Hopes for a more normal year in the cattle industry

Prime Cuts with Steve Kay

The North American beef industry started 2021 with cautious optimism of a return to normalized markets and pricing patterns. The industry especially hopes that even if the COVID-19 pandemic continues well into the year, markets will avoid the kind of extreme volatility seen last year. U.S. packers saw record operating margins throughout last year. But cattle feeders and other producers saw slim or even negative returns. The U.S. national cattle herd shrunk slightly last year compared to 2019 and that should pay dividends for producers as the year progresses.

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COVID-19, however, will continue to hang over the industry in both countries. A stark reminder of that came when Cargill, Canada’s largest beef processor, temporarily halted production December 17 at its beef processing facility in Guelph, Ont,. after 82 employees tested positive for the COVID-19 virus. As of that date, 129 people were self-isolating. Some were positive for the virus while others had come in close contact with infected individuals. Cargill resumed harvest shifts incrementally on December 29-30 and fabrication shifts on January 2.

The new year began promisingly for live cattle and boxed beef prices in the U.S. Cattle prices during the Christmas week enjoyed a US$3.07 per cwt live gain on the prior week despite packers buying cattle for a holiday-shortened week. USDA’s five-area steer price averaged US$109.19 per cwt live or US$171.80 per cwt dressed (up US$6.51 per cwt from the prior week). Packers then bought cattle during the last week of the year for a full production week and were forced to pay higher prices again. Live prices averaged US$111-112 per cwt and dressed prices averaged US$175-176 per cwt.

The price rally, however, might be short-lived. The U.S. entered 2021 with a near-record number of cattle in feedlots of 1,000 head and larger. November marketings were slightly disappointing given the number of cattle on feed, so the market rate needs to increase, say analysts. October, November and December placements were likely down about 0.5 million head from the same three months in 2019. But the benefits of this decline likely will not manifest until the middle of the second quarter. Cattle feeders until then must work their way through a front-end supply of cattle that will remain much larger than a year earlier, say analysts.

USDA’s December 18 cattle-on-feed (COF) report showed that the December 1 COF total was 12.036 million head, which was 100 per cent of a year earlier (up 5,000 head). Feedlots placed 1.906 million head in November, 91.1 per cent of a year earlier. Marketings in November totalled 1.782 million head, 98.3 per cent of a year ago. Total marketings and the marketing rate (marketings versus COF) were the lowest since 2015. Given the ongoing record first-quarter buildup in front-end supplies, the industry must accelerate marketings to prevent a significant carryover into the second quarter, says Andrew Gottschalk, HedgersEdge.com.

Boxed beef prices meanwhile recovered somewhat in the week before the new year because of two weeks of holiday-reduced production. The estimated slaughter total of 419,000 head during the Christmas week was the smallest holiday total since the 403,649 head recorded the Christmas week of 2015. Total beef volume sold that week was 3,764 loads, down 24.1 per cent from the same week last year. This enabled packers to sell beef at higher prices last week, especially as retail beef sales were strong over the Christmas week. Record large retail beef sales were a key factor in the U.S. industry’s rapid rebound from the impact of the COVID-19 pandemic last year. The industry will be hoping that strong sales continue in 2021.

About the author

Contributor

A North American view of the meat industry. Steve Kay is publisher and editor of Cattle Buyers Weekly.

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