Cattle producers at the start of January faced a brighter year, as the impact of the COVID-19 pandemic on cattle and beef markets receded. A more optimistic outlook for the year remains intact two months in, but it has been an uneven start so far.
Let’s start with live cattle prices. The first full week of January saw a 5-area steer price average of $111.27/cwt or $175.79/cwt dressed. Six weeks later, these prices had edged up to $114.07 live and $180.57 dressed, respectively. The modest advance was extremely disappointing given that USDA’s weekly Choice cutout increased $25.28/cwt in the same six weeks.
Such a disparity renewed calls from some quarters that there needs to be a new market mechanism that more equitably shares such an advance in beef values with live cattle prices. But such a mechanism is fraught with danger. It would interfere with the way markets freely operate. It would also raise the question of whether cattle prices would have to decline if the cutouts declined.
Two factors were at play in those six weeks, on the supply and the demand side. Cattle feeders began the year with 138,000, or 7 percent, more cattle on feed 150 days or more than on Jan. 1 last year. The increase widened to 444,000 or 25 percent more on Feb. 1. January had two fewer slaughter days than last year, which exacerbated cattle feeders’ efforts to reduce the supply.
Then came the dramatic winter freeze that threatened to paralyze beef processing. It didn’t quite, but weekly slaughter levels fell from 653,000 head to 608,000 head and 552,000 head each of the next two weeks. This meant an estimated 125,000 steers and heifers were not processed that should have been. So, the front-end supply of cattle is 680,000 head or 34 percent above a year ago, says Andrew Gottschalk of HedgersEdge.com. This number will decline in the coming months but will still be above a year ago on Aug. 1, he says.
This suggests that cash live cattle prices will not increase as much as they had expected to until the third quarter, rather than a quarter earlier. This will put more pressure on calf and feeder cattle prices, which are already feeling the impact of extremely high corn prices. January saw more cattle placed in feedlots than a year ago, as wheat prices began to limit the amount of winter wheat grazing available. Larger placements will continue at least to the end of this quarter.
The industry will thus need to look to the demand side of the equation for help. So far this year, retail beef demand and sales has been stellar, even though retail prices in January were slightly higher than in December. USDA’s retail Choice beef price averaged $6.41 per pound, up 1.9 percent from December’s $6.29 per pound and up 5.8 percent from January last year. USDA’s All Fresh beef price averaged $6.29 per pound, up 1 percent from December’s $6.23 per pound and up 5.9 percent from January last year. Pork average prices were the same as in December at $4.12 per pound but were up 7.3 percent from January last year. Chicken average prices edged up two cents to $23 per pound and were 8.6 percent higher than last year.
This meant the All Fresh beef price was more than three times higher than the average chicken price and 1.5 times higher than the average pork price. These price differentials have rarely changed in recent years, apart from at the height of the impact of COVID-19 on prices last spring. But it again reveals that beef remains Americans’ favorite meat by far.
New research from three prominent agricultural economists also bears this out, as WLJ reported in its Feb. 22, 2021 issue. Consumers in a 3,000-person studyrated beef, in steak or ground form, at higher scores than a plant-based option in 15 categories, measuring everything from taste and appearance to perceptions of healthfulness and environmental impact. Beef even came out ahead of the plant-based option in the category of animal welfare. While the industry should not underestimate the inroads that plant-based proteins might make in the future, beef appears to be under little threat right now.
Part of the reason for that is that beef quality continues to improve. Just look how cattle are grading. They hit a new record for quality grading the first week of February. Cattle graded a combined 84.76 percent Prime and Choice, with 10.65 percent grading Prime and 74.11 percent grading Choice. This broke the previous record of 84.34 percent set the week of May 23 last year. This is why USDA Prime beef is showing up in more stores and being snapped up by beef lovers. — 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.)
