Market outlook and consumer trends
By Dennis Smith
Last year beef production, at 27.937 billion pounds, was up 2.8% from 2020 and record large. Production for 2022 is projected, by the USDA, to be down 2.1% at 27.375 billion pounds. With feed costs rising dramatically early this year, odds favor a sharp downturn in fed cattle weights forcing production to be revised down further.
Last year beef exports were up 17% from 2020 which is an explosion in export business. Exports for 2022 are projected to drop off slightly (down nearly 5%) but historically remain highly elevated. Data just released for January indicated beef exports for the first month of the year were up 18% from January of last year.
The beef industry has been culling beef cows for over a year. This liquidation continues into early 2022. The beef manufacturing capability has been reduced for the foreseeable future. We believe that current on-feed inventory is at a peak with numbers headed lower from here forward.
Large numbers of light weight calves have been placed on-feed due to the drought in the Southern Plains. The rule of thumb says that when cattle are placed at lighter weights they’ll be marketed at lighter than normal weights. Certainly, with feed prices rising dramatically one should anticipate lower trending weights during the course of 2022. In addition, last year’s calf crop was down 3%. It’s extremely unlikely to experience higher placements this year when the industry is working with a smaller calf crop.
Beef packer processing margins have been historically wide, profitable, for months. In fact, they’ve been highly profitable for over two years. However, this is slowly changing with leverage moving back to the feedlot and away from the beef packer. Current processing margins remain profitable, but they’ve narrowed substantially. Margins have been excellent mostly due to outstanding demand for U.S. beef. Due to adequate numbers and heavy weights, production last year was record high.
I project that a tightening fed cattle supply combined with continued robust demand for beef will work to drive live cattle prices, both cash steer prices and futures prices sharply higher in the weeks ahead.
We’re now approaching the best demand time of year for the beef market. Domestic springtime demand is huge as retailers and purveyors' book for the return of grilling weather, baseball season, Mother’s Day, Father’s Day and the Fourth of July. As mentioned above, beef exports remain robust. Rising cash steer prices have driven live cattle futures toward 7-year highs with steer prices at six-year highs. However, wholesale beef prices have corrected off recent highs and current reside at 11-month lows. This sets the table for some very attractive retail beef features for the upcoming summer season. I suspect the current rash of large placements into the feed yards will soon give way to smaller numbers.
Calves have been run off of dried out wheat pasture this winter. The trend of lower placements, active marketings and lower trending cattle weights should trigger a huge rally in cash steer prices and live cattle futures prices in the weeks ahead. The number one hazard to my bullish outlook would be if the U.S. economy sinks into recession. Recently one of my research sources told me that the end of the world only happens once and this is most likely not the end of the world.
Dennis Smith is with Archer Financial Services, Inc. and has been a full service commodity broker specializing in grain and livestock trading for over 25 years. Contact him here.
What's Next in 2022? According to the Beef Checkoff, beef lovers can expect to see these three trends in 2022. Healthy Recipes - Home cooking and healthy habits were big in 2021 and are expected to continue this year. Beef’s versatility means there are a variety of lean cuts to choose from and beef pairs perfectly with vegetables for a protein-packed, delicious meal.
As an added bonus, healthy diets with beef can provide immunity-boosting benefits. Classic Beef Stuffed Peppers and Beef Confetti Taco Salad are just a few of the many recipes that make sticking to new year’s resolution easy.
Cook once, eat twice - Quick meals that leave you with leftovers make things a little easier.Easy Roast Beef Potluck Rolls recipe makes for the perfect weeknight meal, with plenty to save for another. Or turn leftovers into a completely new dish, enjoy a roast one night and save the leftovers for Cuban Crispy Shredded Beef.
Beef on any budgetWhether it’s a special occasion or a regular weeknight meal, beef’s versatility means there’s something for everyone. For those on a budget, Ground Beef, Chuck Steak, Chuck Roast and Top Round Steak are all great options with big flavor.
Explore more beef cuts and find easy budget-friendly roast swaps on BeefItsWhatsForDinner.com.