All wealth to the beef industry begins with consumers and how much they spend on beef. These past two years have clearly illustrated that Americans have been prepared to pay more than ever before for beef. This is because they recognize its value—i.e., its price in relation to its quality.
Consumer and wholesale beef demand at home and around the globe are both at 30-year highs as the U.S. and global economies recover, CattleFax analyst Kevin Good told the 2021 National Cattlemen’s Beef Association (NCBA) convention. Demand remained strong in 2021, a trend that will continue in 2022, especially as tight global protein supplies are expected to fuel U.S. export growth, he said.
But wholesale demand will be softer in 2022 as a bigger decline in beef supplies will offset a smaller increase in beef prices. Retail beef prices are expected to average $6.80 per pound in 2021 and increase to $6.85 per pound in 2022, he said.
The booming demand for beef and pork in grocery stores meant retail prices in July set a new all-time high for pork, and Choice beef prices were close to their record set in May last year. This July’s Choice beef price averaged $7.53 per pound. This was up six cents from June and was six cents below the all-time monthly record of $7.59 set in May 2020. It was 10.1 percent higher than in July last year.
USDA’s All Fresh beef price averaged $7.10 per pound, down a penny from June but up 5.3 percent from a year ago. It set an all-time monthly record of $7.38 per pound in June last year. August retail beef and pork prices likely set new records as retailers raised everyday prices and featured meat less to counter higher wholesale prices.
Aftershocks from the COVID-19 pandemic continue to keep domestic demand at elevated levels not seen since 1988, Good told the NCBA convention attendees. Government stimulus and unemployment benefits are fueling the economy, with demand outpacing available supplies as restaurants and entertainment segments emerge from shutdowns. Customer traffic remained strong at restaurants and retail even as these segments pushed on the higher beef costs. This proves consumers are willing to pay more for beef, he says.
Global protein demand has increased, and U.S. beef exports posted new record highs for two consecutive months (April and May) even with high wholesale prices, noted Good. The increases were led by large year-over-year gains into China, while Japan and South Korea remained strong trade partners. The tightening of global protein supplies will support stronger U.S. red meat exports in 2022. U.S. beef exports are expected to grow 15 percent in 2021 from 2020 and another 5 percent in 2022, said Good.
On the supply side, optimism is growing about the prospects for sharply higher live cattle prices in the fourth quarter. The optimism reflects a declining front-end supply of cattle and lower steer and heifer carcass weights than last year. The number of cattle on feed 150 days or more on Sept. 1 was expected to be up 6 percent year over year. But, it will be up only 1 percent in October and down 10 percent on January 1. This will equate to a 333,000 head decline in four months.
Carcass weights fell below year-ago levels in May and will remain so in large part because of increased feeding costs. The futures market currently reflects optimism. The October live cattle contract closed last Tuesday at $126.90/cwt, and the December contract closed at $133.47/cwt.
USDA has raised its forecasts for third- and fourth-quarter fed steer prices $4/cwt to $124/cwt and $127/cwt, respectively. These prices seem conservative in light of the current level of futures prices.
August seemed poised to break out from the constraints of the first half of the year as it moves into the last part of the third quarter, says Derrell Peel, Oklahoma State University marketing specialist. Meanwhile, auction calf and stocker prices moved counter-seasonally higher in July-August, while feeder cattle markets, which typically increase through the summer, have shown a strong seasonal price increase over the summer. Cull cow prices have pulled back from summer peak prices, moving into fall seasonal declines, but remain above year-ago levels, he says.
Feedlot inventories continue to fall, partly seasonally, but also reflecting the cleanup of the backlog of feedlot cattle from earlier in the year, says Peel. August represented the sixth consecutive monthly decline in feedlot inventories from the February peak, a decrease of 1.032 million head or 8.5 percent over the six months. In the previous five years, the average feedlot inventory decline from the spring high to summer low was 6.2 percent, he says. The renewed optimism is most welcome. But what producers most need, of course, is rain. — 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 inWLJ.)
