A good bet is that fed cattle prices outperform the trendline in 2022. The fact that packer margins have been and remain large simply provides more upside price potential as the fundamentals become more positive and leverage shifts back to the seller. Zoning in on 2022-2024 market fundamentals, most analysts are predicting smaller cattle numbers, continued strong beef demand, growing exports, increasing packing capacity and much better market leverage for feedyards. With that said, it is important to recognize that the market rallied significantly above trendline during the final two months of 2021, providing a leading indicator for the direction the market is headed over the next few years. It took until half way through 2021 to clean up many of these problems, which is why this year’s fed market also underperformed, though only by about $6. As a result, cattle backed up in feedyards and weights shot up. COVID-19 disruptions decimated cattle demand as packing plants struggled to keep operating and restaurants closed their doors. We can readily understand why this happened. Next, consider 2020 when the average fed price dipped $18 below the trendline. Short-term supply/demand conditions caused the market to significantly over-perform its longer-term equilibrium as measured by the trendline. fed cattle prices on record, $154 and $149, respectively. That two-year time period produced the highest U.S. This aberration happened for a good reason: Cattle were scarce. For example, in 20 when beef supplies were particularly tight, fed cattle sold $34 to $41 above the trendline. Point two is that cattle and beef supplies ebb and flow, which is one of the main reasons prices oscillate above and below the trendline. The accompanying chart depicts this uptrend, though it is important to realize that long-term market patterns are often obscured by short-term volatility. Proof of that statement is found in the fact that fed cattle prices averaged $68/cwt. It may not seem like it in the short run, but the natural direction of the market is higher, particularly over longer periods of time. Higher prices materialize due to inflation, nominal demand growth, new product development, larger exports and multiple other factors. The first major point is that fed cattle prices have been and remain in a long-term uptrend. However, if we study market patterns over the last 30 years, several valuable clues emerge. But just how high could prices go? Answering that question with precision is not an easy task. Evaluating market fundamentals has led most analysts to project a stronger price trend over the next several years. The recent jump in fed cattle prices to $140/cwt. Tom Brink is the CEO, Red Angus Association of America.
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