Connect with us

Spread & Containment

Cobalt Outlook 2022: Rapid EV Growth to Drive Demand, Resilience in Prices

Click here to read the previous cobalt outlook.This time last year, cobalt market watchers were expecting demand from the electric vehicle (EV) sector to continue to thrive, supporting a higher price environment.Cobalt, a key element in lithium-ion batter

Published

on



Click here to read the previous cobalt outlook.

This time last year, cobalt market watchers were expecting demand from the electric vehicle (EV) sector to continue to thrive, supporting a higher price environment.

Cobalt, a key element in lithium-ion batteries, experienced supply chain challenges due to the COVID-19 pandemic, with lockdowns and containment measures testing its resilience.

With the new year now in full swing, the Investing News Network (INN) reached out to cobalt experts to get more insight about the cobalt outlook for 2022.


Cobalt trends 2021: The year in review


Looking back at how prices performed in 2021, there’s little doubt that cobalt beat expectations, after a 2020 that had already seen prices rebound following years of decline.

“Price performance has certainly surprised to the upside this year but it reflects strong downstream demand, particularly from EVs, which have continued to outperform market expectations, and tight market conditions overall,” Harry Fisher of CRU told INN.

Cobalt kicked off 2021 on an uptrend, as investors turned their attention to the electric vehicle sector and battery metals.

Market conditions remained very strong during the first half and prices continued to rally through the fourth quarter with expectations they will finish the year more than twice where they started in January 2021.

“The cobalt market outperformed expectations in Q4, as the cobalt metal price rally sustained throughout the quarter ― although this was not altogether a surprise considering market fundamentals,” Greg Miller of Benchmark Mineral Intelligence told INN.

That means it wasn’t just the bullish outlook for battery demand that helped cobalt in 2021. The upswing in prices was underpinned by several converging factors, Miller explained, which included increased restocking from industrial sectors and the ongoing disruption to supply chains globally.

Additionally, surplus inventory held predominantly in the hands of traders, paired with limited metal production in China throughout the year ― which is the traditional counterweight to price rises ex-China ― were also factors pushing prices up.

Commenting on the biggest surprise of late 2021 in the cobalt market, the Benchmark Mineral Intelligence analyst said it was the extent to which the China and ex-China markets diverged.

“Prices in the Chinese domestic market failed to keep pace with other regions, in part due to negative sentiment over growing lithium-iron-phosphate (LFP) utilization, with refiners reporting that they were operating at a loss for much of the quarter,” he said.

The growing LFP cathode market in China was a topic of concern for many cobalt investors in 2021, as this type of cathode — which is also used in electric car batteries — doesn’t use cobalt. Cathodes containing cobalt include nickel-cobalt-manganese (NCM) and nickel-cobalt-aluminum (NCA).

Cobalt outlook 2022: Supply and demand


It has already been established many times before that the electric vehicle industry is a key driver for cobalt, with demand increasing this past year on the back of higher sales that materialized in key regions such as Europe.

“EVs remain the real driving force of the cobalt market and will continue to see substantial gains in 2022,” Fisher said.

As mentioned, this past year, worries among cobalt investors increased as the use of LFP cathodes picked up pace, with many speculating how much this could impact the cobalt space.

“I don’t think investors should be too concerned, as we see absolute cobalt demand continuing to increase throughout the demand,” Miller said. “Ultimately, we see structural deficits emerging in the cobalt market from 2025, so new technologies will be needed to bridge these supply shortfalls.”

Going forward, CRU also continues to see the battery market dominated by both NCM and LFP chemistries for EV applications.

“LFP has built market share in China through 2021 due to the popularity of mini EV models such as the Hongguang mini ― but NCM will hold ground for longer range, larger and higher performance vehicles,” Fisher said. “We expect that cobalt demand will remain robust for this reason despite LFP’s recent performance.”


cobalt chemical use in electric vehicles


In 2022, Benchmark Mineral Intelligence expects cobalt demand from the battery sector to grow by over 30 percent, supported by new EV model launches and governmental legislation.

Cobalt is not only used in electric vehicle batteries, and demand from other segments is looking to improve in the next 12 months.

“Demand from other segments is also expected to grow, particularly from the superalloy industry on improved prospects for global aviation,” Miller said.

CRU is also expecting other demand sectors to recover in 2022.

“Aerospace is showing some very early signs of recovery and will continue to see gradual improvements subject to new concerns around the omicron variant, which could slow international travel once again,” Fisher said.

In terms of supply, output is expected to increase once again in 2022.

“(This will) support the rapid demand growth expected in the mid- to long-term,” Fisher said. “Growth will come from the Democratic Republic of Congo (DRC) as well as Indonesia as two of the HPAL facilities continue their ramp up and further new capacity is commissioned.”

Output from the DRC, the top producing country, is expected to come from Glencore's (LSE:GLEN,OTC Pink:GLCNF) Mutanda mine restart, increased output at Katanga and expansions at Tenke Fungurume.

As 2021 came to a close, many market watchers were paying particular attention to contract negotiations for cobalt ― which sets the stage for market developments into the new year.

“Contract negotiations have now been finalized for 2022 and demand has been very strong with many sellers negotiating Premia, compared to previous years where flat prices or discounts were more common,” Fisher said.

A key trend seen in the space was longer term contracts on the back of rising prices.

“Long term contracts will remain king in the cobalt market next year,” Miller said. “Those who eschewed long-term contracts in late 2020, in the hope of securing a better deal in the spot market in 2021, struggled to secure material and often had to pay a premium to do so.”

For junior miners, 2022 will be a year when challenges to secure investment from capital markets will remain.

“It’s a crowded field, with much of the focus right now on the lithium market,” Miller said.

All in all, Benchmark Mineral Intelligence is expecting the market to transition into a slight surplus in 2022. Meanwhile, CRU is forecasting the market will be finely balanced in 2022 compared to the relatively wide deficit in 2021.

“However, risks are weighted towards a deficit developing as EV demand continues to grow rapidly and market tightness persists due to supply chain constraints,” Fisher said.

In fact, according to S&P Global data, in 2021, monthly cobalt exports from the DRC are on average 23.2 percent lower than pre-COVID-19 levels, reflecting inefficiencies across land transport and port operations compounded by global shipping delays.

“To date, most of the impact of COVID-19 on cobalt supply has been felt by supply-chain logistics rather than mining operations,” Alice Yu, senior analyst at S&P Global Market Intelligence, said. “Early data suggests the omicron variant spreads faster and, though symptoms appear to be mild, vaccines are less effective against it, which presents potential risks of further lockdowns and impacts to mine operations.”

There are also renewed concerns over potential disruptions at the cobalt receiving end, with lockdowns in parts of China’s Ningbo city in Zhejiang province, home to one of the world’s largest container ports.

Cobalt outlook 2022: What’s ahead for prices


In 2022, prices are expected to remain strong, and this has been further supported by recent annual contract negotiations, according to CRU’s Fisher.

“The upwards trend is likely to slow as some new supply comes online to bring the market closer to balance relative to 2021, and relieve some tightness,” he said. “However, ongoing supply chain and container shipping constraints may maintain market tightness and see prices move higher.”

Meanwhile, Miller expects prices to soften from Q4 levels next year, as the market transitions back into a slight surplus in light of increased supply out of the DRC and the commissioning of new projects in Indonesia.

“However, we are unlikely to see prices collapse like they did in 2018/19, as the market is set to remain well supported by strong demand side fundamentals,” Miller said. “Moreover, the emergence of the omicron variant of COVID-19 threatens to delay the easing of logistics bottlenecks, which could provide further support to prices.”

For her part, Yu said the cobalt market has been critically affected by logistical challenges, and the emergence of omicron means supply constraints will likely continue to dominate cobalt prices in 2022.

“If prolonged, those constraints could support elevated prices and remind battery-makers of the concentration risks in cobalt supply, potentially speeding up cobalt thrifting in batteries,” the analyst added.

Cobalt outlook 2022: Key factors to watch


For Miller, an important trend to watch next year is how demand for cobalt metal from the battery industry impacts pricing.

“We are seeing increased metal consumption from ESG-conscious end consumers in the battery supply chain, driving increased competition for the limited available supply,” he added.

Commenting on what factors he will be paying attention to in 2022, Fisher said EV sales will continue to be a key catalyst. On the demand side, he will also be watching the aerospace sector recovery, which will be subject to COVID-19 travel restrictions and the impact of omicron.

“Supply chain and container shipping constraints slowing cobalt hydroxide volumes from the DRC to China” will be another factor to pay attention to, Fisher said.

On the supply-side, ongoing ramp up of HPALs in Indonesia and any announcements of further expansions ― as well as Mutanda’s restart and other supply additions in the DRC ― should be some of the catalysts to watch out for in 2022, according to the analyst.

Don’t forget to follow us @INN_Resource for real-time news updates.

Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.

Read More

Continue Reading

Government

Six Commodities Investments to Buy as Putin Wages War on Ukraine

Six commodities investments to buy amid the sustained attack of Ukraine by Russia’s President Vladimir Putin and rising inflation provide potential to…

Published

on

Six commodities investments to buy amid the sustained attack of Ukraine by Russia’s President Vladimir Putin and rising inflation provide potential to profit even as the market has been pulling back so far in 2022.

The six commodities investments to buy include those involved in oil, gold and grain due to current supply shortages that are showing no signs of abating anytime soon. Putin’s order for Russian troops to invade Ukraine on Feb. 24 has disrupted the neighboring nation’s agricultural production, led to the theft of grain and imposed an ongoing blockade in the Black Sea to stop farmers from exporting their crops.

Crude oil inventories are down to a “dangerously low point” across Europe, North America and Organisation for Economic Co-operation and Development (OECD) Asia, just as spare production capacity from OPEC+ nations slid to the lowest levels since April 2020, according to BofA Global Research. Inventories of petroleum products also have fallen to “precarious levels” for middle distillates and even gasoline as the market heads into the peak of the U.S. summer driving season, the investment firm added.

As a result, refined petroleum cracks — the differences between crude oil and the prices of the wholesale petroleum products such as gasoline — recently have “spiked to record levels,” contributing to volatility, BofA wrote. In addition, strategic oil barrels held by OECD governments already are low and likely to decline steeply going forward, leaving consumers exposed to future negative supply shocks, BofA predicted.

Pension Fund Chairman Recommends Broad Commodity Funds

Bob Carlson, a pension fund chairman who also leads the Retirement Watch investment newsletter, recommended Cohen & Steers MLP & Energy Opportunity Fund (MLOAX) to all the portfolios in his June 2022 issue. 

Oil and natural gas should be good investments as Europe looks to reduce dependence on Russian exports, Carlson told me. Plus, energy producers in the United States are focused on increasing cash flow and earnings, not maximizing drilling expenses in the short run to increase output, he added.

Bob Carlson, who leads Retirement Watch, meets with Paul Dykewicz.

Good investment opportunities can be found with companies that provide the pipelines, storage facilities and other infrastructure needed to supply the world with oil, natural gas and other energy sources, Carlson continued. 

“One of the attractive qualities of these investments is that their revenues are independent of the prices of the commodities,” Carlson counseled. “The firms charge fees for their services, and the fees often are adjusted for inflation. Their revenues and earnings depend on the volume of commodities passing through their facilities, not the price of the commodity.”

Key energy service companies provide total returns, aided by current income and price appreciation, through investments in energy-related master limited partnerships (MLPs) and securities of industry companies, Carlson pointed out. Those businesses are expected to derive at least 50% of their revenues or operating income from exploration, production, gathering, transportation, processing, storage, refining, distribution or marketing of natural gas, crude oil and other energy resources.

Chart courtesy of www.stockcharts.com

Cohen & Steers Fund Leads List of Six Commodities Investments to Buy

Cohen & Steers MLP & Energy Opportunity Fund recently held 53 positions and had 50% of its portfolio in the 10 largest positions. Top holdings of the fund included Enbridge (NYSE: ENB), Cheniere Energy (NYSEAMERICAN: LNG), Williams Companies (NYSE: WMB), TC Energy (NYSE: TRP) and Energy Transfer (NYSE: ET).

The fund has achieved strong returns since April 2020. Indeed, it has been on an upward trajectory since the second half of December 2021.

“Crucially, oil prices have held up well even in the face of a slowing Chinese economy and widespread lockdowns,” according to BofA. “Given that most China indicators point to a major decline in mobility across the country, any improvement in the COVID-19 situation in large Chinese cities could send oil prices much higher.”

Carlson’s Chooses DBA to Join Six Commodities Investments to Buy

Despite the evils of war, investors still can profit from the rise in grain prices and other commodities through the futures markets, even as many other equities slip. Instead of buying futures directly, investors can purchase diversified agriculture commodities through Invesco DB Agriculture Fund (DBA), Carlson said.

That ETF seeks to track changes in the DBIQ Diversified Agriculture Index Excess Return. The ETF also earns interest income from cash it invests primarily in treasury securities, while holding them as collateral for the futures contracts.

The major holdings in the index are soybeans, wheat, corn, coffee and live cattle. The index is reconstituted each November.

Chart courtesy of www.stockcharts.com

Gold Funds Featured Among Six Commodities Investments to Buy

Carlson also is recommending gold through iShares Gold Trust (IAU). He described it as the “cheapest, most liquid way” to invest in the shiny yellow metal.

Gold has had its ups and downs in the face of rising global inflation, Russia’s invasion of Ukraine, China’s increasing military flyovers of nearby Asian nations and other geopolitical conflicts. At the same time, the U.S. dollar has been appreciating amid high inflation after the Fed recently raised interest rates by 0.5% and promised additional increases later in 2022.

However, there are many risks for the U.S. dollar, so continuing to hold gold remains a good hedge, Carlson counseled.

IAU has retreated since early March, so investors seeking to buy it now that it is rebounding still may do so. Those who believe inflation may stay through 2022 can try to capture gains before the trend no longer is a friend.

Chart courtesy of www.stockcharts.com

Skousen Calls GLD One of the Six Commodities Investments to Buy

“Gold has done far better than stocks, which are down 15-25% this year,” said Mark Skousen, who is recommending SPDR Gold Shares (NYSE Arca: GLD) in his Forecasts & Strategies investment newsletter. 

Mark Skousen, head of Forecasts & Strategies, meets with Paul Dykewicz.

GLD has risen nearly 16% since Skousen recommended it about two years ago. Gold climbed 2021 in anticipation of rising inflation, but its performance has been flat so far this year. If gold truly is an indicator of inflation, the previous yellow metal’s stagnant price may be signaling that price inflation will wane heading into 2023.

The investment objective is for the GLD shares to reflect the performance of the price of gold bullion, after subtracting the trust’s expenses. The trust, formed on November 12, 2004, physically holds gold bars.

The trust’s shares are designed for investors who want a cost-effective and convenient way to invest in gold, according to the company’s prospectus. Skousen, who also leads the Five Star Trader, Home Run Trader, TNT Trader and Fast Money Alert services, recently was a featured speaker at the Vancouver Resource Investment Conference and advised attendees that he recommended gold as a minor holding in every portfolio.

Chart courtesy of www.stockcharts.com

EPD Is Another of the Six Commodities Investments to Buy

Oil has done much better as an inflation hedge than gold, Skousen said. One example is his recommendation of Enterprise Products Partners (EPD, $27, 7% yield), up 27% year to date.

EPD has been the “best performer” in the Forecasts & Strategies investment newsletter so far this year, Skousen said. Enterprise Products Partners is one of the largest publicly traded partnerships and a key North American provider of midstream energy services to producers and consumers of natural gas, natural gas liquids (NGLs), crude oil, refined products and petrochemicals. 

The company’s services include natural gas gathering, treating, processing, transportation and storage. In addition, Enterprise Products Partners provides NGL transportation, fractionation, storage and import and export terminals. It further offers crude oil gathering, transportation, storage and terminals, along with petrochemical and refined products transportation, storage and terminals, as well as a marine transportation business.

I personally have owned Enterprise Products Partners since shortly after the 2020 stock market crash when I bought the stock as it started to recover. The stock has been trending upward since the end of 2021.

Chart courtesy of www.stockcharts.com

Money Manager Picks One of Six Commodities Investments to Buy

A seasoned investment professional told me that she likes farm machinery company Deere (NYSE: DE) to profit from agriculture. Michelle Connell, a former portfolio manager who now serves as president of Dallas-based Portia Capital Management, said she still likes Deere despite its 14% drop after it reported results last week.

Michelle Connell, CEO, Portia Capital Management

Deere’s key issues are supply-related, since demand for agricultural equipment remains strong, especially for the company’s machinery that is more environmentally friendly than its rivals, Connell continued.

Deere is also focused on providing the farming industry with autonomous equipment, Connell counseled. Wall Street analysts expect Deere to have a better story and performance in the second half of 2022 and in full-year 2023.

Connell cited the following to support her recommendation of Deere: 

-More than half its revenues come from large agriculture.

-If the war in Ukraine continues, U.S. farmers will benefit from higher prices for their crops.

-Increased agricultural profits mean that that farmers and farming corporations will be more likely to buy large, expensive farm equipment.  

Deere has fallen back since its recent high on April 20, so investors should be able to purchase shares at reduced prices, Connell continued.

Chart courtesy of www.stockcharts.com

Supply Chains May Improve as China Starts to Lower COVID Curbs

China is easing its COVID-19 restrictions and it could allow goods produced there to start flowing normally again in the coming weeks. China’s lockdowns have affected an estimated 373 million people, including roughly 40% of its gross domestic product (GDP). Disrupted supply chains have affected products such as rice, oil and natural gas.

Shanghai, home to the world’s largest port and 25 million residents, has strained to unload cargo due to strict regulations that have caused shipping containers to stack up. Some Shanghai residents posted videos online to complain about needing food, even though government officials sought to block such public expressions of frustration.

Chinese authorities also drew public criticism for forcibly separating young children with COVID-19 from their parents to prioritize stopping the spread of a new, contagious subvariant of Omicron, BA.2. The variant also has been causing new infections in European nations such as Germany, the Netherlands and Switzerland.

U.S. COVID Deaths Climb Past 1-Million Mark

U.S. COVID-19 deaths crossed the 1-million mark last week and have climbed further to 1,002,726 as of May 24, according to Johns Hopkins University. Cases in the United States, as of that date, hit 83,501,455. America retains the dubious distinction as the country with the highest numbers of COVID-19 deaths and cases.

COVID-19 deaths worldwide totaled 6,280,342 on May 24, according to Johns Hopkins. Cases across the globe have climbed to 526,664,642.

Roughly 77.8% of the U.S. population, or 258,562,059, have obtained at least one dose of a COVID-19 vaccine, as of May 24, the CDC reported. Fully vaccinated people total 221,001,614, or 66.6%, of America’s population, according to the CDC. The United States also has given at least one COVID-19 booster vaccine to 102.9 million people, up about 500,000 in the past week.

New data on so-called “long-haul” COVID patients released on May 24 reported that even though some symptoms improve others may persist, according to the Northwestern Medicine Neuro COVID-19 Clinic. Most of the 52 patients monitored in the Northwestern study reported “brain fog,” numbness or tingling, headache, dizziness, blurred vision and fatigue, even 15 months after initial diagnoses of COVID-19.

The six commodities investments to buy are intended to profit from rising energy, gold and grain prices. Despite the market’s volatility, the highest inflation in 40 years, the Fed’s plan for further interest rate hikes to curb price hikes and increasing federal deficits, investors are finding profitable opportunities in energy, gold and grains.

Paul Dykewicz, www.pauldykewicz.com, is an accomplished, award-winning journalist who has written for Dow Jones, the Wall Street Journal, Investor’s Business Daily, USA Today, the Journal of Commerce, Seeking Alpha, Guru Focus and other publications and websites. Paul, who can be followed on Twitter @PaulDykewicz, is the editor of StockInvestor.com and DividendInvestor.com, a writer for both websites and a columnist. He further is editorial director of Eagle Financial Publications in Washington, D.C., where he edits monthly investment newsletters, time-sensitive trading alerts, free e-letters and other investment reports. Paul previously served as business editor of Baltimore’s Daily Record newspaper. Paul also is the author of an inspirational book, “Holy Smokes! Golden Guidance from Notre Dame’s Championship Chaplain,” with a foreword by former national championship-winning football coach Lou Holtz. The book is great as a gift and is endorsed by Joe Montana, Joe Theismann, Ara Parseghian, “Rocket” Ismail, Reggie Brooks, Dick Vitale and many others. Call 202-677-4457 for multiple-book pricing.

 

The post Six Commodities Investments to Buy as Putin Wages War on Ukraine appeared first on Stock Investor.

Read More

Continue Reading

Spread & Containment

Nearly 108,000 overdose deaths in 2021: Pitt team forecast devastating toll five years ago

PITTSBURGH, May 24, 2022 – A grim prediction made half a decade ago by University of Pittsburgh School of Public Health epidemiologists and modelers…

Published

on

PITTSBURGH, May 24, 2022 – A grim prediction made half a decade ago by University of Pittsburgh School of Public Health epidemiologists and modelers has come true: More than 100,000 people are now dying from drug overdoses annually in the U.S. The milestone comes as the International Journal of Drug Policy publishes a special section of the June issue reflecting on the exponential growth in drug-related deaths the Pitt team uncovered in 2017.

Credit: Courtesy of University of Pittsburgh

PITTSBURGH, May 24, 2022 – A grim prediction made half a decade ago by University of Pittsburgh School of Public Health epidemiologists and modelers has come true: More than 100,000 people are now dying from drug overdoses annually in the U.S. The milestone comes as the International Journal of Drug Policy publishes a special section of the June issue reflecting on the exponential growth in drug-related deaths the Pitt team uncovered in 2017.

The special section – based around the Pitt team’s landmark research article in Science that analyzed nearly four decades of U.S. drug overdose data – contains commentary by four teams of epidemiologists, addiction specialists, modelers and drug policy experts, as well as an update from the original authors and an editorial by one of the journal’s senior editors.

“Since 1979, drug overdose deaths in the U.S. have inexorably climbed along a near-perfect exponential curve, despite changes in the popularity of different drugs, new drug control policies, changing demographics, economic upswings and downturns, wars – and now a global pandemic,” said Donald S. Burke, M.D., Distinguished University Professor of Health Science and Policy in Pitt Public Health’s Department of Epidemiology and senior author of the Science publication. “The fact that we’re still seeing this exponential growth in another five years of data – 413,000 more young Americans dead – shows that we really don’t understand the deep drivers of the epidemic.”

Following their Science publication, Burke and his colleagues published several more articles involving U.S. drug overdose death data. Notably, the team reported in Nature Medicine that the generation a person was born into – Silent Generation, Baby Boomer, Generation X or Millennial – strongly predicts how likely they are to die from a drug overdose, and at what age.

And, when drug overdose deaths diverged from their predictions, taking a celebrated downturn in 2018, the team showed in the journal Addiction that it was a result of a decrease in supply of the potent synthetic opioid carfentanil, and not a sign of the drug overdose epidemic abating. Sure enough, overdose deaths snapped right back onto the exponential curve in the following year.

“There are theories, but nobody has an explanation for why drug overdose deaths so consistently stick to this exponential growth pattern, marching ever upward at an annual pace of 7.4%,” said Hawre Jalal, M.D., Ph.D., who was lead author of the Science paper while at Pitt and is now at the University of Ottawa. “Five years ago, leaders in the drug addiction and policy fields called our findings a coincidence. We need to stop denying that this exponential growth will continue if we don’t get at the root causes and fix them.”

In his editorial introducing the International Journal of Drug Policy special edition, Peter Reuter, Ph.D., distinguished professor in the University of Maryland School of Public Policy, noted that although the Science manuscript had been cited by scientists hundreds of times since its original publication to support that drug overdose rates are rising, no one had investigated the underlying cause of the relentless increase.

“It’s hard to imagine that this growth rate can continue much longer,” Reuter writes. “The notion that we might see 200,000 fatal overdoses annually in 2030 is simply too frightening, though we would have made the same statement in 2010 when the figure was a mere 38,000.”

In their article for the special section, Burke and Jalal suggest that a “systems” analysis including, but not limited to, surveillance data from electronic health records, urine screening, wastewater testing, law enforcement drug seizures, surveys to measure societal well-being and despair, and the economics of the drug trade will be necessary to understand the exponential growth. Computational models and simulations will then need to be designed to guide and test interventions, they said.

“Improved understanding of the deep causal drivers of the epidemic may be necessary to bend the curve,” they conclude. “Unless something different is done, the death toll will probably continue to increase exponentially.”

#  #  #

About the University of Pittsburgh School of Public Health

Founded in 1948, the University of Pittsburgh School of Public Health is a top-ranked institution of seven academic departments partnering with stakeholders locally and globally to create, implement and disseminate innovative public health research and practice. With hands-on and high-tech instruction, Pitt Public Health trains a diverse community of students to become public health leaders who counter persistent population health problems and inequities. 

www.upmc.com/media


Read More

Continue Reading

Spread & Containment

Cattle Supply And Demand Issues For 2022

Cattle Supply And Demand Issues For 2022

By FarmBureau Market Intel

Introduction

At first glance, 2022 cattle prices are higher than 2021….

Published

on

Cattle Supply And Demand Issues For 2022

By FarmBureau Market Intel

Introduction

At first glance, 2022 cattle prices are higher than 2021. At $140, slaughter steer prices are 17.5% above 2021 prices, but even with higher prices, farmers and ranchers will travel a rocky road to profitability, paved with inflation and higher input costs in 2022. This Market Intel addresses the USDA’s Cattle on Feed report released on Friday, May 20, 2022, the forces driving cattle prices higher and how inflation and input costs will affect the bottom line for cattle farmers and ranchers. It will further walk through the combination of supply and demand factors that will affect the 2022 market outlook for livestock producers.  

Supply - Inventory

The Annual Cattle Inventory Report published by USDA estimated overall inventory on January 1, 2022, is down 2% or 1,887,700 head from 2021. Cattle inventory is important with respect to the market outlook because it quantifies supply and where the industry lies in what is known as the cattle cycle. The cattle cycle is the waves of expansion and contraction of the total number of U.S. beef cattle in consecutive years.  The cattle cycle is a response to farmers’ and ranchers’ perceived profitability of the beef cattle industry over roughly a 10-year period. For this Market Intel, we are going to focus on the force behind cattle inventory, the breeding herd and calf crop.

The calf crop for 2021 came in at 35.1 million head, a 1.2% decrease from 2020. As of January 1, 2022, cow inventory totaled 30.1 million head, down 2.3% from 2021. Heifer inventory with total heifers at 19.8 million. 

The last piece of this puzzle is supply and slaughter. Commercial cattle slaughter for April was 2.81 million head, down slightly from 2021. Steer slaughter was 1.33 million, 4% lower than 2021. Heifer slaughter for the month of April came in at 825,200, .05% lower than this time in 2021. Cow slaughter for the month of March came in at 640,382, 7% higher than the same time in 2021. It’s important to acknowledge the decrease in slaughter in all commercial cattle and the increase in cow and heifer slaughter. This illustrates industry position in the cattle cycle. Figure 1. illustrates the current and past two cattle cycles.

Based on Figure 1., the beef cattle industry is entering the contraction portion of the cattle cycle. Cows and heifers make up the breeding herd, which is responsible for supplying the calves entering the cattle inventory at any point during the cattle cycle.  Increased cow and heifer slaughter will result in a smaller calf crop and inventory in the upcoming months of the cattle cycle. It is natural to conclude that future inventory will be down since the calf crop, cow and heifer inventory are all declining. However, the southern Plains are experiencing extreme drought and it is not uncommon to remove grazing animals from forage early for placement into feedlots under these circumstances. The movement of cattle from grazing to feedlot placement or vice versa can throw off inventory numbers.

Pasture and range land had a rough start in 2022, especially in the Western regions and southern Plains. Winter weather and rain have brought some greener pastures to the upper Midwest but USDA crop progress reported more than 50% of U.S. pastures are still rated poor to very poor compared to just under 50% reported in that condition last year. This can be compared to the five-year average of 26.6% of pasture and rangeland rated poor to very poor. A previous Market Intel published in May 2021, demonstrated how 2021 started off with record breaking drought. While more green grass in the Midwest is likely to slow the above average cow slaughter and placement of grazing animals into the feed to slaughter supply chain, much of the U.S. is still facing drought conditions in 2022. Figure 2.  & Figure 3. illustrate the difference in the U.S. Drought Monitor between May 18, 2021, and May 17, 2022.  There has been improvement in the overall drought situation, but much of the southern Plains are still rated as extreme or exceptional drought.

Cattle On Feed

USDA National Agricultural Statistics Service’s Cattle on Feed (COF) program is a monthly feedlot survey conducted on feedlots with a capacity of 1,000 or more head. The April COF report estimated feedlot placements to be 1.99 million head, slightly below 2021 levels.

The  May COF report, released on May 20, 2022, estimates cattle on feed as of May 1, 2022 to be 12 million head. This is up 2% from a year ago. The total number of cattle placed in feedlots is 1.81 million head, down 1% from last year.

While the report fails to explain how feedlot placements are even with last year while inventory numbers and calf crop are down, drought may be a part of the answer. Much of the Western United States, as well as the southern Plains, have experienced or are continuing to experience drought conditions. When this happens, it is not uncommon for ranchers in the Southern plains to move grazing cattle off wheat early. It is also a possibility that heifers previously listed as replacements are being placed into feedlots. Adjustments to Jan. 1 inventory numbers are not uncommon and may better reflect the situation as 2022 continues.

Demand

USDA Economic Research Service (ERS) forecasted 2022 total red meat and poultry consumption at 222.7 lbs. per capita, down from 224.2 lbs. in 2021. The per capita red meat and poultry disappearance is forecast to decrease. ERS defines per capita meat disappearance as the measure of the supply available for use in domestic markets including fresh and processed meats sold. When supply drops, beef prices may rise. If beef prices rise, consumer demand for beef may fall.

The spread between beef graded “USDA choice” and “USDA select” has narrowed in recent days. This spread is important because it can often illustrate consumer willingness to pay for choice beef, a product that costs a premium above beef products graded select.  All primal (wholesale cut) values have seen a decline in 2022. This can be interpreted as a consumer response to inflation; consumers looking to save money.

Imports

Domestic imports are an important factor in evaluating U.S. demand for beef. USDA ERS reports U.S. beef and veal imports were 353.77 million lbs. in March 2022, 29% higher than this time in 2021.

The greatest increase in U.S. imports is from Brazil. Record high U.S. beef prices, and drought conditions in traditional import countries such as Australia are the key motivators for this increase. Another reason the U.S. has been importing from Brazil is because China, one of the world’s largest importers of beef, placed an embargo on Brazilian beef imports in September of 2021. This embargo was lifted in December 2021. However, Brazilian beef continues to be directed to other markets including the U.S.

There are other factors contributing to the increase in imported beef. One of these factors is the strengthening of the U.S. dollar. When the U.S. dollar strengthens, it makes it cheaper for the U.S. to purchase products from other countries. In addition, the decrease in consumer willingness to pay higher prices for beef makes other, less expensive, sources more appealing.

Exports

Exports fall on the other side of the supply/demand spectrum from imports. USDA forecasts beef exports to decline 1.8% from 2021. This estimate might seem negative at first glance, but it’s important to note that 2022 beef and veal exports are still well above the five-year average. The strengthening U.S. dollar’s impact on imports –making U.S. purchases of foreign products cheaper – has the opposite effect on exports; it makes it more expensive for other countries to buy products from the U.S.

China, the world’s largest importer of beef as mentioned earlier, has been implementing its COVID-zero policy which included a nationwide lockdown that has continued for six weeks. The effects of this policy on the food industry vary by region. Hong Kong, for example, home to some of the world’s stringent COVID-19 restrictions, has begun to ease restrictions. Overall, beef markets are watching closely and waiting for China to relax restrictions, leading to increased demand for meat products.

Despite these obstacles, March trade data has indicated record U.S. beef exports totaling 303.7 million pounds, 1.2% above 2021. This is the greatest quantity of beef exported for any month of March. Even more impressive is record first quarter 2022 overall meat trade coming in at a whopping 845.8 million pounds, 6.2% ahead of 2021. China, South Korea, and Japan continue to lead the pack, being the top three destinations for U.S. beef. China posted a record 145.4 million pounds, 61.8% above 2021.

Input Costs & The Bottom Line

One of the greatest concerns faced by cattle farmers and ranchers in 2022 is rising input costs, more specifically feed. Iowa State University estimates total feed costs per head for finishing a 760 lb. yearling steer, in March of 2022, are $1,802.58. Feed costs account for 24% of the total cost of production for 2022 at $436.15, up 22% from 2021. The price of corn was estimated to increase 30.4% and hay up 45%. Non-feed costs were estimated to be record high at $144.19 per head in March up, 8% from 2021. This brings the break-even price to $138.66 cwt, up 12.8% from 2021. These rising costs will make profitability an uphill battle.

Conclusions

The 2022 cattle outlook is a mixed bag. On one hand, 2022 cattle prices are higher than 2021. On the other hand, cattle farmers and ranchers face rising input expenses, and uncertainty in the U.S. economy and the economies of key beef importers.

A strengthening U.S. dollar will make it more expensive for other countries to buy U.S. beef while at the same time making it more affordable for the U.S. to import beef from other countries. Yet, first quarter beef exports were reported at record levels, primarily to the Asian markets with China leading the way.

Supply is forecast to decrease; the industry is in the contraction phase of the cattle cycle while USDA has also forecasted a small decrease in consumer demand for meat. If we use history as a guide, then the cattle industry should be in the last couple years of contraction in inventory before beginning the expansion phase of the next cattle cycle.

Cattle farmers and ranchers are facing increases in both feed and non-feed input costs resulting in increased break-even prices. Whether cattle prices will increase enough to offset the increase in costs and provide profitability remains in question. All these factors create a complex cattle market outlook complete with many peaks and valleys for 2022.

Tyler Durden Tue, 05/24/2022 - 18:05

Read More

Continue Reading

Trending