Livestock Marketing

The Fall is often an interesting time to look at hog and pork markets because production typically increases seasonally, and prices decline.  Holiday ham demand usually kicks in to partially offset supply driven lower prices.  This year has some notable differences happening.

The hog industry has had a 7-month run of profits according to Iowa State University’s estimated farrow-to-finish returns.  Profits have been generated by much lower feed costs in recent months.  But, those profits are following huge financial losses in 15 of the preceding 17 months.  Losses have led to a reduction in the breeding herd and in sows farrowing.  USDA’s September 1 hogs and pigs report indicated the smallest breeding herd since 2016.  About 18 percent of the nation’s breeding herd are in the South.  June through August farrowings were estimated to be the smallest since 2013.  Only increasing numbers of pigs per litter, hitting 11.72 in the third quarter of the year, supported slaughter numbers.  Over the last month hog slaughter and pork production have been almost equal to a year ago.

While pork production has increased seasonally this Fall, supplies appear to be tightening compared to a year ago.  Hog prices are enjoying a counter-seasonal increase.  Iowa-Southern Minnesota barrow and gilt carcass prices have increased from about $75 per cwt to $84 per cwt over the last month.  The cutout is up about $7 per cwt over the same time.  Wholesale prices are higher for pork bellies, trimmings, ribs, and hams.  Bellies are up about $30 per cwt over the last month to $2.02 per pound.  They were $1.24 per pound a year ago. Trimmed pork spareribs hit $1.75 per pound last week compared to $1.18 a year ago.  

In the meantime, more retail pork features and specials are occurring compared to a year ago.  Retail prices for boneless hams are a little higher than a year ago while bone-in hams are a little cheaper than a year ago in the week leading up to Thanksgiving according to USDA’s retail price report. 

It’s going to take some sustained higher hog and pork prices to boost profitability enough to increase production in the coming year.  It’s likely that higher pork prices are ahead for 2025.

Anderson, David. “A Look at the Hog Market.” Southern Ag Today 4(47.2). November 19, 2024. Permalink

The January 2025 feeder cattle futures contract dropped roughly $25 per CWT from mid-July to mid-August. But, since early September, futures contract prices have rebounded about $15 per CWT. Points on the solid maroon line in the chart are the end of day futures contract prices from last Friday for each feeder cattle futures contract month. Points on the dotted black line are end of day prices back on September 6^th, after the big decline.  

The chart nicely illustrates seasonality within the futures market. Auction prices for 750-pound feeder cattle are typically lowest in the spring months when those calves are yearlings.  Futures prices reflect expectations of seasonal patterns too, but there are a few steps to thinking through the impact. 
 
First, it’s important to remember that feeder cattle futures prices are the “market’s” expectation of what the CME Feeder Cattle Index will be at the end of the contract month. The “market” is made of buyers and sellers trading the futures contract. The feeder cattle index is calculated from auction prices for 700-899 pound steers collected by USDA-AMS for a 12-state region in the middle of the U.S. (there are no states east of the Mississippi River included in the index). It is a 7-day rolling weighted average, so today’s index value is a weighted average of the auction prices over the past week. Most auctions only operate one day per week so the 7-day average catches sales during a week’s period.
 
How does seasonality fit into this? If prices are typically expected to be lower during certain months (i.e. seasonality), then the futures contract prices for those months will likely be lower because traders are “baking-in” the seasonality expectations. The chart above is a good example. Since these prices reflect 700-899 pound feeder steers, the market (futures traders) is expecting auction prices (the CME index) to be lower during the spring months before rising seasonally as summer approaches.

This exercise illustrates the importance of understanding how the value of your cattle correlates to futures market prices for risk management or for forecasting prices. Your cattle may not be 800-pound steers sold in that 12-state region. But if you know your cattle are usually $10 above or $10 below the futures market at sales time, then then you can still use the futures market’s expectations to forecast the expected value of your cattle and to participate in price risk management tools.

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Maples, Josh. “Feeder Cattle Futures Prices.” Southern Ag Today 4(46.2). November 12, 2024. Permalink

Shell egg prices have proven highly variable in the last few years. Consumer demand for eggs can be equally erratic but predictably increases around Easter in the spring and then again around the fall/winter holidays. Prices typically go up in response to this higher demand. Beginning in early summer, 2024 prices rose above and remained higher than in 2023.  They spiked again in August due to lower supply caused by laying hen losses earlier in the year from Highly Pathogenic Avian Influenza (HPAI). Prices then dropped as flocks were repopulated and late summer demand fell. Now, leading up to the fall holiday season, we see egg prices spiking again, and they are higher than they were not only in 2023 but also higher than the same time in 2022. Later in 2022 wholesale egg prices reached an all-time high approaching $5.00/doz. (fig 1). When we compare 2022 to 2024, we see a haunting premonition of where egg prices could be headed this holiday season. The current price spike looks to be holiday demand coming in the face of a decrease in layers producing the eggs; the same thing we saw in 2022.

When we compare current 2024 numbers to the same timeframe in 2022 and 2023, there are a few comparable trends worth noting. Current shell egg inventory and layer numbers have dropped 13.7% and 3% respectively from the previous year, while price is significantly higher (over 300%). The current price is also 22% higher than the same time in 2022 when the egg and layer inventories were very similar to now (fig 2).  It’s possible we could see the same prices on the horizon as we saw in late 2022.

While the supply and demand numbers may not bode well for egg consumers, layer producers have additional concerns.   December corn is currently trading in the $4.28/bu. range and looks to stay below $4.60 through spring according to the USDA futures price estimates. This looks to be a positive for egg producers as the resulting lower feed cost could help egg producers recover from their losses as well as last year’s low egg prices – IF they have the hens to produce the eggs. The concern is that the HPAI threat still looms large over the layer industry. HPAI losses are driving the current low inventories of layers and eggs. In October of this year, 2.84 million layers were lost to HPAI to begin the holiday season. Year-to-date, the layer industry has lost 20.75 million layers, which equals 6.8% of the total current flock of producing hens. It is difficult for layer producers to keep up with current demand in the face of such losses. And now, the fall waterfowl migration is ramping up, bringing with it an increased HPAI risk. According to the USDA, there are currently only 4.1 days of shell eggs on hand for sale. Therefore, any additional hen losses could have a significant impact on the market. Whether 2024 prices will reach the highs of 2022 remains to be seen, but if HPAI continues to devastate producing layer flocks, prices this year could reach and even surpass 2022.

Figure 1: Egg prices were relatively stable, though above last year, until mid-summer, when they spiked due to laying hen losses that occurred earlier in the year. Prices spiked again this fall due to a convergence of additional hen losses to HPAI and an increasing demand for the holidays.

Figure 2: Laying hen inventory and egg inventory for 2024 looks hauntingly like 2022, when late season egg prices rose to historical levels

USDA released the October Cattle on Feed report on Friday, October 25^th.  The most anticipated number in the report was the quarterly number of heifers on feed.  Once per quarter, the report includes a breakdown of the number of steers and heifers on feed.  The heifers on feed have been some evidence of any herd rebuilding beginning.  The report indicated 40,000 fewer heifers on feed October 1 than last October 1.  That is less than one percent below last year.  It is the second largest number of heifers on feed for October 1 in the data going back to 1996.  

The continued large number of heifers on feed does not indicate much herd rebuilding in the works.  The drought monitor map indicates some drought across most of the country likely reducing some enthusiasm for heifer retention.  But, on the other hand, longer feeding periods mean that heifers are on feed longer, which would keep the number on feed higher.  A few more spayed heifers have been imported from Mexico this year than last, also contributing to more heifers on feed.  

Now for the headline numbers.  Feedlot marketings in September were two percent larger than the year before.  That translates to almost 2,000 head per day more than last year.  Placements were two percent smaller than a year ago.  More marketings and fewer placements resulted in the total number of cattle on feed being 4,000 head fewer than last October 1.  The number on feed was less than one-tenth of one percent below a year ago, so not much really but, it was the first month with fewer cattle in feedlots since June.  All in all, the report did not offer much of a surprise.

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Anderson, David. “Fewer Heifers on Feed.” Southern Ag Today 4(44.2). October 29, 2024. Permalink

Most people have likely seen the news that McDonalds is rolling out, for a limited time, a Chicken Big Mac.  Some of you, of a certain age, might be singing the words in your mind now: “two all-beef patties, special sauce…”  A question on many cattle producer’s minds has been “how long will people keep buying beef at record high prices?”  If beef prices are higher relative to chicken prices might people begin to buy more chicken?  Those are great questions about beef demand because relative prices matter.  We would expect some changes in purchases away from beef as it becomes relatively more expensive.  I don’t purport to know the goings on in McDonald’s as they create strategies to build their business but, we can look at some relative prices in the wholesale meat market to shed some light on the input price side.

In this case, we can compare wholesale chicken breast prices to beef trimmings prices to look at relative changes over time that might lend some support to trying a new menu item.  There are several data series that could be used to capture the longer-term trends.  On the chicken side we can use line run chicken breasts or boneless, skinless breasts.  On the beef side, a number of different lean-to-fat ratios for trimmings could be used.  This example uses line run chicken breasts and 81 percent lean beef trimmings.

The price of line run chicken breasts was only 34 percent of the price of 81 percent beef trimmings in late August 2024.  The only time in the last 15 years that chicken breasts approached a lower relative value compared to beef was in the Summer of 2020.  The trend over the last couple of years has been for chicken breasts to decline in value relative to beef trimmings.  Much of ground beef comes from culled cows and cow prices have increased dramatically as the cow herd has declined in number.  Lower chicken prices create incentives to try some new chicken-based menu items.  

Live cattle and meat prices are quoted in dollars per pound or cwt.  But, a restaurant has to put together a meal, a plate, or a dinner that hits a price point that people want to buy.  Cheaper chicken relative to beef creates opportunity for new items to help restaurants reduce their costs.  Beef prices are likely to remain relatively more expensive than chicken for some time to come.

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Anderson, David. “An Alternative Big Mac.” Southern Ag Today 4(43.2). October 22, 2024. Permalink