Randy Blach, CEO of CattleFax, shared an optimistic industry outlook with producers during the National Cattlemen’s Association 2021 Winter Reboot virtual event, held on Feb. 24. Despite navigating several black swan events, including the 2019 Tyson plant fire and the mass shutdowns caused by the COVID-19 pandemic in 2020, the beef market has seen some record increases in retail beef sales and consumer demand.
While demand from the restaurant and food service industry dropped in early 2020, the retail sector picked up the slack. Total meat sales in 2020 was up by almost $13 billion, with beef sales comprising $5.7 billion of that number. Beef demand was the highest it has been in over 30 years.
Beef production dropped sharply during the initial outbreak of COVID-19. In those first few months, over a million head of fed cattle were backed up in the production system. “We’ve pretty well got the slaughter back on pace here, but we’re still putting record tonnage through these systems,” Blach said.
Although gross domestic product (GDP) and consumer spending are expected to increase in the next few years, Blach said to expect an accompanying growth of interest and inflation rates. “With the current fiscal policy the way it is today, you need to be anticipating that we’re going to see a significant increase in the inflation rate over the next two to three years,” he said. “That’s going to make the cost of doing business higher all the way through our system, but the cost of goods sold is also going to increase, so just keep that in mind as we move forward.” Interest rates are also going to pick up. “Eighteen to 24 months down the road, we’re going to have a higher interest rate environment, and you need to be prepared for that.”
La Nina condition matures
Art Douglas, CattleFax meteorological analyst, predicted dry days ahead – especially throughout the West.
“The La Nina has leveled off but, based on NOAA [National Oceanic and Atmospheric Administration] forecasts, it’s going to return come summer and as we get into fall,” Douglas told viewers. “It looks like we are going to have a moderate-to-strong La Nina event across the world.”
Douglas pointed out reduced vegetative growth in much of the world, as La Nina conditions have limited moisture flux onto the continents. The cold equatorial Pacific has shifted the heavier precipitation west toward the warmer waters off southeast Asia and Australia. Summer crops in South America and winter grains in North America, the Middle East and India have largely been impacted by drought.
Spring and summer forecasts
Coming into the spring, the vegetation health in parts of California, Arizona and northwest Mexico is running in the bottom 24% of years in terms of greenness and 15% to 25% below the values observed last year at this time (as of February). And despite precipitation from the Rockies into the central Plains in late February, Douglas said this region will turn dry going into spring and summer.
April in the northern Corn Belt is forecast to be slightly cooler than normal, and this could affect field work and early planting. He said, “A little scary thing is: The dryness in the Rockies is trying to extend into the central Corn Belt. So that dry pattern we will really have to watch going into the spring.”
Douglas expects very hot temperatures this summer from the Mexican border north through the Rockies and western Plains, extending over into the northwest Corn Belt. Likewise, the summer is expected to be very dry all the way from the Mexican border to California and northward. The only indication of moisture is in the Ohio Valley and up along the Canadian border from northeast North Dakota into Minnesota.
“Precipitation-wise, the Plains tend to be the area where dryness is focused as well as the Rockies,” Douglas explained. “Moisture is very scattered, indicating a hit-and-miss-type summer.” This will affect crops such as corn and beans as well as fall grazing in the western U.S. come September.
Demand drives optimism in 2021 price outlook
Kevin Good, a senior analyst at CattleFax, told viewers that beef production is set to be record-large again this year – half a billion more pounds, to be exact. However, beef demand coupled with export and population growth is expected to offset that increase.
“In the last 20 years, we’ve gained market share,” Good said. “I think it’s very important to look at this past year in particular with the pandemic – people were staying home, cooking at home, and what was the protein of choice? It was beef. The dollars spent showed that. So that is a good message to our industry as we think about the product we are producing.”
Retail versus food service could be another positive demand factor. Good said, “Retail has moved a lot of product over the last 12 months, and they are not going to give up market share to food service very easily. They are going to fight for that market share. And at the same time, you have exports coming in, so you’ve got a three-pronged demand factor that should be supportive to our protein as we go through this year.”
Good expects trade to remain a key driver in beef demand, with exports up 5%, primarily into Asian economies, and imports down 5%, with less product coming in from Australia. China exported 120 million pounds last year but, in November and December, they averaged 25 million pounds a month. Good noted if that trend were to continue over a 12-month period, China would be a 300-million-pound market going forward, with the possibility to grow even larger over the next couple of years.
Price outlook
Good expects the U.S. cow herd will continue to liquidate over the next 12 months, with drought being the primary driver, especially in the western half of the U.S., as well as higher feed costs. Supplies are expected to get tighter over the next three to five years, with cow slaughter up 5% and dairy cow slaughter up 4%.
Good forecasts fed cattle to average $119 per hundredweight (cwt), with 800-pound feeder steers averaging $145 per cwt and 550-pound steers averaging $170 per cwt. Lows will still occur in the fall run but will be less pronounced than the long-term average. Utility cows come in at $64 per cwt for averages, trending slightly higher since the low in 2018, and bred cow costs are expected to average $1,600.
Planted acres and yield lower in 2020
CattleFax senior analyst Mike Murphy shared the grain and energy outlook for 2021. Roughly 92 million acres of corn were planted in 2020, about 5 million acres fewer than originally projected by the USDA. Drier conditions throughout the summer led to a 6-bushel-per-acre decline in yield from initial projections in May 2020 to the most recent numbers from January.
Three key segments of corn usage play into how the market will behave in 2021: feed and residual usage, ethanol, and exports. Feed usage declined over 2020 due to the backlog of animals to go to slaughter. The poultry and especially the pork sectors are still struggling to rebuild their numbers and, subsequently, their need for corn feed.
On the cattle side, we continue to see record numbers of cattle on feed, so there will be a lot of corn usage coming from the cattle industry. Ethanol usage dropped sharply during the earliest COVID-19 outbreak and is still recovering its footing. Predicted production in 2021 is more than half a billion bushels lower than pre-COVID-19 levels, unless demand grows as regular travel patterns resume.
Exports, the biggest factor, hinge on demand from China. Under the terms of President Donald Trump’s Phase I trade deal, China has committed to buy 700 million bushels of corn from the U.S., an astronomical amount compared to their past purchase history with the U.S. Murphy believes they will follow through on this commitment as China focuses on rebuilding their pork industry post-African swine fever.
Soybeans
It is impossible to discuss corn demand without taking soybeans into consideration. The USDA currently reports U.S. soybeans stock to use at 2.6%, a 10.7% drop from the year before.
With the Phase I trade agreement, the Chinese have historically been able to sustain heavy buying from the U.S., even at higher prices. As we enter spring and the South American soybean harvest season, we should see some pressure taken off the domestic market. If that harvest is smaller than expected, it will put more pressure on production here in the U.S., which will mean fewer corn acres planted.
Planting outlook
Planted corn is estimated at 93 million acres and 89 million acres for soybeans. Combined, that’s about 181 million acres – the largest ever planting of those two commodities, which could increase by a few million acres as time goes on. Corn yield is estimated at 178.5 bushels per acre, and soybeans are estimated at 50.6 bushels per acre. These estimates will be re-evaluated later in the summer, after the growing season is well underway, for a more accurate fix.
