Elliott Dennis is an assistant professor of livestock marketing and risk management in the Department of Agricultural Economics at the University of Nebraska with a research and Extension appointment.
Dennis holds a doctorate in agricultural economics from Kansas State University, a masters in applied economics from Utah State University, and a masters of agribusiness from the Royal Agricultural University in the UK.
IFT: What is your cattle price outlook through the end of 2022 and the first half of 2023, for fed cattle and feeder cattle?
DENNIS: The price outlook from the Livestock Marketing Information Center indicates that prices for the 5-area weighted average fed cattle should be between $141-143 per cwt., the 500-600 lb. Southern Plains feeder steer between $190-195 per cwt., and the 700-800 lb. Southern Plains feeder steer to be between $177-186. These forecasts generally align with what the USDA-ERS has been forecasting.
IFT: Are there trends developing that producers should be watching?
DENNIS: The culling rate and the number of heifer calves held back for retention indicate that the herd will continue to shrink into 2023 and 2024. Part of the culling was coming from drought conditions and the other major part was coming from contra-seasonal slaughter cow prices. Slaughter cow prices were pulling a lot of cows forward, elevating slaughter cow rates.
If the rate of culling continues, the industry could experience one of the largest percentage drops in total herd production in the last 40 years. This is something I am tracking closely as this will be the leading indicator for what type of nominal price level producers could receive for calves through 2023 and 2024.
IFT: Consumer demand is strong. Do you expect that to continue?
DENNIS: Currently, U.S. consumption of beef is relatively stable. This is surprising given that inflation has been reducing consumers’ disposable income.
The Federal Reserve has indicated that it will continue to raise interest rates throughout the year to curb growing inflation. … In the short term, this will raise the unemployment rate and cause the overall economy to slow. This is a potential issue for beef producers as consumers have been seen to reduce beef consumption when the economy slows. In fact, beef has become more sensitive to slowdowns in the economy relative to other protein products over the last 50 years. If this occurs, we should see U.S. consumption of beef be reduced and put downward pressure on fed cattle and feeder cattle prices.
IFT: Let’s talk exports. They have been very strong to China. Do you see that continuing, and what other markets may develop?
DENNIS: The U.S. beef industry has a very diversified portfolio of countries. While BSE was a challenge for the industry by reducing the amount of product that could be shipped to major locations such as South Korea and Japan, it allowed the industry to diversify. Since then, we have added several countries which were minor players before BSE and they have continued to purchase at post-BSE levels even after the U.S. regained its market share with Japan, South Korea and others.
Re-access to these countries came in part from bilateral trade agreements during the Trump administration. Most notable was the U.S.-China trade agreement which took effect in 2020. Before 2020, the U.S. did not ship a sizable amount of beef to China. They are now the third largest player by volume but make up about 10% of total sales. There are large growth opportunities in other countries as the income bracket changes overseas.
IFT: Large cattle-producing areas continue to deal with drought. Do you see this as a long term issue, and will it cause any shifts in where animals are located?
DENNIS: For domestic production, drought has really been the primary factor in the last three years driven by La Niña. For context, we have only had one La Niña event that lasted for three consecutive years, and never has a La Niña persisted for four consecutive years. Preliminary analog weather forecasts suggest that we should be leaving the drought conditions in 2023.
Also, the drought conditions have changed dramatically between 2021 and 2022. In 2021, the drought was primarily facing cattle producers in the Northern Plains and Northwest. Now in 2022, this has shifted with drought primarily affecting cattle producers in the Southern Plains. The drought has worked to reduce hay supplies and push lighter cattle into feedlots due to worsening pasture conditions. The real pinch will be higher feed costs during this winter with limited ability for winter grazing. That is when we could see the biggest impacts of the drought. Certainly, for next year, even with a substantial amount of rain, pasture conditions will need some time to recover, affecting the potential forage that could be taken off pastures.
IFT: What’s the potential for seeing more cattle fed in Iowa, Nebraska and throughout the Midwest?
DENNIS: The drought has incentivized some producers to sell calves at lighter weights. The cattle on feed reports indicate that the weight of cattle being placed has skewed towards cattle weighing less than 700 lbs. This is a noticeable shift for Nebraska and Iowa as over the last years there has been an industry shift to placing heavier cattle in feedlots.
In addition, over the past several months, the U.S. nationally has been setting records for total cattle on feed. I expect this to continue through the fall and then begin to drop off in winter 2023.
IFT: What advice would you give producers as they look to 2023?
DENNIS: As the cow herd continues to shrink, we will see fewer cattle on feed but still large amounts of heifers. Short term we would think that the total head on feed would decrease but that harvest weights would increase to compensate for limited production. Domestic demand should remain stable to weaker and export demand should be strong. All these signals get rolled up into higher prices for producers which are likely to be expected for 2023 and into 2024.
But higher prices do not always mean more profit. Even with $200-plus per cwt. calves, there are higher feed costs and other broad inflationary factors that can impact total profitability for producers. No matter the nominal price level we see, we need to find ways to control costs and lock in profits when available using price risk management.
