After years of massive beef cattle liquidation, the U.S is finally getting into tighter supplies this year, setting the stage for higher prices.
“Last year, we still had record beef supplies because we were liquidating so many cows and with the drought we were pulling a lot of feeder cattle and calf supplies forward,” said Kevin Good, CattleFax vice president of industry relations and analysis.
The industry is starting 2023 with about 500,000 fewer cattle on feed and about 750,000 fewer feeder cattle outside feedlots.
CattleFax has forecast about a 5% drop in beef production in 2023. That should translate into improved leverage for cattle producers over packers and better leverage for packers over retailers, he said last week at the National Cattlemen’s Beef Association annual meeting in New Orleans.
“So some of the record dollars that we see at retail will continue and start trickling back to the cattle producer,” he said.
CattleFax is optimistic continued strong demand and tighter supplies will lead to higher cattle prices, he said.
The drought has had a tremendous effect on supplies. Just looking at 2022, about 65% of beef cows were either in dry or drought conditions, 50% were in drought and about 25% were in extreme or exceptional drought, he said.
“Until that ship turns around, obviously we … can’t expand,” he said.
The good news is weather patterns are changing and conditions should improve as the year progresses, he said.
But although it’s an optimistic outlook for cattle producers, there are still some headwinds including higher feed costs, labor costs and availability, interest rates that have doubled and higher energy costs, he said.
“So it’s going to take some substantially higher calf values to incentivize a cow-calf producer to expand,” he said.
CattleFax is optimistic the herd will turn around at some point, but the number of heifers on feed for slaughter is a record high.
“So we’re not going to expand from that pile this year,” he said.
Cow slaughter is going down about 700,000 head this year, but it’ll still be at a liquidation pace. It’s probably going to take 12 months before the industry starts to rebuild the herd, he said.
That means tighter supplies not only in 2023, 2024 and 2025 but probably the tightest supplies in 2026, he said.
Domestic demand has been a bright spot for 20 years, he said.
Exports set records last year for volume and value. Exports for beef, variety meats and hides together represented 23% of the value of a U.S. fed steer or heifer, which was a record high, he said.
CattleFax is optimistic exports will hold together this year. With strong domestic demand, that’ll mean higher beef prices, which are a headwind. But exports to China are expected to gain ground, and exports to Japan and South Korea will probably hold their own, he said.
“We could be down a couple of ticks, but dollars will probably still be record high,” he said.