Call the Market

As I look back on the year, I am in utter disbelief; so many trials, so much volatility, so much accomplished and yet, so much to be hopeful for in the year ahead. When I took this job with DTN back in August 2019, I'd be lying if I didn't say I was hopeful for fruitful markets that mimicked those of 2014 for cow-calf producers. Since joining DTN, we've all been in for a wild, sobering ride with the cattle market. I want to look 2022 dead in the eye, and just be honest and real.

The year 2020 will forever be remembered as the year when COVID-19 was first murmured from our lips, but the trials of 2020 didn't end with the grand finale of Dec. 31. Instead, the calendar flipped to 2021 and we worked through a new set of challenges: limited labor, African swine fever, truck shortages, severe drought, and the list goes on. With the 2021 fourth quarter arrival, some prosperity seeped into the cattle market and, as we soon begin 2022, I hope and believe there will be more opportunity and prosperity in the year ahead.

I'd like to spend some time recapping some of the major market moves that affected both the live cattle and feeder cattle markets in 2021, as well as provide my outlook for the year ahead.

CATTLE MARKET

Drought was and will continue to be a driving factor in the cattle market. The top 10 states in the U.S. with the most beef cows are Texas, Oklahoma, Missouri, Nebraska, South Dakota, Kansas, Montana, Kentucky, North Dakota and Florida. Based off the latest U.S. Drought Monitor, of the top 10 beef-producing states, only Florida and Kentucky sit without drought conditions. These severe drought conditions forced producers to liquidate their cowherds at historic rates, and while some of these cows have found their way into feedlots, a greater percentage of them went to slaughter.

As of Dec. 21, 2021, the 2021 U.S. beef cow slaughter totals 3,346,600 head, which is up 9% from 2020 and up 12% from 2019.

The combination of aggressive culling and fewer heifers being retained on ranches to make replacement females will gravely affect how feeder cattle trade in the next two to three years. Thus far, the U.S. has exported 2.58 million pounds of beef, which is up 21% from a year ago. The demand for U.S. beef, both domestically and internationally, is stronger than it's ever been, so the limited supplies of feeder calves stemming from a reduced cowherd will likely yield higher prices for cow-calf producers.

Looking ahead to 2022, I am eager to see where the January beef cow inventory sits. Based on the data provided in the January 2021 inventory report, the total number of beef cows in the U.S. was right at 31.2 million head. We started to see producers begin to liquate cows from 2019 to 2020 for a plethora of reasons (high input costs, marginal returns, a lack of labor, etc.), but when the next report is released in January 2022, I anticipate that number will be drastically reduced. For perspective, since 2000, the lowest beef cow numbers have been in the U.S. was at 29 million head back in 2014.

There are two things vital to growing the nation's cowherd: profitability and green grass. In recent years, producers haven't had much of either, but if Mother Nature can bless ranchers with some moisture, the market is sitting in a fine position for cow-calf producers to demand more of the market's dollar.

LIVE CATTLE

Throughout most of 2021, watching the live cattle market trade was a bitter, vicious pill to swallow. With beef demand nearly bursting at the seams and boxed beef prices wildly inflated, feedlots nearly lost their ambition to continue to buy feeder calves and finish them out to fats, as their margins printed red time and time again.

To date, cattle slaughter for 2021 has totaled 32,168,000 head, whereas in 2020 at this time, we had only processed 31,282,000 head -- a 2.8% increase. The average weekly slaughter pace for 2021 has been 638,591 head, which is rather impressive when you consider that also includes holiday weeks. Processing speeds have largely been driven by the market's high boxed beef prices. To date, choice cuts throughout the year have averaged $280.18, whereas in 2020 they averaged $237.65 for this time, which equates to a $42.53 increase year over year. Select cuts throughout the year have averaged $261.58, whereas in 2020 they'd averaged $225.37, which equates to a $36.21 year-over-year increase.

These were bitter realizations for most feedlots to stomach throughout the year as they were tired of trading cattle in the mid-$120s. It wasn't until the fourth quarter when supplies of market-ready fat cattle grew thin and feedlots finally regained some much-needed leverage. It wasn't until the second week of November when fat cattle finally broke above the long-time resistance of $130, which hadn't been done since 2017. The momentum shortly after drove prices to $140 and feedlots finally regained some hope. Heading into 2022, I firmly believe that feedlots are going to be able to demand higher prices again in the spring rally. So long as the industry doesn't endure a Black Swan event, supply and demand mechanics should favor feedlots.

FEEDER CATTLE

The feeder cattle market endured nearly as many obstacles in 2021 as the live cattle market. With the high cost of corn, to the historically high price of hay in the North, to the national wide trucker shortage, which made marketing calves nearly impossible at times, cattlemen and buyers had their work cut out for them.

This past year, feedlots were hard pressed to make feeding cattle pencil with high inputs, and throughout the summer and fall they saw a lot of light weight calves come to town earlier than normal due to Northern cow-calf producers culling their cowherds. Heading into 2022, feedlot owners and cow-calf producers both hope moisture will accumulate this winter and that they'll both be able to demand higher prices this upcoming year, as limited supplies should drive prices higher, so long as demand stays elevated. In the North-Central region of the U.S., for the first half of the year, 600- to 700-pound steers averaged $156.72, but in the second half of the year, steers of the same weight averaged $168.25. In the South-Central region of the U.S., steers averaging 500 to 600 pounds averaged $161.82 in the first half of 2021 and in the second half of 2021 they averaged $166.01. In the Southeast region of the U.S., steer calves weighing 400 to 500 pounds in the first half of 2021 averaged $158.55, and in the second half of the year the same weight group averaged $158.83.

In conclusion, I want to thank every one of you for your grit and dedication to this industry. There's no arguing that other occupations pay more, but I'd argue with most that there are very few that live richer lives than cattlemen. I'm optimistic for the year ahead of us. There will be challenges, and there are obstacles that could hinder the market's ability to be bullish (widespread drought). However, as it's important to understand the market's prices, it's also important to understand where the market sits regarding its cycle, and that's where I see the most opportunity as the U.S. cowherd is liquating and demand is ample which eventually bodes well for producers.

Merry Christmas, friends! This year was a wild ride, and I look forward to covering the livestock markets for you again in 2022. Cheers!

ShayLe Stewart can be reached at ShayLe.Stewart@dtn.com

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