The year ended on a good note in the cattle markets, with top-selling fed steers trading as high as $145. Now, cattle feeders are earning over $125 per head and have had excellent feeding conditions so far. The new year promises to be even better for cattle prices. Also, it looks like the West Coast is receiving ample moisture, and we all hope that the drought conditions will be ending.
The Jan. 31 cattle inventory is expected to show we are in the fourth year of a liquidation market. Analysts are thinking we will have 1.3-1.4 million head fewer than the same time last year. Cow processing has averaged about 7,000 head a week higher than last year, so expect a robust market for your calves, feeder cattle and cull cows.
The cattle markets eased into the new year with futures mixed, cash trade steady and corn prices growing.
Retail beef prices are 20 percent higher than last year, and demand appears to be strong in both domestic and export markets. Inflation seems to be the major threat to beef demand and to beef production. Corn prices have been very active the past few weeks, and the March corn contract is over $6 a bushel. This has pumped the brakes on feeder cattle futures, but the deferred contracts are all trading around the $180 mark.
The Biden administration is paying attention to the cattle industry and made big announcements to help. They plan to invest a billion dollars into meat processing infrastructure. They want to change the Packers and Stockyards Act, which is the same proposal the Obama administration was trying to implement. They will offer financial help to build more processing capacity, increase market transparency to promote fair markets, enforce the antitrust laws and invest $100 million in workforce training and various other programs that they think will help the supply chain.
It’s somewhat ironic that the cattle and beef industries have worked out the market dynamics on their own. The great thing is how much money consumers are spending on our product, and now leverage has returned to the producers instead of the processors.
The meat industry has been highlighted in the past several months by the Biden administration, along with Congress. With higher costs of food for consumers but higher profits for meat packers, the administration is scrutinizing larger companies and taking a closer look at consolidation.
Throwing a billion dollars at the cattle and beef industry seems a little excessive. The beef infrastructure is working fine, and we know that there has been enough capacity to process fed cattle and cows. The problem is still labor—it will impact any new plants too. Packers are paying more for labor and benefits and have realized they need to take care of their workers because they are a part of the community.
The administration might spend some time on immigration issues and allow more immigrant labor. Apparently, every industry is short of labor. As we move forward, the packing industry will slow slaughter down to match winter beef demand, which is about 650,000 head per week. Cattle feeders also know they don’t need as many finished cattle during this time frame.
I would also imagine that any new entrants to beef packing will also have issues; small custom packers will never solve any supply chain issues. Medium-sized packers will have to develop their markets on niche products because they will not be able to compete with the majors on volume and price.
I’m concerned that the Biden administration will use or change antitrust laws to break the major packers up or change the Packers and Stockyards Act, which will produce a bunch of frivolous lawsuits. Alternative marketing agreements still seem to be the problem for most independent cattle feeders. USDA will start posting the cattle contracts available to producers soon.
But when the government steps in to create competition in any industry, it never seems to go well. Because they give an industry money, they will inevitably place new rules and regulations on producers. The cattle markets are as transparent as it gets. Just think of the healthcare industry—that industry has no transparency whatsoever.
Julie Anna Potts, president and CEO of the North American Meat Institute, said in a statement, “The Biden administration continues to ignore the number one challenge to meat and poultry production: labor shortages. This tired approach is not surprising because they have refused to engage with the packing and processing sector they attack, going so far as to hold a roundtable on meatpacking without a single beef or pork packer present.”
It seems that when politicians step in to fix a perceived problem, they just throw money at it. If they want to fix real problems, let’s work on water infrastructure in the West, get more people back in the workforce and fix immigration. Pray for moisture. — PETE CROW