Cattle industry experts bullish on beef
By John O’Connell
Intermountain Farm and Ranch
A leading beef industry research and analytics service is bullish on cattle in 2021, predicting a tightening supply and strong demand will contribute to a profitable year for ranchers.
During the recent CattleFax virtual 2021 Cattle Industry Convention Winter Reboot, the company's vice president of industry relations and analysis, Kevin Good, predicted prices of all cattle classes will rise this year.
For example, Good forecasts the average fed steer price in 2021 will be $119 per hundredweight, up $10 from last year.
The CattleFax experts anticipate the industry will benefit from pent-up demand as more foodservice operations reopen, according to a press release issued after the convention.
Furthermore, CattleFax CEO Randy Blach cited statistics showing consumers have increased their savings amid the pandemic, raising household wealth by an estimated $620 billion. Consumers have traditionally viewed beef as a luxury item and tend to shift to beef from chicken or pork as their income levels rise.
CattleFax officials anticipate the beef supply will tighten throughout this year and the next three or four years should all be profitable for producers.
"The bottom line is that things are on the mend, with producers gradually recapturing the margin," Good said in the press release.
The U.S. cattle herd peaked in 2019 at 31.7 million head of mother cows, according to CattleFax. The inventory dropped to 31.3 million in 2020 and is projected to further drop to 31.2 million head this year.
"It doesn't take a lot to get prices moving," said University of Idaho Extension Economist Ben Eborn.
Eborn explained the national beef herd stopped growing in 2020, once the herd size had reached the point that prices were starting to soften. Ranch expansion driven by a good market usually persists for up to four years before the cycle shifts to contraction.
"I think prices will be better this year and they'll continue to go up for the next three or four years, unless we have some major economic crash," Eborn said. "One thing that might not cause this to work out is if we continue to see drought expand in the western U.S."
If drought conditions persist in the West, Eborn said, some producers may be forced to liquidate livestock, which could lead to a temporary flooding of the market.
This year, per capita beef consumption is predicted to increase by a tenth of a pound to 58.7 pounds per person.
Eborn explained consumers who had to forgo vacations, family activities and eating out throughout 2020 curbed their usual spending. Any lost revenue to unemployment was offset by government payments.
"They have all of this cash pent up and they're ready to spend it," Eborn said. "I think sales of beef are going to be really strong this year, and they were (strong) last year."
Scott Steele, who has a large cattle operation north of Idaho Falls, saw evidence of consumers eager to eat prime cuts of beef at their favorite restaurants while dining out recently. He and his wife tried to get a table at a local steakhouse and ultimately left for another steakhouse when they learned the wait was more than two hours. The next restaurant also had a long wait.
"I do see some positive signs when I go out and I see huge demand and I think there's probably a lot of pent-up demand in other parts of the country that still aren't opened up yet," Steele said.
Steele is also encouraged by projections of a slight reduction in the national herd.
"That's a lot better than an expansion in the cow herd," he said.
The industry is facing many unprecedented circumstances, however, due to the coronavirus pandemic, and despite Steele's optimism, he still plans to hedge all of his cattle sales in the near future rather than speculating. Hedging is a marketing tool that allows producers to forward price their cattle to avoid downward price changes.
Total retail spending on meat sales rose by 18% in 2020, with beef accounting for 45% of that spending, equal to $5.7 billion, according to CattleFax.
Nonetheless, many producers didn't get to enjoy last year's profits due to a meat packing "bottleneck." Packing plants that had already been operating at more than 100 percent of planned capacity had to slow down processing by 10% to 20% last spring based on the potential for the coronavirus to spread among workers in such tight quarters.
The situation left producers with a glut of cattle and no place to process them. Meanwhile, the combination of pandemic-related retail demand and slowed processing drove meat prices to record levels in grocery store shelves.
Producers who had ample feed held onto their cattle and waited for the bottleneck to resolve itself and prices to recover.
Sara Erb, who owns the Blackfoot Livestock Auction with her husband, Cole Erb, said many ranchers sold big cattle at the beginning of this year that would have otherwise been sold last year.
"They did fine," Sara Erb said, adding that the market has held relatively steady recently.
Other producers got stung because of the backlog in slaughterhouses.
"Last year in March, I tried to sell some yearlings and I basically had to beg somebody to take them," said Jim Guthrie, a McCammon rancher who also serves in the state Senate.
Guthrie isn't convinced that U.S. households truly have more discretionary income.
"COVID has put such an unexpected variable to the equation," Guthrie said. "When they talk about people having extra money ... it seems contrary to the reality caused by this pandemic."
Gary Dixon, who has about 70 head of cattle in Idaho Falls, said he's still operating at the break-even point, and he believes better returns to producers are long overdue.
"(Meat packers) are not sharing anymore like they used to," Dixon said. "We need more packing plants."
According to Blach and CattleFax, profit margins should be better distributed this year, with prices improving significantly starting in the second half of 2021. Blach said the addition of many new small-scale packing plants should significantly improve packing capacity.
Further Fueling demand, Blach noted foreign beef exports are expected to increase by 5% this year, mostly to Asian markets. China, for example, is poised to increase its beef imports from 120 million pounds per year to more than 300 million pounds per year during the next few years, he said.
"As the global population increases at a rate of 83 million people per year, U.S. agriculture is poised to play a key role with increasing exports," Blach said in the press release.
Eborn believes high costs of ranching inputs such as feed could cut into beef producers' bottom lines.
CattleFax predicts that U.S. farmers will seek to capitalize on high corn and soybean prices this season and will plant their largest combined acreage of the two crops in history.
Eborn, however, said feed prices may still remain high.
He said China has significantly increased its corn purchases recently, and a softening dollar should increase demand from the foreign export market. Furthermore, oil prices are on the rise. Corn and oil prices are linked, given that about 40% of corn is used for ethanol production.
At the start of 2021, Idaho ranchers had 2.5 million head of cattle, valued at $2.625 billion, according to the Idaho Beef Council. Beef is second largest agricultural industry, behind only dairy, in terms of total farm-gate receipts.
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