Analysts have been trying to sort out the cause of recent movement in cattle markets. As part of that, University of Tennessee ag economist Andrew Griffith has been watching beef demand trends.
“Supply and demand are the cornerstones when studying and evaluating a market because equilibrium among those two factors results in a price,” he says in his weekly market outlook. “When it comes to the beef market, many in the industry are concerned with beef demand because stronger demand leads to higher prices and softer demand leads to lower prices, assuming everything else stays the same.”
Griffith says recent demand has been good.
“Based on calculations from the Livestock Marketing Information Center, the retail all-fresh beef demand index for 2019 was 109, which is the third highest level in the past 20 years and two points stronger than 2018,” he says.
Despite the demand, producers have not seen large profits in recent years.
“There is no doubt that beef demand has been strong since the drought in 2012 and 2013,” Griffith says. “However, many cattle producers are probably asking why they are not benefiting more from strong demand in the form of higher cattle prices. The answer to that lies on the supply side of the equation.”
Since the national drought, herd expansion and higher production drove prices back down.
“Producers responded to high cattle prices by increasing beef supply,” Griffith says. “Beef production in 2019 was nearly 3.5 billion pounds greater (+14.6%) than in 2015 when the demand index hit 112. Thus, cattle prices are lower.”
With the national herd expansion ending and the grass finally starting to show some green in pastures to the south, there is some cause for optimism.
The February Cattle on Feed report was largely close to expectations, but still provided some insight, Griffith says.
“The February Cattle on Feed report for feedlots with a 1,000 head or more capacity indicated cattle and calves on feed as of Feb. 1, 2020, totaled 11.93 million head, up 2.2% compared to a year ago, with the pre-report estimate average expecting an increase of 2.4%,” Griffith says.
January feedlot placements were different from expectations, however.
“January placements in feedlots totaled 1.96 million head, down 0.6% from a year ago with the pre-report estimate average expecting placements up 1.9%,” he says. “January marketing’s totaled 1.93 million head, up 1.1% from 2019 with pre-report estimates expecting a 1% increase in marketings.”