Remember the horror movies where the pack of kids try escaping some macabre phenomenon, only to end up back in the same corner of the woods? This is my feeling as we look ahead – exactly one year after the outbreak of the 2020 coronavirus and its impact on the U.S. economy.
The agricultural sector, and the beef industry was lead among it, got absolutely whipped through the maelstrom of COVID-19, and it just doesn’t seem over. The path taken by cattle ranchers, packers, restaurant retail and food service distribution to survive in the past year will be vital to map out as new challenges lie ahead.
Grain and gasoline are two immediate issues. Both corn and oil prices are swinging up in the first half of 2021, and that will cut into production profit lines in ways producers are already planning on. OPEC production was cut for this year and last as fewer drivers were traveling, and the supply pinch will now be felt. The corn price is now above $5 per bushel spot futures and the acreage and weather reports are now critical as a new crop is planned for 2021.
Speaking of the weather, it’s not looking good. Drought will be on the minds of much of the U.S. production area this spring and summer, as a La Nina pattern rides through much of the West, Southwest and Midwest. The U.S. Drought Monitor map already shows extreme patterns in the Southwest and severe indicators in the Midwest. This will only grow more precarious each month.
The coronavirus vaccine issue is also critical as it pertains to meat processing workers. Major packing houses are prioritizing workers to get jabbed as vaccine supplies hopefully continue to grow. Packers were ground zero in the COVID-19 battles faced by the beef industry last year, and utilizing more vaccines will keep the supply line moving.
So what’s the good news in all this?
Most important is that beef demand remains high. If beef, pork and poultry production levels off or drops a bit, as CattleFax predicts, the global demand will move even higher, creating a favorable price outlook. Leverage for cattle producers will also improve in 2021, as the supply of cattle starts to cut back and packers surrender some margin in the later part of the year.
These trends also lean toward additional payoff in the export picture, as 2021 figures to be a solid rebound year on all fronts. The lower supply of cattle and beef out of Australia will push more demand for U.S. beef in Asia, especially in the growth market of China.
Finally, industry leaders are seeing the real need and growing producer demand for price discovery in cattle markets. This is a sound move, gaining support among congressional members in farm states, producer groups and the National Cattlemen’s Beef Association. Many will advocate for voluntary participation in a way that identifies regional framework and price patterns. Also, a national policy will require packers to report more market data to the Agricultural Marketing Service, thus enhancing robust price discovery. (For more on transparency legislation, read "Cattle market transparency legislation introduced to Congress".) The debate is necessary to balance healthy negotiated trade while not eliminating grid marketing dynamics that have created higher-quality beef.
