Commodity Insight: A shortage of beef and pork in 2023

The odds are high that the cattle market is on the verge of moving north in a big way. As I stated in this column at the beginning of the year, the upside potential remains to be seen, but with inflation running at its highest level in three decades and the entire globe in the early stages of a commodity supercycle, a reasonable upside target for both cattle cash and futures is $160 to $170.

Of course, that is my opinion and I could be wrong. It would not be the first time I was wrong about a forecast, as many will attest — but the next big move for the cattle market will be higher and not lower.

It is generally accepted that the current cattle cycle peaked in 2019 with a U.S. herd inventory of 98.4 million head. Due to smaller profits because of higher input costs and drought liquidation in the western United States, the cattle herd decline has only increased.

Rabobank, a Dutch multinational banking and financial services company headquartered in the Netherlands and rooted in agriculture, was quoted in Beef Magazine in December 2021 as claiming: “For the year-to-date, beef cow slaughter has been up 10% and dairy cow slaughter has been up 2% for an increase of 6%.”

Beef Magazine went on to state a few other Rabobank’s forecasts: “Drought conditions have eased in some areas, but long-term drought conditions are still a concern for the 2022 grazing season.”

And as tight as the 2022 market appears, it may just be the start of a bigger event next year. Rabobank argues U.S. cow slaughter is expected to continue and not reverse until after 2023.

Another bullish bullet point is beef supplies into the United States from Australia are also on a tightening trend just as China’s beef imports are growing.

Chinese citizens are developing a taste for U.S. beef. And that is no different from Japanese and South Korean citizens that are now reaching for beef before fish, chicken and pork.

And here is an important rub to remember as 2022 unfolds: If for some reason — COVID-19? Omicron? — Brazil or Australia do not increase beef exports, the fundamentals for U.S. cattle prices will be bug-eyed bullish for late 2022.

The U.S. cattle herd is declining in a scenario that will not reverse until late 2023. The drought-like conditions in the U.S. Plains may lead to more cowherd liquidation.

Demand for U.S. beef from China is record-large and growing. And if a major beef exporter such as Brazil slows their exports by a measurable amount, the bullish case for cattle prices turns far more bullish than anyone is willing to admit.

History shows clearly when consumers have money, one of the first items they are willing to pay up for, to reach for, is good, old U.S. beef. Bank on history repeating itself.

With the U.S. economy on the cusp of the best economic growth in years amid an environment of deep-pocketed consumers, the upside potential for a host of “stuff” markets is positive and exciting.

My work suggests the next big move with cattle prices, cash and futures, will be higher, not lower. Of course, markets and prices do not move in a straight line.

There are always rallies and breaks. There is always an issue or event that throws a market off course for a period.

Over the long run, however, fundamentals win out over issues and events. And the fundamentals for cattle prices moving forward are as clear as gin and bullish.

There are concerns that inflation is weighing on beef demand. No doubt, such concerns are warranted.

The Consumer Price Index released Oct. 13 showed inflation still running at a 40-year high due to the number of people holding jobs at a 50-year high.

As long as the economy is creating jobs and inflationary pressures persist there will be upward pressure on livestock prices.

In fact, in the year ahead, a shortage of red meat, beef and pork will be a headline grabber. Yes, a shortage of beef and pork appears likely.