Randy Blach, CattleFax CEO, gave the Texas Cattle Feeders Association an update on U.S. market and industry conditions during an unprecedented year in history.
The corn supply looks strong this year, with ending stocks up 13.9 per cent.
Beef cow numbers were up slightly in 2019 but will end 2020 down by around 375,000 and 300,000 in 2021. Certain areas are definitely being affected by drought. The drop in cow numbers should level off by 2023. The calf crop was 36.1 million in 2019 and should be 35.8 in 2020 and 35.6 in 2021.
The coronavirus pandemic caused a drop in slaughter numbers this spring and summer and yielded one million fewer slaughtered fed cattle during that period. Most of that volume has been caught up. Slaughter numbers should end 2020 down by 0.7 per cent.
Before the COVID-19 pandemic, the daily fed-slaughter capacity was 98,000. In April and May, slaughter was down 25 to 30 per cent. By July, the numbers were back to 93,000 to 96,000/day. Blach said the packers have done a wonderful job at keeping workers healthy. Saturday slaughter has averaged 55,000 since mid-June.
Steer and heifer slaughter numbers: 2019 up 315,000, (+1.2 per cent); 2020 down 800,000,(-3.0 per cent); 2021 up 780,000,(+3.0 per cent). Slaughter numbers will be similar in 2021 to 2019, 26.5 million and stable for several years.
Beef exports were down seven per cent through July, mostly due to low available supply for May and June shipment. The numbers should recover by year’s end and be plus three to four per cent next year.
Beef imports have been up 8.5 per cent because of our production decrease and the increase in ground beef demand during the COVID-19 pandemic shortages.
Blach said overall beef demand has been strong. Foodservice accounted for 50 to 55 per cent of domestic consumption in 2019. The COVID-19 pandemic has altered the foodservice picture. In April and May, half of our demand was closed. The market priced in the worst demand in over 50 years. At retail, total meat sales were up 30 per cent in dollar terms.
Limited service, fast casual and fast food accounted so far for 45 per cent of foodservice consumption. Full service, sit-down restaurants accounted for 23 per cent of foodservice and schools six per cent. Retail accounted for 45 to 50 per cent of total consumption.
Sit-down restaurants were off 75 to 80 per cent in March and April. Quick-service restaurants were off 40 per cent. By fall, sit-down business was off 20 to 25 per cent and quick service was down 10 per cent.
Blach pointed out that 83 per cent of carcasses graded Prime or Choice so far in 2020. That indicates we’re on the right path, compared to 54 per cent of carcasses in 2006 and 55 per cent in 2007. The spread between Prime and Choice has averaged $22 in 2020, the Choice-Select spread $12. Consumers want more high-quality beef. The beef demand index shows the Choice index at 160 in 2020, compared to 106 in 2009.
For further evidence, U.S. consumer expenditures for beef are greater than for poultry and pork. Since 2000, broiler spending is up 74 per cent, to $24 billion. Pork is up 74 per cent to $28 billion and beef is up 97 per cent to $55 billion. But we have to keep listening to consumers, Blach said.
Blach gave figures on packing plant utilization overall, based on a 40-hour week. Capacity utilization for select years: 2008 — 100 per cent; 2015 — 92 per cent; 2016 — 103 per cent; 2018 — 105 per cent; 2019 — 106 per cent and 2020 — 105 per cent. In 2015, when utilization was very low, packers started closing plants. He said we’re not as likely to see new 5,000- to 6,000-head plants, but we could see some 1,000- to 1,500-head plants using more robotics.
Blach also looked at overall industry profitability. From 1980 to 1998, the average was $32/head, to be split among all sectors. From 1999 to 2019, the industry divvied up $279/head, assuming no risk management. The shift to greater profitability began in 1986 and really accelerated in 2003.
Blach predicts beef production will peak in 2021 and then decline for the next half decade.
Blach noted some transaction figures for the southern plains, including Kansas, Texas, Oklahoma and New Mexico: negotiated cash was between 11 and 14 per cent the last three years.
One prediction yields serious food for thought: if government intervention in the markets happens, he thinks the risk management tools we’ve been using likely will no longer work.
As for feeder cattle, he expects 2021 to be more solid and within a more normal range, $135 to $155-$160.
Blach also discussed exports long-term. While the U.S. is only four per cent of world population, world population grows by 83 million per year. While our exports add $350/head at the fed level now, he projects it to be $500 by 2030. Our production will peak in 2021. But we do need more harvest capacity and that will prove the bottleneck that limits herd growth for the near term. Cattle prices in 2020 have likely bottomed and should trend higher through 2025.