Southern Ag Today

Author: Josh Maples

  • No Signs of Beef Cattle Herd Expansion…Yet

    No Signs of Beef Cattle Herd Expansion…Yet

    Two key reports were released on Friday that give the latest insight on the herd dynamics for beef cattle. USDA-NASS released the mid-year Cattle report and the monthly Cattle on Feed report. While there is plenty to digest in each report, I wanted to note a few key points from each report in this article.

    For the mid-year Cattle report, two of the most interesting estimates were the number of beef heifers held for replacement and the 2023 calf crop. NASS estimated 4.05 million beef heifers held for replacement, a 2.4 percent decrease from the 2022 estimate. The 2023 calf crop is estimated to be 33.8 million head (a 1.9 percent decline from 2022) and includes 24.8 million for the first half of the year and 9 million calves to be born during the second half of the year. This is the fifth consecutive annual decline in calf crop and would be the lowest total since the 33.5 million total in 2014. 

    For the Cattle on Feed report, one of the most interesting points was an estimate that didn’t change from a year ago. The number of heifers on feed was estimated at 4.47 million head which is unchanged from a year ago, even though the tightening calf crop the past few years implies the total number of heifers has declined. For comparison, the number of steers on feed was estimated at 6.73 million head which was a 2.9 percent decrease from 2022. Heifers were estimated at 39.9 percent of cattle on feed, the highest percentage since 2002.

    Contraction in the beef cattle herd continued through the first half of 2023. Beef cow numbers are lower, the calf crop is lower, and many heifers continued to enter feedlots instead of being held for replacement. Beef cattle prices are at record highs which has many folks wondering when herd expansion will follow. However, the signs of expansion are not evident yet. 

  • Surprisingly Big Placements in the June Cattle on Feed Report

    Surprisingly Big Placements in the June Cattle on Feed Report

    The latest Cattle on Feed report was released on Friday by USDA-NASS. June 1 total cattle on feed for feedlots with capacity of 1,000 or more head was estimated at 11.55 million head which was 2.9 percent below June 1, 2022. This marked the ninth consecutive month that total cattle on feed was lower than the same month of the previous year. 

    The biggest surprise from this report was the larger than expected placements of cattle into feedlots during May which were estimated at 1.96 million head. Placements were 4.6 percent (86,000 head) above May 2022 totals which was above the pre-report average expectation of a 1.7 percent increase. This was the largest May placements total since 2020. 

    Placements were higher across all weight classes except for the 900-999 pound group which was down 2.3 percent. Placements of cattle weighing less than 600 pounds were up 4.1 percent, 600-699 pounds up 9.3 percent, 700-799 pounds up 3.2 percent, 800-899 pounds up 6.5 percent, and over 1,000 pounds up 6.7 percent. 

    Looking at regional placements, most of the overall increase was driven by Nebraska where placements were 13.9 percent higher than last May, and placements were up double digits in all weight categories. Drought almost certainly was a factor in the larger Nebraska placements. Placements in Texas were interesting because of the contrast between light and heavy weight placements. Texas placements of under 600 pound cattle were up 7.1 percent (10,000 head) while placements over 800 pounds were down 8.7 percent (10,000 head) as compared to May 2022.

    Cattle marketings were reported at 1.95 million head which is 1.8 percent above a year ago. This was slightly higher than expected pre-report but within the range of expectations. 

    Looking ahead, it will be interesting to watch where cattle on feed numbers go during the summer months. Cattle on feed numbers typically decline in the summer and reach their seasonal low point around August before beginning to expand again for the Fall. Just how low that low-point is this year, and the percentage of heifers, will be informative for discussions on cattle and beef supplies. 

    Maples, Josh. “Surprisingly Big Placements in the June Cattle on Feed Report.” Southern Ag Today 3(26.2). June 27, 2023. Permalink

  • $185

    $185

    Fed cattle futures prices surged to $185 for April 2024 and $175 in the nearby (June) contract, at the time of this writing.  This rocket ship ride to record prices is fueled by some fundamental market conditions and some conditions outside of the cattle and beef market.

    Cash fed cattle prices have increased and some of the increase in futures prices is the futures playing catch up.  Feeder cattle prices are along for the ride.  Feeder cattle, 7-800 pound steers, in the South approached $200 per cwt while those in the Southern Plains hit $213 in local auctions.  

    On the fundamental side, cattle and beef supplies are certainly tighter.  Daily average fed steer and heifer slaughter in May is 2.9 percent smaller than last year.  Beef production over the last 4 weeks is 3.9 percent smaller than last year.  Beef production reflects fewer beef cows going to market and lighter fed cattle dressed weights.  

    On the demand side of the fundamental ledger, beef demand appears to continue to support higher prices. While packer margins are certainly much smaller, packers continue to demand cattle (us economists call this “derived demand”).  Consumers continue to buy beef and there is little evidence of large scale switching to less expensive meats.  

    Other, broader market considerations are also working to boost prices.  The recent budget deal to avoid U.S. default provided a boost to the stock market that spilled over into other commodity markets.  Continued strong employment numbers are supported income and demand.  These factors contribute to some reduced fears of recession and better beef demand expectations.  

    On balance, tighter supplies and good demand have boosted prices.  Other economic conditions have added some fuel for even higher prices.  Some good questions remain.  Are calf prices high enough to kick off significant herd expansion?  Competing meats are becoming cheaper relative to beef –   will we see some evidence of consumer purchasing changes?  For all the questions out there, no doubt higher prices are good news for ranchers after multiple years of tight or negative margins.

    Maples, Josh, and David Anderson.“$185.” Southern Ag Today 3(23.2). June 6, 2023. Permalink

  • National Feeder and Stocker Cattle Receipts Higher to Start 2023

    National Feeder and Stocker Cattle Receipts Higher to Start 2023

    The number of feeder and stocker cattle sold during the first four months of 2023 was about four percent higher than during the same period in 2022 according to data from the USDA-AMS National Feeder and Stocker Cattle Summary.  Strong prices, persistent drought in some regions, and the timing of wheat pasture cattle movement likely contributed to these higher totals despite the smaller calf crop in 2022. 

    Shown in the chart above, receipts have generally followed the seasonal pattern of declining sales through the first four months. This dataset includes auction, direct, and video/internet sales that are reported to USDA. It does not capture all feeder and stocker cattle transactions and the report notes that “receipts vary depending on the number of auctions reported” – but comparisons over time can be informative when considering current market dynamics to previous years.  

    On the surface, the stronger receipts totals are at odds with the 2 percent smaller calf crop in 2022 than in 2021. However, the data are most likely indicating market timing differences instead of changes in total cattle inventory. Cattle prices have been significantly stronger this year as compared to a year ago and drought continues to be a key issue in Texas, Oklahoma, Kansas, Nebraska and other areas which is limiting grazing opportunities. These factors have likely led to more cattle moving into feedlots or grow yards earlier than normal. Compared to the 5-year average from 2017-2021, receipts are one percent lower so far in 2023.

    The report also gives information about the mix of steers and heifers and weight ranges and suggests slightly fewer heifers and lighter cattle have been sold this year.  Heifers represented 40.9 percent of the stocker and feeder cattle sold during the first 4 months of 2023. This is about one percentage point lower than in 2022. The percent of cattle sold weighing above 600 pounds is also lower at 72.6 percent compared to 73.9 percent a year ago.

    Looking ahead, auction receipts will increase seasonally as summer arrives. However, overall supplies this year are expected to be smaller. The estimate of the expected calf crop for 2023 will be released on July 21st as part of the mid-year USDA Cattle Inventory report.

    Maples, Josh. “National Feeder and Stocker Cattle Receipts Higher to Start 2023.” Southern Ag Today 3(19.2). May 9, 2023. Permalink

    Photo by Mark Stebnicki: https://www.pexels.com/photo/brown-cattle-2253553/

  • Managing Price Risk for Cow-Calf Producers

    Managing Price Risk for Cow-Calf Producers

    David Anderson wrote yesterday about markets reaching record-high cattle prices as cattle supplies tighten and some of the questions out there about the market later in the year. Cow-calf producers certainly welcome higher prices anytime, but what about the producers who don’t have anything to sell right now? Nearly 75 percent of the calves born in the U.S. are born during the first half of the year, which means many producers are calving or have already finished calving for the year. These calves are still nursing and most likely won’t be sold until later in the summer or fall. While it may be months before the spring calves are sold, producers do have opportunities to utilize price risk management tools now.  

    Not only are cattle prices surging to high levels now, but there is also optimism that cattle prices could continue to gain steam as we move through 2023. The chart above plots the contract price for each Feeder Cattle Futures contract month traded on the CME Group. The spring contracts are trading near $200-$205 per cwt, but the summer and fall contracts are trading above $220. Some of this increase is seasonal, but much of it is also driven by the expectation of continually tighter cattle supplies. Importantly, these expectations of high cattle prices mean there are price risk management opportunities not seen since 2014-2015. 

    There are a few price risk management tools that cow-calf producers selling later this year could consider. Selling a futures contract or purchasing a put option are potential strategies. One thing to consider about these choices is the contract size is 50,000 pounds which might be a little large for many cow-calf producers. Forward contracting is worth considering – this simply means a producer would lock in a sales price with a buyer in advance. USDA’s subsidized Livestock Risk Protection (LRP) tool is also worth considering and can be used on as few as one head which makes it worth a look for producers of all sizes. Your local crop insurance agent may be well equipped to help you in any LRP decisions.  Each of these tools has their own design and tradeoffs to understand before jumping in, and there are certainly other risk management strategies out there. However, all tools are currently offering risk management opportunities at price levels not seen in the past eight years. Even if a producer doesn’t have any calves to sell now, they can still take advantage of the optimism in the market by managing their price risk. 

    Maples, Josh. “Managing Price Risk for Cow-Calf Producers.” Southern Ag Today 3(15.3). April 12, 2023. Permalink