Nalivka: 2023 Cattle Market – Caution From the Demand Side
Yes, I agree – the supply side of the beef market equation is setting up for a replay of 2014-2015 with record cattle prices. The positive shift in beef demand over the past decade would be supportive. However, I would suggest a note of caution when assuming that demand will be as supportive to prices as during the past year.
When demand is strong for one commodity, i.e., beef, it can be easy to set aside the matter of competitive products, i.e., pork and poultry in the retail meat case. I am inclined to think that this may have been the situation as beef demand increased both in the U.S. marketplace as well as in U.S. export markets. I think there was a tendency to take on the belief that each market had its own consumer with no cross-over due to its own price or competitive product prices. This may have been confirmed when non-meat protein products did not take consumers away from beef. However, that is not reality with regard to the economics of consumer demand. Cross-price elasticity or how much the change in the price of one good impacts the demand for another good, is still an important concept even though it may have temporarily gone to the backseat. I think the current state of the U.S. economy (recession) will likely bring markets back to the real world over the next year.
On the supply side of the equation, I am forecasting U.S. beef production to be down 6% during 2023, a significant drop driven by sharp herd liquidation. However, keep in mind that would still be 2 billion pounds more beef produced than during 2014 and 2 ½ billion pound more than during 2015.
Shifting to demand, U.S. beef exports have taken on an increasingly greater role supporting U.S. beef demand. Beef exports are expected to be record large by the end of 2022. While I remain positive regarding large export numbers, I am hesitant to believe it will maintain the same pace. One huge factor is a stronger U.S. dollar and particularly when combined with higher export prices. U.S. beef does have an advantage in most markets but the export market is still very competitive, particularly for the Chinese market. U.S. beef exports during 2023 will likely be down 14% a year earlier.
Getting back to competitive products and prices, U.S. pork production will increase 1% during 2023 over a year earlier, but 12% more than in 2015. Poultry production is expected to be up 1% during 2023 and 12% over 2015. I believe the race is on to retain and expand beef’s consumers whose budgets will be increasingly squeezed by inflation.
My take – record setting cattle prices are a possibility but not a done deal given the big picture. My recommendation – cautious optimism can pay off.
