The Cattle Market Waiting Game

ShayLe Stewart knows firsthand how frustrating it's been for cattle producers as they wait to get to the other side of beef's incredibly slow liquidation cycle. But she is hopeful that opportunities to capitalize are finally close at hand.

DTN Livestock Analyst Stewart acknowledges that, in recent years, calf prices have been subpar at best. Add to that steady increases in input costs, and for most operations, there is no way to pencil out a profitable equation in today's market. But wait.

"While I thoroughly understand that a large percentage of producers in the North are still facing historic drought conditions, we can't overlook the opportunity that is bound to ignite the 2022 market," Stewart said. To put it simply, it's all about the numbers of beef and dairy cows slaughtered and an ongoing liquidation of feeders that remained backed up longer than anyone expected.

"Year to date, there have been 3,123,600 head of beef cows slaughtered -- that's 268,100 head more than in 2020 and 336,300 head more than in 2019. As the market adjusts to a significantly smaller cow herd, cow-calf producers are going to get that opportunity they've been wanting to finally demand higher prices and regain some profit share, as feedlots have to be more aggressive in buying calves."

DEPOPULATION SPEEDS UP

In its most recent report, RaboResearch concurs with Stewart that the numbers are really beginning to add up for cow-calf producers.

By the end of November, the group reported, beef cow slaughter was up 10%, and dairy cow slaughter was up 2%. Rabobank's analysts attributed this depopulation of the cow herd in large part to continued drought liquidation. Next year it is that drop in the cow herd that will logically lead to fewer calves on the ground. Beef production in the U.S. is projected by the group to drop 2.5% next year. That number could go higher as limited hay supplies and higher feed prices prompt some producers to hold fewer head than they'd like moving into the spring.

Lead author for RaboResearch's quarterly report, "U.S. Beef Contraction Driving Global Tightness," is Angus Gidley-Baird. The analyst noted the U.S. has shifted from being a net importer of beef to being a net exporter. Beef exports for 2022 are projected to climb 2% to 4%, with China a key to meeting that projection. Domestic demand for beef is expected to contract due to the increase in exports. The balance will be overall positive for prices.

Calling the U.S. market "solid" for 2022, the Rabobank protein sector team noted the backlog of market-ready cattle is finally easing. "The huge driver expected to improve cattle prices in the new year is the fact that beef packers are slowly showing headway in stabilizing their workforce, which has improved weekly slaughter rates," their report noted. By year's end, they project, fed cattle prices to be at $135 per hundredweight (cwt); for 2022, their projection goes out to $140/cwt.

MARKETS EMERGE FROM THE SPECTER

Oklahoma State University's Derrell Peel is on board with analysts who believe the time is near for the balance of the market to shift.

The veteran livestock marketing specialist said cattle markets are finally moving "out from under the specter of the pandemic impacts that began 18 months ago."

The way is clear, said Peel, for cattle to finally move forward. But, as always, there are likely to be challenges on the horizon. Peel is watching uncertainty around new strains of COVID, continuing drought in parts of the U.S., and higher input prices.

The beef cow herd, which has been declining since 2019, could continue to see numbers drop into 2023. But strong demand for beef will fuel a cyclical expansion to regrow herds sooner rather than later.

Peel advised producers to take the next few weeks, after calves have been marketed and culling decision made, to review this year and plan for 2022.

Specifically, he stressed, now is the time to consider conditions of pasture and rangeland moving into the new year and to set good grazing plans and adjust stocking rates. Look at weaning weights and reproduction rates to see if management goals are being met. And keep a focus on nutritional needs for the herd moving through the coming winter months.

"The industry has waited many months for a bit of relative stability," he said. "There will no doubt be adversity, and producers must be prepared for risks and negative outcomes, but (they) also need to be ready to grab the opportunities that will come. The cattle industry can look forward to 2022."

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Editor's Note: DTN Livestock Analyst ShayLe Stewart will be presenting a livestock market outlook at the 2021 DTN Ag Summit, Dec. 5-7, in Chicago. Visit http://www.dtn.com/… for more details about the summit and to register.

Victoria Myers can be reached at vicki.myers@dtn.com

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