Drought and the ongoing pandemic could make cattle markets bumpy over the next few weeks, but economists say the underlying fundamentals remain strong.
In recent weeks, Reuters reported that rising Omicron infections among U.S. workers and inspectors slowed meat processing, citing meat company executives and union officials.
Another bit of evidence comes from the fact that slaughter weights have been ticking back up, according to Oklahoma State University livestock marketing specialist Derrell Peel.
A compounding concern is the widespread and worsening drought, which could change the flow of feeder calves coming to market.
“Things have been really dry in the tri-state area, and I think there will be more cattle coming off of wheat pasture earlier than normal just because we’re running out of forage,” said Brady Sidwell, owner of Sidwell Strategies, a commodity brokerage firm in Enid, Oklahoma.
“With cattle coming off wheat earlier, and the feedyards not being able to move them as fast, when that starts to back up, prices can fall,” he added. “I’m still bullish on the feeder market overall, but when we have a lot of cattle moving all at one time, and then we have some of these other issues, that can still affect the near-term.”
A recent Supreme Court decision prohibiting a federal vaccine mandate for large employers could help alleviate some of the concern, he said.
“If that requirement had been upheld, that would have been a major disruption, but I think it was a bit of a crisis avoided,” he said.
Peel said he sees no strong evidence to indicate a significant slowdown has happened yet, but the issue bears watching.
While getting meat to market remains a concern for producers, there’s nothing to indicate a lack of demand at retail, either domestically or overseas, according to economists.
In a recent written report, Colorado State University’s Stephen Koontz noted that wholesale-to-retail margins on both beef and pork are substantial. The farm-to-wholesale margins have also been good, following the recovery of meat supply chain functioning. Continuing tightening of supply could translate into the potential for substantially strong farm level prices, he said, although that’s not guaranteed.
“Boxed beef has picked up after holiday featuring,” Peel said. “We’ve seen an almost $5 increase on choice boxed beef, so that shows the underlying strength of demand.”
Domestic demand is running 25 percent higher than a year ago, he said.
“The trade situation continues to be supportive in conjunction with strong domestic demand,” he added. In November, beef exports were setting a record pace, running 18 percent above a year ago.
Meanwhile, live cattle imports from Canada and Mexico have gone down, he noted.
When meat exports to those two countries are taken into consideration, the resulting net imports fell 32 percent last year, he said.
With national cow numbers expected to decline by as much as two percent this year, feeder calf supplies will get tighter and markets should continue to improve, he said.
The Biden Administration’s recent proposals aimed up shoring up small and mid-sized processors could also have some positive impact down the road.
Sidwell and Peel both believe additional processing capacity could be beneficial for certain markets and producers, although it will take time to come online.
Sidwell currently has some of his own cattle custom processed to sell as branded beef.
“It’s an alternative way to market and not wait on Congress to try to make these markets fairer,” he said.
This article originally appeared on LA Junta Tribune: Cattle market factors being closely watched