Turning the Page on a Year of Transition

By Kenny Burdine

In a lot of ways, 2021 was another frustrating year for cattle producers. Prices did improve this year for fed cattle, feeder cattle, and calf markets, but by relatively moderate amounts on an annual basis. When compared to price improvement for other commodities, cattle markets seem to have been a bit late to the party. Not to mention that CFAP payments offset some of the price regression in 2020 and similar payments were not available for 2021. While forage was relatively abundant in my area this year, some regions are the US are dealing with significant drought. And, it’s hard to grasp the damage done by the massive tornados of last weekend in much of the South, including my home state. Finally, changes in feed prices (and other inputs) have driven up production costs and impacted the value of feeder cattle and calves. Still, as I think about the future direction of cattle prices, I think that 2021 is likely going to be remembered as a year of transition.

It appears that we turned the corner on fed cattle supply and beef production this year. While beef cow inventory peaked in 2018, 2021 will actually end up being the peak in beef production due to the normal time lag of beef production and the supply impacts of COVID in 2020. Feedlots appeared to get much more current with marketings by fall and fed cattle prices rose sharply in the 4^th quarter. Since beef cow inventory has continued to decline and calf crops have continued to get smaller, tighter supplies should continue to support fed cattle prices going forward.

These dynamics began impacting feeder cattle markets in the second half of this year as well. As is often the case, heavy feeder cattle markets saw improvement first and prices rose sharply through the summer. Seasonal tendencies are very difficult for calf markets to overcome and calf prices did decline from the end of summer into the fall. However, strong spring and summer CME© feeder cattle futures are supporting calf prices and the first three weeks of December have been encouraging as calf markets have made an early winter rally. Calf prices tend to increase as we move towards grass, so seasonality should work in our favor between now and spring.

I think a lot of the frustration amongst cattle producers has been because we seem to have been stuck in this rut for three years. The year 2021 will mark the fourth year of beef cow herd liquidation, but price improvement has been very limited. Whether it was COVID-19, rising grain prices, or any other factor, cattle producers have been waiting a long time to see significant improvement in feeder cattle markets. But, I think the transition that we observed in the second half of 2021 was a necessary step towards seeing that happen. Without a doubt, the cattle markets will face challenges in the coming year, but it does appear that we have turned a corner and should see a more bullish market in 2022.