Over the past few weeks, the USDA has released a wealth of data on the beef and pork markets, providing insight into a question we’ve all been asking ourselves for some time: when will the beef and pork markets will they return to a semblance of “Ordinary”?
Production estimates in the form of the Hogs and Pigs report provide a detailed inventory of breeding and market pigs as of September 1, while the Cattle on Feed report provides monthly estimates of the number of cattle fed for slaughter. The USDA also provided us with the Cold Storage Report, which shows the volume of products, including beef and pork, stored in freezers in the United States as of August 31.
In addition, the USDA’s Economic Research Service updated the Food Price Outlook, which analyzes the level of the consumer food price index, examines changes in the food CPI, and constructs food CPI forecasts for the next 12 to 18 months. In the same report, ERS also analyzes and models the Producer Price Index forecast, which measures the average change in prices paid to domestic producers. Finally, the Crop Progress Report continues to shed light on the incredibly dry rangeland conditions many pastoralists face. All of these reports have been discussed individually, but taken together they provide important context for the meat affair, both today and in the future.
There has been a lot of talk about inflation over the past six months, and for good reason. According to the Economic Research Service, the price of beef in the CPI rose 5.2% from January to August 2021 compared to the same period in 2020. The forecast range for the whole of 2021 for the beef is an increase of 5 -6%.
If it sounds higher than usual, that’s because it is. The historical 20-year average increase for beef and veal is 4.4%. Despite this above-average rate of increase, the forecast for 2021 remains well below the 9.6% increase in 2020.
When it comes to pork prices, things are not calming down any further. According to ERS, pork prices in the CPI rose 5.4% between January and August 2021 compared to the same period in 2020. The forecast range for all of 2021 is an increase of 6-7% . This year’s increase is well outside the historical 20-year average increase of 2.2%. Unlike beef, the significant increase in 2021 follows a similar 6.3% increase in 2020.
The question everyone is asking (and no one can answer it with 100% certainty): What should we expect in the case of beef and pork in 2022? So far, ERS is forecasting a 2-3% increase in consumer prices for beef and pork.
Despite all the talk about the prices consumers pay for beef, things haven’t been more stable for producers. According to the ERS Producer Price Index, the farm gate price received by producers increased 8.7% between January and August 2021 compared to the same period in 2020. The forecast range for the 2021 set for farm cattle prices is an 8-11% increase.
But unlike on the consumer side, this increase does not keep pace with the increases in 2019 and 2020. In fact, farm gate prices for cattle fell 0.8% in 2019 from 2018, and then a further 4.9%. in 2020 compared to 2019. The ERS PPI forecast range for on-farm cattle is an increase of 2-5%, fully surrounding the 20-year average increase of 3.4%.
Things are also turned upside down when you look at the prices that pork producers receive. According to ERS, the PPI for wholesale pork increased 17% from January to August 2021 compared to the same period in 2020. The PPI range forecast for all of 2021 for wholesale pork is an increase from 17 to 20%. This year’s increase is well, far outside the historical 20-year average wholesale hog increase of 1.9%. Despite the incredible change in 2021, the 2022 wholesale pork PPI forecast calls for a 1-4% increase.
Cold-warehouse beef and pork supplies increased in August from low stocks on hand in June and July, but supplies remain significantly below 2020 and below average levels from 2017 to 2019. Beef supply in cold on August 31, storage was 13.664 million pounds higher than supply on July 31.
This 3.4% increase helped ease the pressure a bit, although August 2021 inventories were 9% lower than August 2020 and 14% lower than average inventory levels for August 2017-2019. The cold-warehouse pork supply on August 31 increased by 16.931 million pounds from July 31. This 3.8% increase reduced August 2021 inventories to less than 1% of August 2020 levels, but still 22% below average August 2017-2019 inventory levels.
September Fed Cattle Report
USDA’s latest Cattle on Feed report, released on September 24, shows a total inventory of 11.075 million head of feed as of September 1, down 2.8% from the same period in 2020, but in 0.8% increase from 2019. It’s important to remember that due to COVID-19-related 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 contracting phase of the livestock cycle.
September pigs and pigs
The USDA’s National Agricultural Statistics Service also released its latest quarterly pig and hog report last week, providing a detailed inventory of pigs for breeding and marketing as of September 1.
The report showed that as of September 1, all pigs and pigs had fallen to 75.352 million head, down 3.9% from the same period last year. This figure was lower than pre-report estimates of 1.7% to 2.0%.
The report also shows the lowest number of pigs kept for breeding, 6.190 million, since the December 2017 report. We are now 4.3% below the peak breeding population reached in December 2019. A return to a rate of record litter, measured in pigs per litter, was reported at 11.13 in September 2021, an increase of 0.6% from September 2020.
State of the courses
In incessant, but very important news, it is still very dry there. According to this week’s Crop Progress Report, 46% of pastures in the United States are in poor to very poor condition in the 38th week of the year, which is roughly the end of September. The five-year average at this point in the year is 21%. Only 23% of pastures are rated good to excellent. The five-year average at this point in the year is 42% good to excellent.
Currently, more than half of the courses in California, Idaho, Minnesota, Montana, Nevada, North Dakota, Oregon, South Dakota, Utah, Washington and Wyoming are classified as poor or very poor. In a race no one wants to win, Montana leads the country in poor grazing condition, with 92% of pastures in poor to very poor condition.
To put the poor range conditions in a different perspective, at the end of March (week 12 of the year), 26% of the country’s beef stocks were on ranges considered poor to very poor. April and May brought relief to parts of the country from cattle, improving rangeland conditions in Texas, reducing the country’s share of cattle from poor to very poor pastures to 16% and 19% by the end of May and June. , respectively. . Sadly, however, much of the West and Upper Midwest continues to suffer from severe drought, with 25% of the country’s cattle herd again on pastures considered to be in poor to very poor condition.
ERS estimates that CPI and PPI increases will remain high until 2021, but will fall back to the 20-year range of estimates in 2022. Despite these estimates, production numbers are all down – inventory pigs for breeding and marketing is lower than 2019 and 2020; the number of fattening cattle is lower than 2020, but higher than the three-year average 2017-2019; and a quarter of the national beef cattle herd is on pastures considered to be in poor to very poor condition. And with cold-room beef and pork stocks both below the 2020 and the 2017-2019 average, there is less cushion in frozen stocks.
At this point, most signals indicate that the beef and pork market will continue to be tight, possibly for some time to come.
Nigh is a senior economist at the American Farm Bureau Federation