Summer Cattle Market Outlook Uncertainty Rules

from Illinois Beef May/June 2022

Illinois Simmental News

by Joli A. Hohenstein

If there was a word for 2022, it would be “uncertainty.” For cattle markets, for prices, for beef harvest and for production in general. As we look ahead to summer, the theme pushes forward. Poor weather conditions, tighter margins and increased uncertainty have led U.S. cow-calf producers to three consecutive years of cowherd liquidation. Stronger prices in recent months have improved attitudes across the countryside, but drought has tightened its grip on major producing regions. Expect weather-related challenges to create further cow inventory declines into 2023 – but Illinois does have some bright spots.

“The fortunate part for Illinois is you’ve got moisture,” says Kevin Good, vice president of industry relations for CattleFax. “There’s a layer of counties along the north that have some drought, but at least you’ve got feed [in Illinois].”

Overall, we’re still big on feed numbers, but we’re placing more cattle. Drought of course, is a huge factor.

“Because of the drought, we have a lot of cattle bunched come summer,” says Cassandra Fish, a beef industry expert who authors The Beef daily market column read by industry professionals in more than 30 countries. “Fed cattle supplies will increase starting in June. We’re larger than 2020 and 2021.”

In fact, we’re at the highest number since 2019 – not as large as that year (the biggest on record), but a significant increase based on where we were in the first quarter of 2022. Fish expects a late summer drop to come. “The fed cattle market will decline from the summer low from this week’s cash, which is expected to be the high for the year,” she says. “The north is significantly premium to the south, because fed cattle are higher in the south.”

Beyond drought, the Russian invasion of Ukraine is also

impacting markets and the cattle market specifically, but was done more for adding to the uncertainty at this point. “When they invaded in late February, the market took a dive, and we lost $10-$15, but we have put it back on,” Good says. “But it put inflation on steroids, and there continues to be uncertainty.”

That means while beef demand continues to be robust, consumers now have an added fear of inflation. Higher fuel rate, increased energy costs and dramatically rising food prices create a climate in which we just aren’t sure whether consumers will be choosing hamburger or middle meats (the most profitable part of the cow) this summer. The pressure is on consumers.

Normally, the largest cattle slaughter pace comes in May and June seasonally, with June being the largest fed cattle slaughter month. For 50 years, packers have planned for this eight or nine weeks of heightened demand, pushed by Mother’s Day, Memorial Day and Father’s Day, followed by a slowdown in July and August.

But, thanks to the continued effects of COVID-related supply chain disruptions, along with the packing industry’s seeming inability to return to pre-Pandemic levels (still about 2% short according to Fish), we just don’t know what the summer will look like.

Currently, retail beef prices remain high. “Last year, we produced more beef in history and sold it for the highest prices ever,” says Fish. “Fed cattle carcass weights are the highest in history for all of 2022. That’s pretty extraordinary given how high corn prices are.”

On the other hand, for cow-calf producers, Good believes prices could go higher. “Calf-cow values are as high as 2016, and they will be higher yet,” he says. “Salvage value is higher

because of strong hamburger demand in particular. Calf values are $20 per hundredweight higher than a year ago at the same time, and that will continue all through the year.”

However, Good cautions that will be balanced by higher input prices. “You have inflationary pressures, fertilizer costs, energy costs, labor costs and availability; if you have a loan, your interest rates are higher,” he explains.

Experts expect that wholesale beef prices will average close to last year on an annualized basis. But, what they don’t know is whether beef demand will hold. And, Fish says, thinking that all of those profits would be passed on to producers would also be a mistake.

“Remember, packers buy head and sell pounds – they don’t have to harvest as many to get the pounds,” she explains. “Don’t kid yourself that great beef demand means the cattle industry will gain access to the money, because packers had a record year – they kept most of the money.”

So what can we expect for cattle prices looking ahead to summer? “Do prices go into the low 130s? Probable. Do they go into the 120s? Possible,” Fish says. “It would be a real victory, in my opinion, if prices held at 130.”

The main message experts share is staying the course and keeping a close eye on the bottom line. This doesn’t mean not spending, but rather, carefully directing your spending. For example, Good tells us CattleFax’s yearly survey reveals three areas that top producers repeatedly call out as critical: animal health, nutrition and genetics. “Watch costs and budget, but historically, these are areas you don’t skimp.”

BEEF MARKET RESOURCES

Remember, Illinois Beef Association members have access to some great resources to keep your finger on the pulse of the industry:

CattleFax offers a membership for updates, as well as several educational seminars throughout the year • The most recent coming up in June • www.cattlefax.com

The Beef column for cash and futures markets offers excellent insights into regional and global markets • www.cassandrafish.com

Marketing Reporting Services helps producers make informed risk management decisions. IBA offers preferred pricing for all members. • www.illinoisbeef.com/membership/ marketing-reporting-services

IT’S ALSO A WAY OF LIFE.

This BEEF MONTH, remember that Illinois beef farmers and ranchers care deeply for the environment and have a vested interest in sustainability. They want to care for the land that was passed on from their ancestors and leave it better for future generations, and they know that without careful, sustainable management, there’s no land to pass on.

For more information about how beef is sustainable visit

BeefItsWhatsForDinner.com

US Department of Agriculture, Agricultural Research Service, Nutrient Data Laboratory. USDA National Nutrient Database for Standard Reference, Release 28 (Slightly revised). Version Current: May 2016. Available at: http://www.ars.usda.gov/ba/bhnrc/ndl

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