When I look over the last year -- through the dips and dives the market has taken -- I find myself caught in a whirlwind of unanswered questions begging for clarity as to what 2021 may hold.
During the last year, I've hunted, searched and exhausted my resources to the point of no end in order to find some meaningful correlation between an event in the past that somehow relates to the events of 2020 and sheds light on the next to come.
I've found some wisdom -- but also identified favorable factors to watch in the year ahead.
After scavenging through former DTN Livestock Analyst John Harrington's work time and time again and trying to find some parallel between today's market and his endless wisdom, the only conclusion that seemed to surface over and over was the necessity of a good sense of humor and plenty of grace. John wrote in his "Oprah, Have a Hamburger" book, "Cattlemen are painfully versed in the arts of sinning and forgiveness, we are also zealous guardians of the time-honored code: make all the mistakes you can stomach, but be prepared to live with them!"
I think that quote, "make all the mistakes you can stomach, but be prepared to live with them," is what makes 2020 so gut-wrenching from a market perspective. When you get caught paying too much for a fancy, knock-your-eyes-out set of first-calf heifers, you understand that those heifers are going to take more than a couple of years to turn a profit. Let's say you became more bullish than the market panned out to be on a set of six-weight steer calves that should have loaded the truck more than a month ago -- you stomach the feed bill, sharpen your pencil and get ready to look for the market's next beam of hope.
Regardless of the corner you back yourself into from time to time -- and believe me, we all do it -- you're willing to pay the piper when it's your "whoopsie." But that's what stings about 2020 -- it wasn't your whoopsie, it wasn't my whoopsie and it wasn't a lack of knowledge, discernment or planning -- it was a black swan event, unanticipated but with a far-reaching impact.
As we sit on the backside of 2020, and as we can see the light at the end of the tunnel, cattlemen may tremor in their boots and feel beaten and exhausted from this year's happenings. Nevertheless, they continue to suppress the urge to wave their white flags and instead they look to 2021 with a grim stare and a no-nonsense type of attitude.
Let me be the first to tell you that 2021 is lining up to be a far better year than 2020, and that your unwavering determination wasn't all for nothing. The market will undoubtedly have hurdles to jump along the way, but optimism is brewing in the cattle market.
FAVORABLE FACTORS TO WATCH
-- Tighter Fed Cattle Supplies: The last two Cattle on Feed (COF) reports have been bullishly favorable to feedlots and January's report is anticipated to yield the same type of placement data. The December Cattle on Feed report shared that placements totaled 1.91 million head of cattle, which is 9% fewer than in 2019. Before the December report, the November COF report came in with 11% fewer placements than in 2019 with 2.19 million head. The long-term trajectory for 2021 is growing more and more favorable to cattlemen and feedlots alike. There's no doubt that the first quarter of 2021 will have more fat cattle to market than normal and it's likely that the market will be pressured. However, once the first quarter passes and the market's eyes turn toward the second quarter, feedlots stand the chance to see the market favor their position heading into summer.
-- A Smaller Cowherd and Smaller Calf Crop: The onset of drought conditions have pressured producers to liquidate a percentage of their cowherd during the last two years. A smaller calf crop gives less supply pressure to the market and allows producers the opportunity to seek higher prices come weaning time. With fewer calves to market, hopefully the cow-calf industry can regain some much-needed leverage and become profitable once again. And let's not forget that a smaller calf crop eventually affects the feeding industry. Shackle space throughout packing plants has become a real issue, but with less cattle needing to be pushed through the system all at one time, feedlots will hopefully be able to negotiate higher prices.
-- Beef Demand: The wild roller-coaster ride that boxed beef prices went on early this spring was like nothing ever seen before. There was fear that consumers would be leery of beef products after the massive price gouge they endured in May when choice cuts hit $4.75 per pound and select cuts scaled to $4.50 per pound, but in all actuality it's the continued support from consumers that's helped keep the beef market afloat when supplies were ample this summer. Heading into 2021, the boxed beef market seems to be finding support after finding a seasonal low. Thankfully, our international beef demand shows no sign of receding! Strong domestic and strong international demand have helped tremendously through 2020 and we need this strong beef demand to carry into 2021.
It would be negligent to stroll into 2021 without talking about some of the unknowns. The biggest concerns I foresee for the beef industry heading into 2021 is the pattern of continued drought and high feed prices. Not only do cattlemen need to be keen on hay prices and their summer grass supplies, but feedlots need to keep close tabs on the corn market as nearby corn prices are as high as $4.47 per bushel. One of the quickest ways to suck profitability out of an operation is through lofty input costs and, unfortunately, there's no way around needing feed.
I want to look at every one of you and say, "job well done, my friend -- job well done!" Navigating through the waters of 2020 hasn't been a cake walk by any means, but I for one am hopeful heading into 2021 and can see that, if we can manage our inputs, higher profitability could be attained.
I am wishing you and your family a Merry Christmas and prosperous 2021!
ShayLe Stewart can be reached at ShayLe.Stewart@dtn.com
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