Peel: Signs Cattle Markets Roller Coaster May Subside
Cattle markets are never dull, but periods of relative calm and stability are sometimes interrupted by a few weeks of unusual daily and weekly dynamics that require constant attention. The past two years, however, have been more like a James Bond movie with a relentless series of unusual and unprecedented events that have kept the industry in a constant state of turmoil.
Beginning with the Holcomb plant fire in August 2019, the industry moved into the early pandemic impacts by February 2020. The worst of the direct pandemic impacts on cattle and beef markets occurred between March and June of last year but the residual and ripple effects are still very much impacting markets today and will for some time to come.
Deepening drought conditions across much of the west added to the 2020 challenges and expanded into the plains, especially the northern plains, over the winter into this spring. U.S. hay supplies were down significantly at the beginning of the hay market year in May and drought conditions are impacting pasture and hay production thus far in 2021.
The unprecedented February winter storm affected most of the central part of the country with record and extended cold much farther south than is typical. Cattle producers faced enormous challenges to feed, water and most especially, to save newborn calves during the storm. Widespread regional power outages and energy disruptions had massive impacts on feedlot operations in some regions and resulted in brief packing plant shutdowns and reduced production.
Corn prices began to increase last August and moved dramatically higher this spring. The highest feed prices since 2013 are expected to impact feedlot cost of gain and feeder cattle markets in the coming year at least. Large supplies of feedlot cattle, carried over from last year, resulted in fed cattle numbers that have exceeded packing capacity thus far in 2021, challenging packers to push cattle slaughter to the limit this year with large Saturday kills attempting to compensate for general labor limitations that have plagued the industry in recent years. The cyber-attack on JBS over Memorial Day caused additional reductions in beef processing and fabrication and created much short-term uncertainty in cattle and beef markets.
All in all, there is little doubt that most in the cattle industry are ready for the action-adventure movie to end and enjoy a bit of relative calm. Calmer times may be coming but we are not quite there yet. It will take a few more weeks to work through current fed cattle supplies and get the packing industry below capacity constraints. That will allow fed cattle markets to once again fully reflect market conditions.
The economy continues to open and domestic and international beef markets are very strong. Feed prices are expected to remain elevated and feeder cattle markets will continue to adjust to both feed market and fed cattle market conditions. Drought impacts remain uncertain and the short and long-term impacts on cattle markets are unknown. If enough herd liquidation is forced by the drought, short-term cattle slaughter and beef production will be higher than expected and beef production prospects beyond 2021 will be reduced.
Black swan events are always possible, and the threat of more unusual market events certainly remains. However, with a little luck, cattle markets will settle back into more typical dynamics and we can get a break from the action-adventure roller coaster of the past two years. We are nearly having more fun than we can stand.
