The year 2020 will surely be one that cattle producers will want to erase from their memories. A year that began with much promise of stable markets and slightly higher prices for all classes of cattle was totally upended by a virus pandemic no one could possibly have forecast. However, the entire beef industry starts 2021 with cautious optimism of a return to normalized markets and pricing patterns.
In this context, it is worth reminding ourselves just how devastating the COVID-19 pandemic was on the industry. It is even more important to remember how it disrupted Americans’ lives, with many families having the additional heartbreak of losing a loved one to the virus, with the added pain of that loved one dying without any family members at their side.
As you know, the disease outbreak by early March was declared a global pandemic and continued to wreak havoc on equities and commodity markets. Trepidation gripped the industry throughout April and beef production levels declined to unprecedented lows relative to plant capacities because of worker illnesses and absenteeism. The last week of April saw weekly cattle slaughter total 439,000 head, 68 percent of available slaughter capacity. The average price of live fed steers that week was 21 percent below the same week in 2019.
Remembering how dire the challenges were is important because what occurred in May and June was nothing short of a miracle. The many ways the industry, from ranch to retail, tackled these challenges and returned to normalcy in such a short time is one of the greatest stories in the industry’s long history. Production levels had returned to normal levels by late June.
A return to a semblance of normality is likely this year even if the COVID-19 pandemic continues well into the year. Everyone in the industry will be hoping that the markets will avoid the kind of extreme volatility seen last year. Packers saw record operating margins throughout last year. But cattle feeders, cow-calf operators and other cattle producers saw slim or even negative returns.
Prices for all classes of cattle are currently forecast to be higher than last year, especially those for fed cattle. USDA’s five-area steer price in 2019 averaged $116.78/cwt live and was expected to be around the same level last year. It was on track to achieve this in the first quarter when it averaged $118.32/cwt. Then the pandemic’s impact began. Second quarter prices averaged $105.79/cwt, third quarter prices $101.74/cwt and fourth quarter prices an estimated $108.00/cwt. Annual prices averaged $108.46/cwt, their lowest level in many years.
Feeder cattle prices fared a little better. The price of a medium frame No. 1 steer at Oklahoma City averaged $142.23/cwt in 2019. Prices last year were: first quarter $136.42/cwt; second quarter $126.37/cwt; third quarter $141.42/cwt; and fourth quarter an estimated $137/cwt. The average for the year was $135.30/cwt.
USDA’s forecasts for prices this year will offer hope for producers. It forecasts that its five-area steer price in the first and second quarters will average $113/cwt, $114/cwt in the third quarter and $115/cwt for the year. This would be more than $7/cwt more than last year. It forecasts that feeder prices will average $133/cwt in the first quarter, $136/cwt in the second quarter, $141/cwt in the third quarter and $138/cwt for the year.
Most forecasts are that the national cattle herd shrunk slightly last year compared to 2019, especially on the beef side, and that should pay dividends for producers as the year progresses. Drought might play a part in deciding whether beef cow liquidation picks up pace this year or not. No one of course wants to see anything approaching the exceptional drought years of 2010-2012 and their consequences.
The supply side of the industry thus will play an important role in boosting prices for all cattle producers. But ultimately, as always, domestic and global demand for U.S. beef will determine how much cattle prices improve from last year. The biggest potential positive is that the restaurant business, especially the sector that uses high-end cuts, will be freed from COVID-19 restrictions and resume full inside dining again. Just as cattlemen know the importance of vaccinating their calves, I hope all Americans recognize the importance of getting a COVID-19 vaccine this year, to protect themselves and their loved ones and to help the U.S. economy recover. — Steve Kay
(Steve Kay is editor/publisher ofCattle Buyers Weekly,an industry newsletter published at P.O. Box 2533, Petaluma, CA, 94953; 707-765-1725. Kay’s Korner appears exclusively in WLJ.)
