Southern Ag Today

Author: Josh Maples

  • 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

  • Record Egg Prices Driven by Supply Disruptions

    Record Egg Prices Driven by Supply Disruptions

    Prices at the grocery store are higher for nearly everything, but one staple food item, in particular, is likely a key driver of recent sticker shock for consumers. Egg prices during the holiday season were up more than double over the same period in 2021. Retail egg prices averaged $4.25 per dozen in December 2022, a record high. This compares to $1.79 per dozen in December 2021.

    The main culprit of the higher prices is a supply disruption at a time when consumers have a strong demand for eggs. Highly Pathogenic Avian Influenza (HPAI), often called the bird flu, is an important concern each year, but was especially problematic in the U.S. during 2022. USDA reports that HPAI was detected in 307 commercial flocks in 2022. HPAI is very contagious between birds, so strict containment protocols including depopulation of infected flocks are used to prevent additional spread to other flocks. 

    USDA estimates that approximately 57 million birds in the U.S. were affected by HPAI in 2022. Of this total, nearly 40 million were egg laying hens lost to HPAI between February and December 2022. There were 320 to 335 million hens laying eggs each month in 2021 but that total has been in the 299 to 310 million hen range between April to October 2022. Fewer laying hens has led to fewer eggs produced and tighter supplies for eggs consumers.  Egg production has trended down over the last couple of years due to high feed costs, rising other production costs, and the turmoil of the pandemic on profits.

    On the demand side, the holiday season is peak season for egg consumption. According to the first weekly USDA “Egg Markets Overview” of 2023, an estimated 11.4 eggs during the Thanksgiving holiday and 8.6 eggs during Christmas were used per household. The Christmas estimate is 1.6 eggs higher than Christmas 2021. Even at high prices, U.S. consumers still purchased a lot of eggs over the holidays. Strong demand at a time when supplies are tighter drove egg prices higher.  

    The good news is that egg prices are expected to moderate in the months ahead. Consumer demand for eggs will not be at holiday levels, except for Easter egg hunts, and egg producers will continue to try to recover from the supply disruptions. HPAI concerns will continue into 2023 and future impacts could affect supplies this year, too. But current USDA forecasts are for 2023 egg prices to fall back to more normal levels as the supply and demand balance improves.    

    Mississippi state university logo

    Author: Josh Maples

    Assistant Professor, Livestock, Production Economics, Commodity Marketing

    Mississippi State University

    Maples, Josh. “Record Egg Prices Driven by Supply Disruptions.” Southern Ag Today 3(5.2). January 31, 2023. Permalink

    Image credit to Julia Filrovska

  • Exceptional Cow and Heifer Slaughter

    Exceptional Cow and Heifer Slaughter

    We are approaching the end of 2022 and are getting a more complete picture of beef cow and heifer slaughter and its implications for future supplies. Through October, heifer slaughter is up about 5 percent (402k head) and beef cow slaughter is up 13 percent (375k head) as compared to a year ago. The bulk of the increase in national beef cow slaughter has occurred in the South with beef cow slaughter across the two Southern regions being 271k head higher than a year ago. In particular, beef cow slaughter in Region 6 (AR, LA, NM, OK & TX) is up nearly 30 percent. 

    Shown in the chart is a regression trend line that was estimated by the Livestock Marketing Information Center (LMIC) using the relationship between beef cow/heifer slaughter and the prior year’s inventory. Or put differently, it is how many cows and heifers were processed this year as compared to how many beef cows we started with. The numbers on the bottom axis (0.32 to 0.48) are proportions. A proportion of 0.4 means that beef cow and heifer slaughter was 40% of the starting beef cow inventory that year. The numbers on the left axis show the annual change in beef cow inventory. A change equal to 1 would mean no change, 1.02 is a 2% increase, and 0.98 means a 2% decline. Using 2014 as an example, the graph shows that cow/heifer slaughter during 2014 was about 41% of the beef cow inventory on January 1, 2014, and the beef cow herd declined just over 2% that year. 

    2022 is shaping up to be an exceptional year. The orange square on the graph for 2022 represents an estimate for 2022 that assumes the remaining slaughter weeks in 2022 are similar to year-ago levels. In that scenario, the proportion of beef cows and heifers slaughtered would be about 47%. Using this analysis, that would suggest a decline in beef cow numbers somewhere around the 4% to 5% during 2022 which would be levels not seen since 1985-86. Given that most of the beef cow slaughter increase has occurred in the South, it seems likely that cow inventories in these states could decline even more than the national decline. 

    Mississippi state university logo

    Author: Josh Maples

    Assistant Professor, Livestock, Production Economics, Commodity Marketing

    josh.maples@msstate.edu

    Maples, Josh. “Exceptional Cow and Heifer Slaughter.” Southern Ag Today 2(48.2). November 22, 2022. Permalink

  • Drought Continues to Impact Cattle Flow

    Drought Continues to Impact Cattle Flow

    The latest USDA Cattle on Feed report was released on Friday and showed drought conditions continued to impact cattle movement into feedlots during August. Dry weather and poor pasture conditions in some areas have likely led to producers selling cattle sooner than normal. Placements into feedlots during August were up slightly over year-ago levels but were driven by lighter weight cattle. 

    Placements of cattle weighing less than 700 pounds were about five percent higher than in August 2021 while placements of cattle weighing more than 700 pounds were about two percent lower than a year ago. Looking at Texas where drought conditions have been severe, August placements of cattle weighing less than 700 pounds were nearly 12 percent higher than a year ago while total placements were up 9 percent.  

    The late summer months are seasonally the lowest cattle on feed months, and it appears August will be the low for 2022. Feedlot inventory on September 1st was estimated at 11.3 million head which is up slightly from August 1st and also up slightly from a year ago. Feedlot inventories will grow in the fall months but by how much is the big question. The increased placements of lighter cattle over the summer suggest there will be fewer placements during the fall months than usual. It is likely that some cattle that would have normally been placed in September through November were already placed into feedlots during the summer. Early indications for wheat pasture in the Southern Plains look disastrous unless some sustained rainfall comes soon.  Poor wheat pasture establishment will reduce stocker calf demand this Fall but may send more to feedlots at lighter weights.

    Maples, Josh. “Drought Continues to Impact Cattle Flow“. Southern Ag Today 2(40.2). September 27, 2022. Permalink

  • Pork and Beef International Trade

    Pork and Beef International Trade

    The latest estimates for meat trade were released last week by USDA FAS and ERS. These monthly estimates include export and import data for beef, pork, and other meats during April. We’ll focus on pork and beef in this article and the different trends of each sector.  

    Pork exports were down nearly 20 percent both during April and year-to-date as compared to 2021. Declines in shipments to China are the biggest driver as U.S. pork exports to China are about 70 percent lower, so far in 2022, compared to 2021. Exports totaled 529 million pounds during April. Mexico and Japan were the largest volume destinations for U.S. pork and accounted for more than half of total pork exports.

    Beef exports during April were up about 6 percent above April 2021 and totaled 304 million pounds for the month. Japan, South Korea, and China were again the largest volume destinations for U.S. beef during April and were each up about 8 percent compared to last year. Year-to-date, beef exports to China (up 43 percent) and Taiwan (up 44 percent) make up the largest increases compared to 2021. Beef exports to Mexico were about 24 percent lower during the first 4 months of 2022 as compared to 2021. 


    On the import side, both pork and beef imports were higher than a year ago. Pork imports were up 49 percent in April and beef imports were 7 percent. On the beef side, imports from Mexico (up 19 percent) and Brazil (up 51 percent) showed the largest increases from a year ago. Pork imports from Canada are the primary contributor to the increase and made up more than half of the pork imports during April. 

    Maples, Josh. “Pork and Beef International Trade“. Southern Ag Today 2(25.2). June 14, 2022. Permalink