Nalivka: Backwards Planning For 2022
The following commentary is from John Nalivka, Sterling Marketing president, Vale Oregon.
As cattlemen set their sights on 2022, there is quite a bit of optimism. Looking at cattle markets, I have been optimistic, but let’s presume for a moment that all of this optimism turns out to be wrong and market performance does not deliver as we are forecasting. How will this affect your business going forward? At this point, you may be thinking, where is Nalivka going with this? No, I am not changing my market outlook, but rather asking the question to bring attention to budgeting and planning for a “worst case” scenario.
Market outlook is built on assumptions. Those assumptions concern supply and demand and I would submit, the demand side of the equation is more critical to market direction as 2022 approaches. The supply side of the equation at this point is probably more certain as cattle numbers will be down as the result of drought and poor market conditions over the past 2 years.
To say that volatility and uncertainty have defined markets over the past 18 months as producers and consumers have acted or responded to the events of those 18 months would be an understatement. Obviously, this has affected the assumptions underlying our forecasts and market outlook more than once since the beginning of 2021.
Beef cow slaughter remains well over a year ago. In fact, since the beginning of the year, it has been the highest since 2011. While this may lead to the conclusion that we are going back to the record prices of 2014 and 2015, I believe that is unlikely. The herd was liquidated to 88 million and a 60-year low in 2014 as a result of drought in the Midwest and a severe economic recession.
Coming back to my question – how will your business of raising cattle be affected if demand does not support higher prices? Worst case scenario may be the better starting point in times of uncertainty where circumstances are quickly changed by legislative action, government decisions, and nature all which are leading to sharply higher inflation.
