I’m a day late on posting this week. But Pancho Abello will tell us whether cattle will come up a dollar short this fall. Today, an overview of cattle prices and some forces impacting the cattle market.
Dates and Deadlines
11/3, 11/30/2021 – Virtual wheat and soil field days
11/9/2021 – WASDE
12/1/2021 – Texas Wheat Symposium
12/7/2021 – Swisher County Ag Meeting
1/19 – 1/20/2022 – Red River Crops Conference
What We’re Reading
Continuing burn education course launches online – AgriLife Today
Groups share concerns of shortages, crippling prices due to tariffs on fertilizers – Morning Ag Clips
Beef Cattle Market Outlook
Beef cattle prices have recovered from last year, in which the COVID-19 pandemic played a significant role. The reduction of the cow herd in the U.S. has reduced the number of calves offered during 2021. Total beef production in the U.S. has increased compared to last year, in which the pandemic affected the supply chain. We expect feeder, weaned steer, and heifer price to better next year than this year. Three crucial market drivers will play a significant role in future prices: Drought, Feed Costs, and Beef Production and Demand.
Weather
Like last year, the La Niña weather event will play an essential role in the Southern High Plains after an excellent summer period with plenty of moisture on the ground in most places. The probability of having a La Niña through this fall and winter until spring has increased these last months (Graph 1).
Graph 1. Early-October 2021 CPC/IRI Official Probabilistic ENSO Forecast
La Niña event will likely exacerbate drought conditions in most parts of Texas, Oklahoma, Kansas, as well as other states. It is expected that this event will increase the area affected by drought, which is already affecting 36% of the beef cattle inventory within an area experiencing drought (Graph 2).
Graph 2: Cattle areas in Drought (USDA) and U.S. Seasonal Drought Outlook (NOAA)
La Niña has the potential to affect the winter forage supply for stockers and cow-calf operations locally, pressuring prices, and increasing production costs. The likelihood of increasing cow culling, especially in states already suffering drought, will increase. An inventory reduction will increase cow-beef production in the near future while pressuring on cull cow prices. But, a reduction in calf supply for 2023 will lead to higher cattle prices in the long term.
Pastures and wheat fields for grazing conditions would deteriorate this year across Texas and the Southern Plains if La Niña conditions still exist. Increased supplemental feeding with higher costs would result. An increase in the volume of feeder beef cattle in auction markets and feed lot costs could be expected.
Globally, La Niña could increase the risk of higher feed cost prices. La Niña usually has a negative impact on corn production in Argentina and Brazil, where corn is produced during this time of the year. Concerns of corn production in Argentina and Brazil due to La Niña dry weather tied with lower corn stocks and yields in the U.S. will increase corn price volatility. Corn prices are among the best indicators of feeding costs and are usually negatively correlated with feed cattle prices (Graph 3). As shown in the graph below, feeder cattle prices (Blue) tend to mode down when corn prices increase (Black Line).
Graph 3. Corn and Feeder Cattle CME Cash Prices (Source: Barchart)
Supply
An increase in the beef cow slaughter will result in a lower cow inventory for next year. While steer slaughter has increased year-to-date in 2021 over 2020. It has been 2.7 percent less than in 2020 over the last 3 months. That indicates that the only reason beef production for the year is greater than in 2020 is because of the pandemic effects on beef packing in the Spring of 2020. However, the number of cows culled during 2021 has increased beef production.
Beef production in 2021 is on pace to be record large. While average all cattle dressed weights should average below 2020, it’s the second highest on record. Total beef production is expected to be about 2 percent lower in 2022. Beef production will also depend on the effect of drought on the cow culling rate. Reductions in cow inventory are expected to support higher prices for weaned cattle in 2022 and 2023.
Graph 4. Beef Production
What to Expect?
We expect the market to improve in 2022 and 2023 due to lower beef production and a more robust demand after the economic recovery. Price forecasts for the rest of 2021 and 2022 were are from Dr. David Anderson for Texas combined auctions (Table 1). The table below shows the market picture for the rest of 2021 and 2022.
Table 1. Forecast Prices for 2019-2022. (Texas Combined Auction for 5-600 and 7-800 Lb.).
Stockers on wheat margins are highly dependent on calf and stocker purchase prices and feeder cattle sale prices. Stockers’ returns above variable costs shown in the table below consider higher grazing costs ($0.65 per pound gained) and various purchase and sale prices.
Table 2. Stockers Returns Above Variables Costs.
Even though there is an expectation of price improvement, prices are still low relative to today’s production costs. During this period, a solid management information system in place, a permanent cost control system, and a risk management program are critical. Future prices will also be conditioned to La Niña development, affecting the Southern Plains and the Southern Hemisphere corn production.