Cattle Prices Start 2022 Higher

By Tim Petry, NDSU Extension livestock marketing economist for Agriculture By the Numbers, February 2022

The cattle market in the last several years has been plagued with multiple events and issues which have caused relatively low and volatile prices. So, it is nice to have 2019, 2020 and 2021 in the rearview mirror!

Without a doubt, the most challenging event was the COVID-19 pandemic which hit both the U.S. and world early in 2020 and is still lingering.

Other notable challenges include the Tyson packing plant fire in August 2019, the trade war and trade agreement restructuring, increasing corn prices, winter storm Uri and the severe drought in the Western U.S., including N.D.

The proverbial “light at the end of the tunnel” for cattle prices seems to have finally been seen. A number of important fundamental supply and demand factors are signaling higher prices ahead.

On the supply side, the beef cow herd declined in 2019 and 2020. Further liquidation occurred in 2021 with drought forced sales of beef cows and replacement heifers.

So, smaller calf crops and declining beef production will be supportive to prices for the next several years.

The U.S. Department of Agriculture (USDA) is also forecasting lower pork production for the second straight year but chicken production is expected to continue increasing. Total meat supplies are expected to be lower in 2022 which also will support meat complex prices.

On the demand side, domestic consumer beef demand was very good in 2021. By some measures demand was the best in several years. The U.S. stock market, an important barometer of the economy, increased throughout the year to end at record high levels.

High unemployment levels in 2020 declined throughout 2021 to about 4%, just slightly above pre-pandemic levels of 3.6%. “Help Wanted” signs are prominent at many businesses.

The other important component of beef demand is the export market, which set a record high in 2021. Previous annual record beef exports occurred in 2018. 2021 beef exports were strong to our top customers: Japan, South Korea, Mexico and Canada. Newcomer China really sparked volumes with record amounts going there. China became our third best customer by the end of 2021.

The value of fed steer byproduct (hide, tongue, etc.) value also surged in 2021 and was driven by the export market. USDA calculated a $70 per head annual increase in byproduct value based on a 1,400 pound steer.

2021 beef exports were up 20% from 2020 on a volume basis and increased 35% on a value basis with the higher beef prices. Strong exports are expected to continue in 2022 and may set records again especially on a value basis.

So, fed cattle prices in 2021 were supported by strong demand, and prices in 2022 also will be buoyed by smaller beef and total meat supplies.

Cattle prices gradually increased throughout 2021. By mid-year fed cattle and feeder cattle prices rallied to go ahead of the previous three years (2018, 2019, 2020).

Fed cattle prices in 2021 increased from $110 per hundredweight (cwt.) in January to $125 mid-year when they leveled off seasonally. The last three months saw prices increase up to $140 cwt., the highest level since 2015. Current live cattle futures prices are signaling just under a $140 cwt. average for 2022, compared to an annual average of $122 in 2021.

Higher fed cattle prices are supportive to calf and feeder cattle prices. Smaller calf crops are helping calf prices, but higher corn prices have somewhat held prices in check. Remember the adage – a 10 cent per bushel change in corn prices will cause a $1 per cwt. change in calf prices in the opposite direction. N.D. average 550 to 600 pound calf prices were seasonally low in mid-Oct. 2021 at $165 per cwt. but rallied to $190 to start 2022.

At the same time, 750 to 800 pound steers also rallied from $150 per cwt. to $167 to start 2022. Late spring 2022, feeder cattle futures prices at $170 per cwt., and fall futures prices at $180 signal improving prices throughout the year.

Cattle prices are expected to move cyclically higher for the next several years, buoyed by smaller calf crops and strong demand.

Although higher cattle prices seem probable, there are always risks. The pandemic is still with us, drought conditions linger, next year’s corn crop is unknown and could be affected by high input costs and weather, and the export market can change abruptly especially with geopolitical issues.