Review and lessons
from the 2021 cattle market
Starting in March 2020, disarray set in motion a chain of events leading to the fed cattle backlog from plant closures slowing the supply chain throughout 2021. While the market likes to avoid the un-known, the last two years put the beef business in uncharted territory.
The first quarter of 2021 expected to see the last of the ultra-heavy carcasses. Yet, even a year later, fed cattle currentness has not returned for any significant period of time.
Carcass weights often indicate currentness in the fed cattle sector, and with weights still trending higher, there was little improvement.
Combined steer and heifer carcass weights averaged 877 pounds in 2021, just three pounds lower than 2020 and 23 pounds heavier than 2019.
The number of cattle on feed for more than 150 days in the fourth quarter of 2021 also outpaced the 2020 head count for the same period – another indicator currentness in the feedlot sector was not achieved.
Record cutouts and grade, improving demand
These factors created divided pricing stories for cattle and wholesale beef prices, also known as cutout. The bottleneck in the packing sector kept fed cattle prices in check yet again during 2021, although much improved over 2020.
The five-state fed steer price averaged just $108 per hundredweight (cwt) in 2020 versus $122 per cwt in 2021, a 13 percent advance.
Yet, the comprehensive cutout price advance from the 2020 average of $233 per cwt to $275 in 2021 was an 18 percent change.
From 2019 to 2021, the dressed delivered steer prices declined from 85 percent of the comprehensive cutout value to 71 percent. This is a reflection of the backlog of fed cattle and the extended trailing effect it had on depressing cattle prices.
Strengthening beef demand was not deterred as record annual cutout prices were posted. Unseasonal price spikes for several sub-primal cuts, particularly the ribeye, elevated total carcass cutouts to new heights most notable in the second through fourth quarters.
Just as customers were seeing record beef prices in the grocery store, the spreads were recordwide between each of the beef quality grades.
The Choice per Select spread touched a record one-week high of $32 per cwt in mid-summer, while this measure averaged $16.45 per cwt for the year, compared to $8.75 per cwt in 2021 and $10.47 per cwt in the five-year average.
U.S. Department of Agriculture Prime premiums above Choice were also record high, touching $84 per cwt in November and averaging $45.71 per cwt for the year.
The Certified Angus Beef (CAB) brand premium to Choice has been resilient for the past two years averaging $17 per cwt, pushing to this new threshold after averaging $12 per cwt in the previous five-year average.
Through November, annual U.S. beef exports were 16 percent larger in 2021 than the year prior with export value up 39 percent.
The record-wide price spreads occurred counter to what one would expect with the highest quality carcasses in modern history. The Prime category continues to capture a larger share of the fed cattle carcass mix averaging 10 percent across the industry for the past two years, double the 2015 rate.
The Choice grade was steady and record high for the past two years at 72 percent, a culmination of 15 years of carcass quality improvement pulling Choice up from just 51 percent of fed cattle in 2006. CAB carcasses were over eight percent higher in 2021 with weekly head count totals near 115,000 head and a consistent 36 percent acceptance rate among eligible carcasses.
The fed cattle backlog created the negative consequence of increased days on feed and heavier finished cattle weights, adding to the Yield Grade (YG) four and five categories.
Currentness of market-ready cattle supply is expected to level out later in 2022 with average days on feed declining. If this trend develops, expect to see fewer over-finished cattle and the proportion of YG fours and fives smaller.
Cattle supply and beef demand expectations for 2022 are optimistic as the national beef cowherd declines due to drought conditions in the northern and western parts of the country.
While several companies plan to expand packing capacity, the timeline for those facilities to commence slaughter suggests it will take several months to see a difference.
Even so, the cattlemens’ share of carcass cutout values is set to increase as packers find fewer finished cattle to choose from in the near future.
Considering the production factors of the past two years, it’s logical to consider advances in carcass quality, or higher marbling scores, will be less likely to develop in 2022 than in the previous two years.
With this said, price spreads for higher quality carcasses are also more likely to remain wider than they have historically.
It’s time to write 2022’s history, and there is optimism it will favor the producer.
Paul Dykstra is the assistant director of supply management and analysis at CAB. He can be reached at firstname.lastname@example.org.