At the same time, Good says, productivity and efficiency are generally increasing. The beef industry has gained back 80% of the market share it lost when the industry crashed in the 80s, 50% of that in the last year. Good credited a more consistent, high-quality product for the increased beef demand. “Prime has gone from 3 percent to 10 percent, and Choice from 16 percent to 24 percent. Today, one out of every 10 cattle grade Prime, and one out of every four grade top three-tier Choice.”
Over the last 20 years, beef values have risen at over double the rate of inflation, which was only highlighted during the buying frenzy during the COVID-19 pandemic. “Even through the pandemic, our consumer rewarded us by being willing to pay more per pound compared to other proteins. We do have a preferred product.”
Good also touched on the increasing number of beef-on-dairy calves entering the market. “We are utilizing the dairy herd much differently than we have historically,” he said. “The difference in quality and yield is very apparent in a beef-on-dairy than a dairy-on-dairy calf, so it is important that beef producers recognize the changes that are happening with beef-on-dairy calves and their role in the beef production system.”
There are 2 million beef-on-dairy calves in the system today, which will likely increase to 3 million in the next year. “There will continue to be strides in the beef-on-dairy program,” he said. “We need to recognize that, with beef production, the dairy industry is going to have more to say about that going forward.”
Mexico and Canada
In the last year, the dynamics of trade with Mexico and Canada have changed, especially in the live cattle sector. In the last year, the U.S. has imported about 350,000 to 400,000 less cattle from Canada and Mexico and exported more fed and slaughter cattle to both countries. Less placing and more trade on both borders have helped with bloated fed cattle numbers on the front end, but the shortage of labor in packing plants makes increased slaughter capacity unlikely in the near future.
Good shared some insights regarding supply predictions for 2022. “When talking about the supply and price trends going forward, it is critical that we recognize that we are moving into a different seasonal pattern than we typically have from a long-term perspective.” He estimates that total slaughter will drop by 33 million head – about 2% less than current rates. The long-term average carcass weights will be about 5 pounds lighter, and total beef production will total around 27.1 billion pounds – a 700 million-pound (2.5%) decline in production from this year.
Imports and exports
Beef exports increased 15% in 2021. Imports decreased 8%. For 2022, exports are expected to increase another 5%, while imports should stay roughly the same. “If you do the math there, that’s about 1.5 pounds per capita that we’ve taken off our domestic supply and sent overseas.”
Exports will continue to increase, especially since Australia’s export capacity will be reduced as they rebuild their herd numbers after the recent drought and as the U.S. gains more of a market share in China. This year, the U.S. will export about 400 million pounds of beef to China. That is well below the almost 900 million pounds exported to Japan, or the 778 million pounds exported to South Korea, but keep in mind, a 10% gain of market share in China comes to about 500 million pounds. There is a lot of potential for growth there. Barring trade disputes, China’s market share should eventually at least match those markets. If the U.S. is to continue to increase exports, capturing Asian markets are key, especially gaining more front door access to China.
On the cattle price side, throughout the pandemic, beef demand has stayed strong, which has driven inflation. Good predicted continued inflation and supply declines in 2022, projecting a $135 fed cattle price and a $265 per hundredweight (cwt) cutout price for 2022 and contrasted it with this year’s average fed cattle price of $121.
Good expects that, with time, cattle prices will eventually increase. “I’m not talking about getting numbers back to where we were five, six years ago; we’re talking about gaining leverage over the next couple years and getting back to pre-pandemic levels.”
On a positive note, forward contracts for this fall are higher than in previous years at $145 per cwt for an 800-pound steer and rising to an average $165 per cwt in 2022. Bred cow prices have also been increasing, with futures averages of $1,625 per head in 2021 and $1,750 per head in 2022.
PHOTO: Kevin Good addresses attendees at the 2021 NCBA Convention and Tradeshow. Photo by Cassidy Woolsey.
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