By Garth Ruff
What is driving recent cash fed cattle higher prices at auction? What is the cattle market going to look like in 2022? Those have been common questions as of late, especially after record setting fed cattle auction prices during the first week of December at several Ohio auction markets.
Auction Price Dynamics
As we know in agriculture, the law of supply and demand still has a great impact on commodity prices. Let’s talk about demand first.
We often do not know, especially with regards to fed cattle is the balance between supply and demand of a given packer on a given harvest day. For a plant to operate efficiently, it needs to operate at capacity to cover fixed costs associated with daily operations.
From the supply side of things, most packers fill a day’s harvest with a combination of cattle that are forward contracted, negotiated or formula priced, and cattle purchased on the cash market. Depending on where, and who the packer is, the ratios between the three purchasing avenues will vary greatly.
Without getting too into the weeds on how cattle are scheduled for harvest, one can deduce that if the supply of contracted or negotiated price cattle is limited, there is a need to purchase fed cattle on the cash or spot market.
When more than one packer at an auction is caught short handed on supply, the need to fill shackle spaces increases demand for cash cattle and thus creates higher prices at the sale barn. This is what happened the first week of December when several cattle sold at Ohio auctions brought $150-160 cwt, with market report highs topping out at $169 cwt.
As packers got caught back up with committed cattle, we followed that one week with steady, yet softer prices in mid-December.
Inventory
On the national level, cow inventory was down 1% in July compared to last year. Cattle on feed in feedlots with at least 1,00 head were reported to be down also 1% in October compared to 2020. Historically, cattle inventory is still rather large, with various plants running at reduced capacity due to health and labor implications of the COVID pandemic.
On a state level, according to the January 2021, USDA NASS report Agriculture Across Ohio cow numbers are slightly up from 2020 at 302,000 head, up 4,000 cows from a year ago. However, Ohio cattle on feed numbers are quite a bit lower, down 20,000 head from one year ago. In 2020, Ohio had 170,000 head on feed, compared to 150,000 in 2021. A similar story can be said with calf inventory down 35,000 head from one year ago. Keep in mind that these are January 1, inventory numbers.
As I visit with some of our colleagues in neighboring states, similar trends can be found with reduced brood cow numbers this year in Kentucky to the south, as one example.
High demand for beef, both domestic and for exports during the pandemic, led to higher-than-average cull prices throughout 2021. It is likely that cow numbers will be lower this coming January 1, and thus the coming 2022 calf crop will be smaller yet. Year-to-date (December 2021), beef cow slaughter nationwide has been up 10 percent according to Rabobank.
Into 2022
This increased cow slaughter total will lead US beef production to be down and estimated 2.5 percent in 2022 (Rabobank).
So, what will 2022 look like with regards to cattle prices? Barring any setbacks or the unknown, many industry experts have projected cattle prices to be higher across the board in 2022.
Regionally, the demand for high quality fed cattle from major packing plants closest to us (the two JBS beef plants in Pennsylvania and Michigan, Cargill in PA, and the Tyson plant in Joslin, Illinois) looks to remain strong, as does the demand for locally produced beef as the overall regional supply of cattle decreases.
Agriculture is always numbers game, and given the numbers we have currently available, there is cause for optimism in the beef cattle business for 2022.
Source : osu.edu