More Heifers in the Feedlot Mix

The latest USDA Cattle on Feed report included the quarterly feedlot inventories for steers and heifers. An estimated 4.5 million head of heifers were on feed on April 1st which is the largest April total on record and the largest total for any quarterly report since January 1, 2001.  The number of heifers on feed was up 7.6 percent year-over-year while the number of steers in feedlots was down 1.1 percent compared to the same time last year.  The mix of heifers and steers in feedlots provides some information about the overall herd changes. During the past 5 years of expansion, heifers in feedlots averaged 34.4 percent of total feedlot inventories. For the two quarterly reports released in 2019, heifers have accounted for 37.7 percent of total feedlot inventories. This information is likely an indication that heifer retention has slowed over the past two quarters.

The total number of cattle in 1,000 or more head feedlots on April 1 feedlot was estimated at just under 12 million head. This was 2 percent larger than a year ago and a record April level going back to at least 1996. March feedlot placements were up about 5 percent. The weather impacts on Nebraska were shown in this report with placements down 11 percent in Nebraska.  The daily average of feedlot marketings was slightly higher in March 2019 compared to a year ago, though the report shows a 3.4 percent decrease for the month. This is due to had one fewer business day in March this year compared to 2018.

Large Estimates Push Corn Prices Lower

The USDA Prospective Plantings and the Quarterly Grain Stocks reports were released at the end of March and showed an increase in expected corn acres above 2018 levels. Corn planted area is estimated at 92.8 million acres which is four percent or about 3.66 million acres above last year. The 92.8 million number was on the high end of expectations going into the report. Combined with larger than expected stocks reported, there was a bearish impact on markets. December Corn futures prices dipped 18 cents in a day in reaction to the reports.

 

The increase in corn acres comes at the expense of soybean acreage. Soybean planted area for 2019 is estimated at 84.6 million acres which is down five percent from last year. Soybean expected margins are very tight as prices continue to be pressured by large supplies and tariff concerns. March 1 soybean stocks were 29 percent larger than a year ago and a record-high 2.72 billion bushels. It should be noted that the survey for the planning report was administered in the first two weeks of March and might not reflect the impact of the major flooding seen in many areas of the country.

So what are the implications for cattle markets? The cattle markets pay attention to corn prices because it is a primary input for adding pounds to cattle. The estimate that there should be plenty of corn this year is positive for feedlot demand. The primary costs associated with a finished steer are the cost of the calf purchased and the cost of the feed. All else equal, if the cost to feed a calf declines, a feedlot operator can pay a higher price for the calf without reducing their expected profit.

Of course planting intentions are not the same as bushels harvested. There is still plenty of uncertainty to go around as farmers navigate another crop season. Volatility in corn markets in the coming months is likely as prices are usually sensitive to weather and crop progress reports. However, the outlook for now is larger corn production and ending stocks and lower corn prices than expected just a few weeks ago.

2019 Meat Production and Consumption

This week’s article is from Dr. Derrell Peel at Oklahoma State University and discusses expected changes in meat production and consumption in the coming years.

Total 2019 meat production in the U.S. is currently projected to reach another record level of 103.3 billion pounds, up 1.3 percent year over year.  However, per capita meat consumption may decrease slightly to 217.3 pounds from the 2018 level of 218.6 pounds.  The decrease in per capita meat consumption reflects improved meat trade with projected decreases in meat imports and increased meat exports along with normal population growth. Total 2019 meat imports are projected to decrease to 4.3 billion pounds, the lowest since 2013, with record meat exports of 17.4 billion pounds.  Total meat includes beef, pork, broiler, turkey, other chicken, veal and lamb.

Record per capita meat consumption occurred in 2004 at 221.9 pounds. At that time lower population, higher meat imports, and meat exports less than half of today’s level were sufficient to increase per capita consumption despite lower total meat production in 2004 which, at 85.1 billion pounds, was 17.6 percent smaller than today.

Beef production in 2019 is projected to increase to another record at 27.2 billion pounds, up about 1.1 percent over last year.  Weather impacts are holding carcass weights well below year ago levels so far this year and annual average carcass weights are projected to only increase slightly year over year.  Cattle slaughter is projected to increase about one percent year over year.  With beef imports projected to decrease and beef exports expected to increase again in 2019, per capita beef consumption is expected to decrease to 56.8 pounds (retail basis), down from 57.1 pounds one year ago.

The March Hogs and Pigs report from USDA-NASS showed continued growth in the U.S. pork industry with year over year increases in all hog, breeding hog and market hog inventories.  Pork production in 2019 is projected to increase about 2.9 percent to 27.1 billion pounds.  Per capita pork consumption is expected to increase slightly from last year to 51.0 pounds per capita.  An improved pork trade balance is projected with year over year decreases in pork imports and significant increases in pork exports.  Higher projected pork exports are partly due to anticipated increases in pork imports in China as a result of losses in Chinese pork production due to African Swine Fever.

Broiler production estimates have been trimmed from earlier expectations with current projections of a 1.1 percent increase in broiler production in 2019 to 42.6 billion pounds.  Per capita broiler consumption is projected to decrease fractionally year over year to 92.0 pounds in 2019 with increased broiler exports taking up most of the increase in production.  Turkey production and consumption are both projected to decrease in 2019.  Total poultry, including broiler, turkey and other chicken production is projected to be fractionally higher in 2019.

These projections reflect estimates and analysis by the Livestock Marketing Information Center and me.  Of course, the estimates are likely to change as market conditions change and new information becomes available.  Many factors may impact meat production and consumption this year including weather, disease, trade, U.S. and global macroeconomic conditions, feed markets and others.

Timing Bred Cow & Heifer Sales

The graph above is from a recent study and publication led by Tori Marshall, a graduate student in the Department of Agricultural Economics at MSU. Her research used data collected from cattle auctions in Mississippi during 2014-2015 to estimate the impact that pregnancy status has on value.

One of the interesting findings of the study is that pregnant cows or heifers sold at a discount, on average, to open females until they crossed the 5 months pregnant threshold. Females with a calf at side averaged higher than either open or bred females. Retention costs were also considered in a separate graph in the publication to account for the additional costs a producer would incur by holding the cattle longer. The research showed a clear value in knowing whether the cow or heifer is pregnant before selling. Below is a segment from the conclusions

“Mississippi State University research results suggest that waiting to learn the pregnancy status of replacement-quality females at the auction is a pure gamble and reduces expected profit. Producers who opt to pregnancy-check on the farm are better situated to take advantage of improved profits by selecting the best time to sell. Optimal sale timing depends on the producer’s retention costs and the timing of pregnancy check. A producer with relatively low retention costs can optimize profits by selling a cow-calf pair, regardless of when pregnancy is confirmed. However, if retention costs are relatively high, the producer should consider pregnancy checking and selling early in gestation unless the female is later into gestation. If this is the case, just as when retention costs are relatively low, the producer is better off waiting to sell a cow-calf pair. Pregnancy-checking early in gestation also allows the producer to sell immediately if the female is found to be open and, therefore, avoid additional retention costs.”

The sales data were collected in 2014-2015 when cattle prices overall were very high. We expect that the results would be similar today, but at lower price levels.

To view the full (4-page) publication, Click Here.

This post was co-authored by Tori Marshall, M.S. student in Agricultural Economics.

2018 Beef Exports

December trade data was released on a carcass weight basis by USDA Economic Research Service (ERS) on March 7 and it showed the 2018 totals to be a record year for beef exports at nearly 3.2 billion pounds. Beef exports ended the year 10.3% larger than during 2017. You may recall that 2017 was also a great year for beef exports. Over the past year, beef exports had six months in 2018 with double-digit gains and 10 months of gains over 5%.

2018 was the 3rd consecutive year for export increases. The U.S. shipped 296 million more pounds worldwide, and 165 million more pounds to South Korea, representing about 56% of the growth in the year over year change. Most major beef export markets were higher with Japan almost 7%, South Korea up 35%, and Mexico up 7%. Canada and Hong Kong were the 4th and 5th largest export markets but both saw 3 and 8 percent decreases during 2018, respectively.

Beef exports have been a bright spot for the U.S. beef industry for the past few years. The growth in exports has helped absorb some of the increase in beef production during the herd expansion since 2014. Beef exports also add value because much of the export demand is for lower-value products that are not as demanded by the U.S. market.  An example is that much of the growth in beef exports has been in products from the chuck. These products have a higher value as exports and thus add more value to the carcass.

State Level Beef Cattle Inventory

 

 

The January 1 USDA Cattle report released two weeks ago is the most comprehensive inventory report for state-by-state inventories. It provides the best snapshot of the beef cattle industry over time. In this article, we are going to dig in on some of the Southeastern states and look at recent trends We’ll also discuss methodology. The first map above shows the number of beef cows on January 1 by state and the second map shows the change in beef cows since last year.

I think it is important to first briefly mention the methodology USDA uses to collect and estimate these numbers. The inventory numbers are based on survey responses. These surveys include mail, online, and face-to-face surveys, but the primary mode is by phone. For the 2019 report, about 36,000 U.S. producers were surveyed. Since not all producers are surveyed, there is sampling error to consider (this is similar to political polls) and the goal is to minimize the error. Overall, the estimates are not perfect, but they are very good and by far the best publically available.

Looking at the first map, it is no surprise that most of the cows in the U.S. are in the middle of the country. Texas is the largest at 4.7 million head which more than doubles 2nd place Oklahoma for the number of beef cows that have calved. Most of the Southeastern states fall into the lighter shade of green category with between 459,000 and 935,000 head of beef cows.

The second map shows that the Southeastern states were split between small expansion and small contraction for the number of beef cows. Florida was the biggest gainer while Mississippi showed the biggest decrease. The map also shows that in general, the bigger states got bigger while it was a mixed bag for the other states. Missouri, Montana, and Kentucky were the only states in the top 10 to have lower beef cow inventories when compared to last year.

Mississippi ranks 26th for the number of beef cows that have calved at 477,000. This was down 24,000 head from a year ago and had the largest percentage year-over-year decrease of any state with more than 15,000 beef cows. That sounds bad until you consider that the 2018 report showed Mississippi had one of the largest percentage increases when compared to 2017. I suspect the previously mentioned sampling error comes into play here because I don’t see much evidence for a 5 percent growth during 2017 followed by a 5 percent contraction in 2018. Over the past 12 years, the lowest Mississippi beef cow inventory year (468,000 in 2015) and the highest inventory year (503,000 in 2010) were only 35,000 head apart. Looking at the longer trend, steady is the term to use for Mississippi beef cow numbers.

Slowdown in U.S. Cattle Inventory Growth

The USDA Cattle report was released last week and it showed an estimated 0.5 percent growth in all cattle and calves for a total of 94.8 million head in the U.S. on January 1, 2019. The U.S. calf crop estimate of 36.4 million head showed 644,500 (1.8%) more calves were born in 2018 than in 2017 which marked the fourth consecutive year of calf crop increases. This report was mostly the expected mix of slight growth and hints of lower growth in the future. A larger calf crop in 2018 implies beef production will again be higher in 2019 and likely into 2020 but the cow and heifer numbers point toward smaller increases in calf crops in the future.

The inventory of beef cows was 31.8 million head which was up about one percent. However, the number of beef replacement heifers was down 3 percent from January 1, 2018 at 5.9 million head. This left beef replacement heifers at 18.7 percent of the total beef cow herd which is the lowest level since 2013, but still above herd contraction levels. Only 4 of the top 25 states showed year-over-year increases in the number of heifers for beef replacement. It is likely that we are near the end of the herd growth phase of the cattle cycle though it is worth noting there is not yet clear evidence of entering a contraction phase as calf prices remain at profitable levels. A shift higher in prices could push more expansion while lower prices in 2019 could lead to contraction.

A look at the state-level estimates shows the majority of growth in the beef cow herd can be attributed to three states: Texas (+135,000), South Dakota (+67,000), and Oklahoma (+62,000). Combined, these three states saw beef cow herd growth of 264,000 head and were major contributors to the U.S. beef cow herd growth of 299,500 head. One difference between these three states is that South Dakota and Oklahoma have surpassed their 2010 beef cow inventory levels while Texas is about 485,000 head lower. Texas (-9.4%), Montana (-1.2%) and Kentucky (-5%) are the only states in the top 10 of beef cow inventory with lower cow herds than in 2010.

These inventory responses generally align with market performance over the past two years: prices have been strong enough for nearly flat or slow expansion but not high enough for the rapid expansion seen just a few years ago. We are not yet talking about herd contraction, but we are unlikely to see large calf crop increases the next few years without a large and sustained price rally.

USDA Cattle Supply Reports: Round 1

USDA is catching up on lost time by releasing reports originally scheduled during the shutdown. Last week, the January Cattle on Feed report was released. This week, the annual USDA Cattle report will be released on February 28th. Then, the February Cattle on Feed report will be released on March 8th followed by the March Cattle on Feed report on March 22. Altogether, USDA will release three (normally) monthly Cattle on Feed reports and one annual Cattle report in a 30-day span. These reports are pieces of the supply side of the equation when trying to forecast prices.

The January Cattle on Feed report released last week estimated the feedlot activity during December 2018. Placements were the surprise of the report as the came in 1.8% lower than a year ago when the general expectation was for a 2% increase. It seems that weather and muddy feedlot conditions kept placements lower than would have been seasonally expected. Weather is definitely impacting at least some of the cattle flow this year. One impact at this point on markets at this point is that weather is impacting the flow of cattle into feedlots. This is seen in the lower placement numbers than seasonally expected during the last months of 2018. That can at least in part be attributed to poor feedlot conditions. December was the fourth consecutive month with placements lower than the year prior. This will affect the supply of market-ready cattle in the Spring months and also probably suggests larger placements of cattle this Spring. It seems the futures market is paying attention to this as the April and even June Live Cattle contracts are trading at a pretty significant premium to the August contract.

 

The January COF report is mostly positive for prices, but likely doesn’t really move the needle much because of the delay. We are just now getting information on what happened in December. The true value in this report is that it sets a baseline for expectations for the February report to be released next week.

The USDA Cattle report coming this week is perhaps the most important to producers in the Southeast. It is the most comprehensive cattle supply report released throughout the year. This is the report that estimates total cattle inventory and breaks down inventory by state and class as of January 1, 2019. It will also provide a Cattle on Feed number for all feedlots, not just the 1,000 head or above like we get in the monthly reports. The large majority of analysts are calling for a close-to-flat cow herd growth during 2018. Any deviation from that would be a pretty big surprise. I’m looking forward to that report for many reasons including the estimates for herd changes within states.

 

Heifer Price Seasonality

Last week we looked at steer price seasonal patterns in Mississippi (view that post HERE). This week, we are examining the same story but for heifer prices. The back story from last week about why seasonality matters is the same for heifers as it is for steers. Rather than repeat it, I’m going to focus on some seasonal differences between steers and heifers.

The graph above is a seasonal price index that shows how much monthly average prices differ from annual average prices. This is calculated by dividing each month’s average price by the average annual price. Next, the monthly average across the years of data is calculated to obtain an average price index. The price index calculated in this article has a base value of 1. This implies that if a given months price index is 1, the average price in that month is equal to the average annual price. If a monthly index value is 1.05, then the average price in that month is five percent higher than the annual average.

Mississippi heifer prices over the past 7 years in Mississippi generally follow the same pattern as steer prices – higher prices in the early Spring months and lower prices in the Fall. A few key differences stand out though when we look at specific weight classes. The percentage range is larger with heifers for some lasses. 500-600 pound steers range from 7% higher than average in March to 8% lower than average in October. For heifers, the range is 6% high and 12% low — an 18% range in a “normal” year. The length of time those five-weight heifers are seasonally lower on average also lasts longer than for steers as November is even lower than October. The “Low” for each weight class is lower for heifers than it is for steers. Remember, these “Lows” are relative to the annual average price for each sex.

There are a few caveats that are worth mentioning here. In general, there are more steers sold in each weight group than heifers and thus the price data each week is probably a little accurate for steers than heifers. If there are few heifers traded in a week but those few are really good (or bad), that can strongly influence those prices. Because this analysis was done over seven years, those issues are outweighed by values other years and no single week has a huge impact on the index.

Calf Price Seasonal Patterns

The fundamentals of cattle markets in 2019 do not currently send a clear higher or lower signal for calf prices this year. Larger supplies but great beef demand have kept calf prices in a pretty close range the past two years. That is still the story in early 2019. An unexpected shift could happen; but droughts, changes in the overall economy, etc., are nearly impossible to predict far into the future with any level of accuracy. But in years where there is not a fundamental push (an example would be the low-supply-driven surge in prices in 2014-2015), market seasonality is often the biggest driver of price changes throughout the year.

Calf prices are dependent upon prices around the country. Feedlot demand for steers and stocker demand for steers are both important drivers of the feeder markets. Also important is the timing of when most cattle are weaned and hit the market – usually during the fall months.  If these factors cause prices to behave similarly throughout each year, a seasonal price index can be used to estimate the impact that the time of year can have on cattle prices.

To examine this, we can calculate a seasonal price index that shows how much monthly average prices differ from annual average prices. This is calculated by dividing each month’s average price by the average annual price. Next, the monthly average across the years of data is calculated to obtain an average price index. The price index calculated in this article has a base value of 1. This implies that if a given months price index is 1, the average price in that month is equal to the average annual price. If a monthly index value is 1.05, then the average price in that month is five percent higher than the annual average.

Mississippi steer prices over the past 7 years in Mississippi have followed a seasonal pattern of higher prices in the early Spring months and lower prices in the early Fall. We are approaching the seasonally high months of the year for Mississippi and Southeastern calves. The seasonal lows for 500-800 pound steers usually come in the Fall when the largest number of calves are being sold. For 500-600 pound calves, prices in October are nearly 10 percent lower than the annual average – and about 15 percent lower than March prices, on average. These seasonal patterns are worth watching this year. How high the peak is in the Spring is another piece of information to use when projecting calf prices during the Fall.