Higher calf prices may be on the horizon for 2020
A shrinking calf crop and strong consumer demand may trigger a push upward in calf prices starting in 2020, according to a senior economist with the Livestock Marketing Information Center. Jim Robb told cattlemen during the Range Beef Cow Symposium, held in Mitchell, Neb., that because beef production is starting to decline, the dynamics in the sector are beginning to switch over to the supply side.
“Cattle feeding returns have been bad for the last three months, but December closeouts will be $125 to $150 a head. So cattle feeding is going from a negative to a positive, starting in December. What that means for calf and yearling prices is slightly higher for the next few years,” he said.
Despite that, Robb doesn’t see price levels returning to record high calf prices like 2015, barring a shock to the system. In Nebraska, over the last four years, producers have received a $2 to $12 premium over the southern Plains, he said. In 2020, prices will probably be near 2017 calf prices.
Prices are in line to continue climbing into 2021 and 2022, approaching $1.85 in southern Plains and $1.95 in this area.
“But keep in mind, things can go wrong. It is like a big, fancy card game, but a bunch of these cards have already been dealt, and I can tell you that steer, heifer and cow kill numbers have been amazingly large. So if demand holds together, 2022 could be pretty good for cow-calf country,” Robb said.
Consumer sentiment is the driver of cattle demand, and Robb said it happens to be pretty good right now.
“Consumers are very confident, despite reading about trade wars and tariffs. They are watching these issues closely, but the demand component is very positive, and that’s what drives beef consumption in restaurants,” he said. Beef has also remained competitive with other meats in the domestic market, and a growing pet food industry has helped. Robb told producers that if a label on pet food says it contains beef, it has to be skeletal meat, which has really helped demand.
“Consumption of beef is not demand. Consumption is how much beef people are eating. Demand has two components — price and quantity. That means what they are eating and how much they will pay for it,” Robb said. “Demand in the third quarter has been quite good, so industry concerns that consumers may be looking away from beef were not true. The price has went up enough to compensate for people eating less beef. Pork and chicken have also done really well on their own, and have taken up a lot of the growth profile without hurting beef,” he noted.
Domestic use has helped the market overcome beef exports, that are below a year ago. He projects higher exports for 2020-2021. “We had a really good year in 2018, but not as good in 2019. The domestic market has held it together this year,” Robb said. The drought in Australia continues, but China is purchasing more Australian and New Zealand beef, which will lower imports to the U.S.
With less imported hamburger grade beef from Australia and New Zealand, Robb said the cull cow market should also start to rebound. “The cull cow market has been a disaster,” he said. A large number of dairy cows were slaughtered earlier this year, and then a large number of beef cows. “Capacity has been a problem. But all that is changing now. After two years of being affected by all this, the cull market should start returning to normal. It has just been overwhelmed by huge slaughter numbers, and then we wonder why cull cows are 32 cents. They can’t find anyplace to slaughter them,” he said.
Robb toured all the major feedlots in Colorado in August, and expressed his concern to cattlemen about what he saw. “We have a huge amount of beef cow liquidation going on. Industry-wide, we are not getting animals bred,” he said. From Florida, to Montana, to Kansas, he told producers that all the numbers indicate animals that should be in production are in the feedlot. “We are wasting a lot of money selling animals in the cull market, instead of having pregnant animals producing something. The cattle inventory is headed down slightly, but we are seeing a soft landing cattle cycle, which means it’s not going to collapse down. We are already in the liquidation phase, which will probably be a shortened one,” he said.
Cost of production numbers are still high, and cow-calf returns are projected to be the worst this year since 1996. However, Robb said projections for 2020-2021 anticipate a return over $100 per cow after cash costs and pasture rent. In 2022, projections are even higher at $125-$150, if beef demand projections are correct. ❖
— Clark is a freelance livestock journalist from western Nebraska. She can be reached by email at email@example.com.