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Beef Industry Update:Navigating Challenges in Today’s Marketplace

Farm Credit Mid-America

July 28, 2020

Copyright 2020 Cattle Marketing Information Service, Inc.

Please do not copy or reproduce any part of this document without written permission.

Contraction vs. Coronavirus

• Review the supply setup for 2020 and 2021 and

discuss how expectations have changed this spring.

• Provide an update on the market conditions going

into second half 2020 and 2021.

• Discuss the uncertainty that remains throughout the

marketplace due to COVID-19 factors.

• Share a market outlook for components most relevant

to cattle producers through year-end 2021.

Inventory numbers have

rebounded due to profitability

and good grazing conditions.

6.5 mil. more cattle in 2020• 3 mil. beef cows

• 2 mil. feeder cattle and calves

• 1.5 mil. cattle in feedyards

Cowherd Peaks,

COVID-19 Breaks

The shift in the cowherd inventory

for Jan. 1, 2020, means the highs for

this cattle cycle are in at 31.7 mil.

Since the previous cycle highs,

there are 900,000 fewer beef

cows but 1.2 bil. lbs. more beef.

The easy gains have been made and

nothing else. Weekday cattle slaughter

remains within 5-10% of pre-COVID levels.

Hog slaughter is similarly there.

This could be the new reality for packing

capacity, or this could simply be packers

keeping slaughter in line with demand.

93,000 to 98,000 daily fed slaughter

would put the industry in a position to

gain more normal leverage by late year

The Knowns

End user beef margins went from record

losses to record profits in six weeks.

Since 2014, the cutout has spent less

than 5% of the time below $190.

Retail prices exceeded the 2015 highs by

nearly $1/lb. in June at $7.38. Expect a

slow correction through the summer.

Over the last 4 weeks, beef consumption has

been down 14%. Gains are relatively slow.

Foodservice is struggling with traffic. Retail

is struggling with price.

Three Cardinal Rules for

Cow-Calf & Stocker OperatorsAnswer these questions:

1. Are the downstream segments profitable?

(e.g. stocker, feedyard, packer, retailer)

2. Are cattle, hog and broiler numbers

expanding or contracting?

3. Are outfront market prices at a premium or

discount?

Stronger feeder cattle demand

depends on cattle feeding profits.

Expect less price pressure from competing

protein production this summer and fall.

2020 Forecast

Beef +5%

Pork +15%

Broilers +8%

The live cattle futures strip were trading at

levels not seen since fall 2016. Values will

improve when carryover concerns fade.

The Unknowns

We still no little about how the

consumer is doing financially.

Income is the lowest it has

been since February 2017 but

20% higher than 2010.

The consumer had more than

30% of their income coming

from the government in April

and May.

When the average consumer buys food, they

are spending money on the experience. Now,

that the price shock is over, does it matter?

Ground beef prices stayed competitive

against pork prices, but chicken held

relatively steady compared to its price.

China committed to increasing ag imports to

$40 billion by 2022 in the Phase One deal.

What purchases will benefit the most?

Drier areas continue to push east,

but so far, major crop areas are OK.

Temperature Precipitation

Three-Month Forecast

Maintaining Discipline

Adapted from Westcore Funds/Denver Investment Advisers LLC, 1998

Cycle of Market Emotions

Wow! I feel great

about this

investment.Temporary setback.

I’m a long-term

investor.

Euphoria

Point of Maximum

Financial Risk

Point of Maximum

Financial

Opportunity

Maybe the markets

aren’t for me.Optimism

Optimism

Excitement

Anxiety

Fear

Panic

Depression

Hope

Desperation

Denial

Thrill

Relief

Saturday slaughter has increased as growing

cattle supplies exceeded shackle space

Tighter packing margins

Tighter producer margins

The industry has seen fed cattle processing fall to around

80% of the size of the U.S. beef cowherd. It maybe more

economically viable for the entire industry if packing

capacity increases to 82% to 86% of the cow inventory.

Price spreads narrow near cycle lows.

2019 2020 2021 Low High

All Fresh Retail Price ($/lb.) $5.82 $6.32 $6.00 $5.85 $6.15

Composite Cutout ($/cwt.) $220 $230 $220 $195 $240

Fed Steer Price ($/cwt.) $117 $110 $115 $105 $125

750lb Steer Price ($/cwt.) $144 $140 $145 $140 $160

550lb Steer Price ($/cwt.) $164 $160 $166 $155 $180

Utility Cow Price ($/cwt.) $60 $60 $61 $50 $70

Hide & Offal Value ($/cwt.) $8.88 $7.50 $7.25 $6.75 $7.75

Spot Corn Futures Price ($/bu.) $4.15 $3.40 $3.50 $3.20 $3.90

2021 Range

Price Expectations

Summary• Market expectation: Buyers have gained leverage in

the market, but leverage is recovering from COVID-19.

Focus on the knowns. Be aware of the unknowns.

• Expansion: Beef supplies will remain ample through

2021. Pork and poultry supplies are stabilizing near

records. Stronger exports are absolutely necessary.

• Demand: Uncertainty here still exists with consumer

incomes and expectations. Beef commands a

premium in the meat case. It is more susceptible.

• Profitability: There is not going to be a one-size-fits-

all approach to profitability. Risk management and

marketing flexibility will pay in 2020 and 2021.

Thank you!

Lance Zimmerman Manager – Research, Analytics and Data

lance@cattlefax.com

800-825-7525

Copyright 2020 Cattle Marketing Information Service, Inc.

Please do not copy or reproduce any part of this document without written permission.

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