There has been a lot of discussion about inflation over the last six months, and for good reason. According to the Economic Research Service, the price of beef and veal in the CPI has risen 5.2% from January-August 2021 compared to the same period in 2020. The forecast range for the entirety of 2021 for beef and veal is an increase of 5-6%. If this seems higher than usual, that’s because it is. The 20-year historical average increase for beef and veal is 4.4%. Despite this higher-than-average rate of increase, the forecast for 2021 is still well below the increase of 9.6% in 2020.
For all the discussion of the prices consumers have been paying for beef, things haven’t been any more stable for growers. According to ERS’ producer price index, the farm-level price producers have received has risen 8.7% from January-August 2021 compared to the same time period in 2020. The forecast range for the entirety of 2021 for farm-level cattle prices is an increase of 8-11%. But unlike the consumer side, this increase doesn’t follow increases in 2019 and 2020. In fact, farm-level cattle prices fell 0.8% in 2019 relative to 2018, and then another 4.9% in 2020 relative to 2019. The ERS PPI forecast range for farm-level cattle is an increase of 2-5%, fully surrounding the 20-year average increase of 3.4%.
September Cattle on Feed Report
USDA’s latest Cattle on Feed report, released Sep. 24, shows a total inventory of 11.075 million head on feed as of Sep. 1, down 2.8% from the same time in 2020, but up 0.8% from 2019. It is important to remember that due to COVID-19 disruptions last year, typical year-over-year comparisons need to be contextualized. This decline is part of a normal seasonal decline that typically occurs throughout the summer and into September. It also reflects where we are in the contraction phase of the cattle cycle.
Rangeland Condition
In non-breaking, but very important news, it’s still very dry out there. According to this week’s Crop Progress Report, a whopping 46% of pastureland across the U.S. is in poor-to-very-poor condition in the 38th week of the year, approximately equal to the end of September. The five-year average at this point in the year is 21%. Only 23% of pastureland is rated good to excellent. The five-year average at this point in the year is 42% in good-to-excellent condition. Currently, more than half of the rangeland in California, Idaho, Minnesota, Montana, Nevada, North Dakota, Oregon, South Dakota, Utah, Washington and Wyoming is classified as poor or very poor. In a race no one wants to win, Montana leads the country in poor pasture condition, with 92% of pastureland in poor-to-very-poor condition.
To put poor rangeland conditions in a different perspective, at the end of March (week 12 of the year) 26% of the nation’s beef cattle inventory was on rangeland that was considered poor to very poor. April and May brought relief to some parts of cattle country, improving rangeland condition in Texas, bringing the share of the nation’s cattle on poor-to-very-poor pastureland down to 16% and 19% at the end of May and June, respectively. Unfortunately, however, much of the West and upper Midwest continues to suffer from severe drought, with 25% of the nation’s cattle inventory once again on pastureland that is considered to be in poor-to-very-poor condition.
Conclusion
ERS estimates that increases in both the CPI and PPI will remain high through 2021, but will return to the range of 20-year estimates in 2022. Despite these estimates, the number of cattle on feed is lower than 2020, but above the 2017-2019 three-year average. Beyond current feeder stocks, an issue that will prove challenging to beef production in years out, a quarter of the national beef cattle inventory is on pastureland considered to be in poor-to-very-poor condition. The percentage of heifers as a share of total feeders will be something to keep an eye on in the months to come. This will be a good indication of elevated sales of potential breeding stock if western and Northern Plains producers find themselves unable to source forage as the drought persists. At this point, most signals indicate the market for beef will continue to be tight, likely for some time.
