This year is only one month old, and already 2022 is shaping up to be a much better year for cattle producers. Forecasts indicate higher prices for all classes of cattle in the U.S., especially as the cattle/beef sectors shake off the impact of the fast-spreading omicron variant that hurt the live cattle market in January.
Cash live cattle prices will see their largest year-on-year increase in 2022 in at least seven years. Prices this year are likely to average around $135/cwt live, versus an average of $122.29/cwt in 2021. This will be the biggest annual increase since 2015, when prices advanced more than $40/cwt from the prior year.
Prices are likely to be highest in the first and fourth quarters, with prices some weeks exceeding $150/cwt. The weekly lows throughout the year will be just below $130/cwt. The higher prices will be driven largely by three years of liquidation of the U.S. cattle herd and the prospects of a fourth year in 2022. The Jan. 1 total inventory, 91.902 million head, was down a larger than expected 1.888 million head, or 2 percent, from Jan. 1, 2021.
USDA’s Cattle Inventory report also showed that beef cow numbers, 30.125 million head, were down 719,000 head, or 2.3 percent, from the prior year, and the 2021 calf crop was 410,000 head lower. It could shrink again in 2022 by at least that amount, says Andrew Gottschalk of HedgersEdge.com. Another important number was the feeder cattle and calf supply outside feedyards, which on Jan. 1 was down 677,000 head, the lowest number since the cyclical low in 2015, Gottschalk says.
As the feeder cattle and calf supply outside feedyards shrinks, feedlots will be forced to pay up for feeder cattle and calves, says Gottschalk. Although more dairy calves might be made available, this increased input will be insufficient to offset the reduction in the beef calf supply. With the wheel of leverage returning to the fed cattle sector as those supplies decline, demand for feedlot replacements will gain momentum, albeit at substantially higher prices.
Gottschalk’s forecast for annual average young cattle prices is for 500-550 lb. steer calves to average $205/cwt, up from a $175/cwt average last year, and 750-800 lb. feeder steers to average $175/cwt, up from $145/cwt last year.
As 2021 wound to a close, cattle markets seemed to finally be able to move out from under the specter of the pandemic impacts that began 18 months ago, says Derrell Peel, Oklahoma State University Extension livestock marketing specialist. Indeed, the constant turmoil of a series of black swan events kept the industry on the defensive for over two years. The recent breakout of fed cattle markets after struggling under the weight of beef packer capacity constraints clears the way for cattle markets to move forward with the optimism that has been building in the industry in recent months, he says.
There continue to be many challenges facing the cattle industry in 2022, says Peel. COVID-19 impacts are ongoing with much uncertainty, and U.S. and global economies will continue struggling with pandemic ripple effects for many months. Higher input prices will impact cattle operations and test better profitability prospects in the coming year. Continuing drought is an ongoing threat and might impact the industry and many producers in affected regions.
USDA’s Cattle Inventory report revealed that drought reduced cattle numbers more than expected, and Peel says it is uncertain whether or how and where drought will affect the cattle industry in 2022. La Niсa conditions have redeveloped this winter, which might result in some relief in parts of northern regions. But southwestern regions that saw some improvement in 2021 could see redeveloping drought conditions. In drought regions, producers will continue to be on defense, he says.
Peel made his comments before the spread of the omicron variant forced many beef plant workers to stay away from work for at least half of January. The result was much lower than normal slaughter levels for that time of year. The first two weeks saw only 1.22 million head processed. Slaughter levels picked up the next two weeks, but January lost an entire week of steer and heifer slaughter.
The result was that cash live cattle prices struggled to break out of a $137-138/cwt range. They might go lower in February and even in March because market-ready supplies are still ample, but they will likely advance in April as the industry gets closer to the start of the grilling season. — Steve Kay
(Steve Kay is editor/publisher of Cattle Buyers Weekly, an industry newsletter published at P.O. Box 2533, Petaluma, CA, 94953; 707-765-1725. Kay’s Korner appears exclusively in WLJ.)
