Lower Beef Supplies

More Demand for Yearlings and Calves Ahead

Victoria G Myers
By  Victoria G. Myers , Progressive Farmer Senior Editor
All indicators point to a positive outlook for commercial cattle producers through 2021. (Progressive Farmer photo by Jim Patrico)

Commercial cattlemen should see stronger prices moving through 2021, due largely to supply numbers that continue to be revised and reduced.

Corbitt Wall shared that positive outlook for the market side of ranching during Boehringer Ingelheim's "Business of Beef: Health and Management Summit" last week. Wall is a nationally recognized commercial beef economist and livestock market analyst with DVAuction.

Wall, a former agricultural market reporter with USDA, noted the agency's inventory reports had been a source of frustration for many who felt they were late in showing a decline in cattle supplies. "Finally, we are seeing evidence with a USDA stamp that shows we are in declining supplies, and that's good for markets," he said.

He called the latest inventory report "bullish" and added the changes looked at on a percentage basis were not as telling as they could have been because USDA had revised down 2019 and 2020 numbers significantly. The cattle and calf inventory figure the industry is working with today at 93.6 million head is down 200,000 head from the January 2020 report.

USDA acknowledged its 2019 and 2020 revisions in its Jan. 1, 2021, report. USDA said all inventory and calf crop estimates for July 1, 2019; January 1, 2020; and July 1, 2020, were reviewed using calf crop, official slaughter, import and export data, and the relationship of new survey information to the prior surveys. Based on this review, the following revisions took place: for July 1, 2019, all cattle and calves decreased by 0.3%; for Jan. 1, 2020, all cattle and calves decreased by 0.7%; the 2019 calf crop was decreased 1.3%; for July 1, 2020, all cattle and calves decreased by 0.8%; and the 2020 calf crop was decreased 1.9%.

Wall noted, "That all means, as we enter the second quarter of this year, we have significantly tighter numbers for market-ready fed cattle, giving us a gain in the market. There is more demand for yearlings and calves."

There are also sharply higher input costs, he conceded, with corn over $5 per bushel, beans exponentially higher at around $13 per bushel, and fuel costs rising. In addition, he said, many in the business believe the U.S. will soon see higher interest rates.

"Money has been cheap; grains have been cheap. That is changing," he cautioned, adding that, between the impact of COVID-19 and cheap corn, the beef industry has trended toward carcasses in the 1,500- to 1,700-pound range. He said this is a market negative from a consumer point of view, even if it has been good for grading with over 80% at choice or better.

The changing cost of gain will create opportunities for cattle producers, he stressed. "Before, we saw cost of gain at 60 to 70 cents per pound. Feedlots could go another 200 or 300 pounds easier than getting new animals and moving them through the cycle. Now, with lower supplies, feedlots will get rid of them sooner with a cost of gain at over $1 per pound. Looking at efficiency, they will want to market at more reasonable weights, and that helps our market. We are moving those animals through faster."

Looking at prices, Wall said he sees finished fed cattle getting into the $1.20 range by the end of the first quarter and into the second. Feeder steers (#800) should be up to the mid-$1.50 range by midsummer. Lightweight calves (#500) could hit the magical $2-per-pound number at auction markets.

"As we are looking to get more competitive trade in the cash markets, keep an eye on fat cattle prices. That finished fed cattle price is what everything else is based on. Healthy competition in the fed cattle market will be key, and that is not something we've seen of late."

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Editor's Note: DTN Livestock Analyst ShayLe Stewart recently visited with DVAuction's Corbitt Wall about sale barns and their importance to the beef industry. Look for her report, "There is No Cattle Market Without Sale Barns," this week.

Victoria Myers