Outlook Mixed for Cattle Producers

Food Service Rebounds and Drought Will Challenge 2021 Recovery

The agricultural pendulum swings back toward crop producers, as corn, soybean and what prices are expected to continue to look good through 2021. (DTN/Progressive Farmer photo by Jim Patrico)

CoBank just released a new quarterly report that projects annual growth in the second half of 2021, strong enough to take the annual rate for the year to 4.5% to 5.5%. While it's good news overall for agriculture, it's not necessarily good news for the cattle business.

Dan Kowalski, vice president of CoBank's Knowledge Exchange division, noted while the economic outlook has definitely improved today there remain what he calls "significant risks".

"Key among those risks are the potential for more geopolitical crises, business solvency, a slower than expected receding of the pandemic and persistence in high rates of unemployment," he said.

Part of the optimistic outlook is certainly tied to the steady climb producers saw in corn, soybean and wheat prices the last quarter of 2020. Since August, the CoBank report noted, corn and soybeans have risen more than 60%, while wheat prices have gained more than 30%. The rally resulted from smaller than expected production domestically, along with strong demand and large purchases by China.

Specific to the beef sector, CoBank analyst Will Sawyer reported beef cutout made a strong rally in November as consumers switched to beef for holiday meals. Beef packers benefited from strong margins. Producers and feeders, though, stayed more focused on the feed market.

Recovery of the food service sector, a key for the beef market, may not take place until the back-half of 2021, said Sawyer. In addition, he noted weather conditions are pressuring the outlook.

"The drought monitor has worsened during the quarter to where now over 40% of the U.S. is experiencing some type of drought, which is especially being felt in the Rocky Mountain region. Hay continues to be available, but corn prices have skyrocketed in recent months. We expect feed costs for feeders to climb 29% during 2021."