years.
The 2021 price was estimated at $1625/head and on average, values should improve in 2022 by about $225 – trading from $1,700 to $2,000 for load lots of quality, running-age cows.
Mother Nature will be a play a role in the value of bred females.
Beef Industry Watch List
• Cattle Margins – Historically low margins have challenged producers – from cow-calf to feedyard segments – for the last several years. Expect margins to improve as the cattle supply tightens and producers gain leverage from packers and retailers. • Demand Growth – As beef quality has improved over time, demand and consumer spending for beef has also grown.
Continuing to focus on meeting consumer demands in quality as well as things such as production practices, traceability, and sustainability will help the industry grow moving forward. • Trade – U.S. beef exports have trended higher the last few years. Expect continued growth through next year. Tighter global protein supplies should support U.S. red meat and poultry values, and export growth in 2022. • Balancing Leverage – Packing capacity has remained barely adequate as plant slowdowns and labor challenges have limited output, giving packers a large percentage of leverage. As supply shrinks and packing capacity and utilization improves over the next few years, leverage should improve.
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