Cattle feeders know at this point they have the upper hand on cattle prices, but futures markets aren’t responding to higher cash markets in any significant way—caution is in the wind as far as the CME is concerned. High feed costs will be a burden to feeder cattle prices, but then again, $180 feeder cattle isn’t so bad.
It appears that the federal government is “investing” lots of money into the beef packing infrastructure. Will we, as an industry, repeat the production situation we saw in 2014 when Cargill shut down their Plainview, TX, packing plant? Cattle prices will rise because of supply, and packers will try to secure feeder cattle at a younger age—we’ll see packers start to buy calves just to have control of supply.
New packers coming into the market will have a difficult time unless they have a market and plenty of cash to buy cattle better than the large packers. Remember, we had high feed costs then, and we will continue to have high feed costs going forward.
The good news may be for cow-calf producers; we had a very wet and cold December and snowpack in the major mountain ranges is above normal for this time of year. If we continue to receive moisture at this rate, we should have a good spring. But that doesn’t mean that you should quit praying for spring rains.
The folks who publish the Cattle Report had some interesting observations going forward: “Forecasting diminishing numbers of fed cattle for 2023 isn’t difficult and will soon be confirmed by the January all cattle inventories issued by USDA. Defining the rate of decline is much more complex and will depend in large part on the moisture received in many of the breeding areas of the country. In short, weather will play the feature role in bottoming the cattle cycle and rebuilding the nation’s cattle herd.
“La Niña is a climate pattern that describes the cooling of surface-ocean waters along the tropical west coast of South America. La Niña is considered to be the counterpart to El Niño, which is characterized by unusually warm ocean temperatures in the equatorial region of the Pacific Ocean. The impacts of La Niña on our weather and climate have been highly variable throughout history. La Niña delivers drier, warmer, and sunnier weather along the southern tier of the United States, from California to Florida. This weather increases the risk of wildfires in Florida and dryness in the North American plains.
“Some weather experts believe we are concluding La Niña and moving into El Niño, offering more moisture to the Plains. Evidence of warmer ocean temperature in the Pacific has created widespread rains at year end in the west and is expected to expand during the months ahead. Forecasters are seeing 2023 as a transition year with the end of La Niña and the beginning of El Niño sometime in the second quarter of the year.
“The implications for forage production and American agriculture are obvious. Beneficial rains produce good crops and abundant forage—a necessity for a rapid buildup of our breeding herds. Calf prices are signaling breeders to step up production, and should Mother Nature cooperate, the buildup could start and happen rapidly.
“A rapid buildup would be disruptive to the marketplace. Cow slaughter and heifer retention would occur at the same time and in dramatic fashion. Feedlot placement would plummet, and beef supplies would be reduced to a shocking level that many would consider rationing levels. An industry unable to match consumer demand is bad news. If those conditions develop, consumers will look for alternatives and some of those may become permanent habits.”
Beef is the preferred meat for consumers; with average beef prices at $7.60/lb., I’d say consumers love it. The fake meat guys will try and take some market share with unique products, and they will have to be their own product, not tag-along, beef-like products. Inflation hasn’t harmed beef prices as much as it has hurt beef production. But when all that new packing capacity comes online, things will get interesting. Remember, a packing plant is just a tool. If you can’t buy the inputs right and have a market for the product, the extra capacity won’t help much. — PETE CROW
