Category: Livestock Marketing

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. 

Dairy producers continue to struggle with decreasing farm level milk prices and high feed costs. For the first five months of 2023, the US All Milk price averaged $21.16 per hundredweight (cwt), which was more than $4 per cwt lower than the first five months of 2022. In fact, the US All Milk dropped below $20 per cwt in May for the first time since October 2021. Lower milk prices are never a welcome change, but they are especially problematic in the current feed price environment. While farm level milk prices were considerably lower for the January-May time period this year compared to last year, feed prices were actually higher. Using the Dairy Margin Coverage (DMC) feed ration as a proxy for feed cost to produce a cwt of milk, feed costs were almost $1 per cwt higher during the first five months of this year. Needless to say, this combination puts a serious squeeze on dairy producers. The figure below shows both US All Milk Price and Dairy Margin Coverage (DMC) feed costs since January of 2014 and the recent convergence of the two lines is very obvious. (Note: Dairy-DMC did not exist for this entire time period, but the chart was intended to give historical perspective).

While I would prefer market conditions be different, times like this are good opportunities to discuss risk management strategies. Dairy producers should consider all risk management opportunities available to them including Dairy Revenue Protection, Livestock Gross Margin (LGM) for Dairy, forward contracts, futures and options, etc. But the Dairy Margin Protection (DMC) program is a relatively inexpensive way to get some margin protection, especially on an operation’s first 5 million lbs of milk production history. Because it is readily available and inexpensive, I suggest to producers that DMC should be their first layer of risk protection. In fact, producers that enrolled in the DMC program at the highest level ($9.50 per cwt) have received a payment in each of the first five months of 2023. 

The chart below tracks DMC margin back to January of 2014 and one can easily see decline in margins over the last several months. The last point on that chart is May of 2023 for which the DMC actual margin was $4.83. While it can’t be seen in the chart, one would have to go back to 2012 to find a lower DMC margin than that, had the program existed back then. In terms of the payment level for May 2023, participating producers received a payment of $4.67 for that month’s share (1/12) of the production history they chose to cover. While a dairy producer would be better off if prices were such that a DCM payment was not triggered, a payment of this magnitude absolutely makes a difference. 

Many risk management tools today are market based. By that, I mean that available coverage levels and costs evolve with market conditions. Examples of this would include Livestock Risk Protection and Livestock Gross Margin Insurance, as well as crop insurance for which reference prices are determined by February futures. But DMC really is a countercyclical tool. The margin levels that can be purchased are available regardless of market conditions. In fact, producers may enroll in DMC at times when the likelihood of payouts is extremely high. There is considerable price and cost risk going forward this year.  Historically large corn acres planted, 94 million, combined with trend yields would produce a record large corn crop and lower prices.  But drought worries may cut into those yields, substantially boosting prices. Today’s futures market indicates some slightly higher Class III milk prices in the coming months.  Every operation should consider all available tools when putting together their risk management plan, but it’s hard to imagine that DMC-Dairy would not be one of the tools in their risk management toolbox.

Dairy cow culling has increased this year due to low milk prices causing unprofitable conditions for many dairies.  In fact, milk supplies in excess of processing ability has caused some milk to be dumped out instead of being used in some regions of the country.

Total dairy cow slaughter in the U.S. is up 5.5 percent (81,300 head) compared to last year.  Culling is higher in the big milk production regions of the country, including the Midwest (region 5) and the West Coast (regions 9 and 10) which are up 3.4, and 10.3 and 5.4 percent, respectively.  

Three regions concern Southern dairy producers, regions 3, 4, and 6.  Region 3 includes Virginia and Maryland but, those states are likely swamped in the data by Pennsylvania, one of the largest milk producing states in the country.  Dairy cow slaughter for region 3 also likely includes a lot of cows from New York, another large milk producer.  Region 4 runs from Mississippi in the West to Kentucky, the Carolinas, and down to Florida.  Region 6 includes Texas, Arkansas, and Louisiana.  New Mexico is a large producer and is also part of region 6.  Slaughter in region 3 is actually 7 percent below last year.  Region 4 is about even with a year ago given that slaughter is only 600 head more than last year.  The big change is in region 6 where dairy cow slaughter is up 24.6 percent, or 42,800 head, over last year.  That represents more than half of the increase in total U.S. dairy cow slaughter this year.  

High cull cow prices are likely adding a little encouragement to dairy cow culling.  But low milk prices are the driving factor.  We are likely to see larger culling than a year ago until milk prices show some improvement.  Dairy cow slaughter tends to decrease seasonally until this time of the year then begins to increase.  Increasing numbers of dairy cows going to market in coming weeks and months would not be a surprise.

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Anderson, David. “More Dairy Cow Culling.” Southern Ag Today 3(28.2). July 11, 2023. Permalink

I hope you all have a great holiday, celebrating our country’s independence.  I suspect a bunch of us will spend some time out tending a grill or smoker for a bit this week.  With that in mind today’s article looks at retail and wholesale meat prices.

Retail meat prices for beef, pork, and chicken, reported monthly by the Bureau of Labor Statistics and USDA, have been moving in different directions.  Retail pork prices were below a year ago while chicken and beef prices were above a year ago.  Each market is responding to their own supply and demand issues which are causing prices to move in opposite directions.  But, all share the issues of higher production costs including those to get the products from where they are produced to your local meat case.

Choice beef prices hit a record high of $8.08 per pound in May (the latest data), surpassing the $7.90 per pound in October 2021.  The all-fresh beef price data series was just a couple of cents per pound off its record high.  Tighter beef supplies, down 4.8 percent compared to a year ago, coupled with continued consumer buying is pushing prices higher.  Fewer cows going to market and fewer fed cattle have led to higher ground beef prices.  The start of summer grilling season provides a little demand boost too.

The retail pork price was $4.73 per pound in May.  That was 3.2 percent below last year and unchanged from the month before.  Pork production for the year is 0.3 percent more than last year.  In the wholesale pork market, prices for cuts like loins, bellies, and ribs have languished this year, in part, due to a little more production but, also due to some apparent demand problems.  Wholesale pork cut prices have started to increase in the last couple of weeks and that will likely bring pressure for higher retail prices if the consumer demand is there.

Chicken (broiler) production is 1.5 percent larger than last year, so far.  The reported monthly retail price was $2.45 per pound, just slightly above last year’s $2.42 per pound.  Wholesale chicken cut prices have been well below last year’s level most of the year.  Boneless, skinless breasts were $1.29 per pound compared to $3.02 at this time last year.  Wings were $0.88 per pound versus $1.82 last year.  USDA’s weekly featuring report indicated a few more grocery stores with retail features and specials on chicken prices this week and lower prices than year ago on breasts and wings.

Regardless of your grilling choices this holiday, I hope you have a great holiday celebration!  Happy Fourth!

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Anderson, David. “Hot Dog! It’s Fourth of July!” Southern Ag Today 3(27.2). July 4, 2023. Permalink

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. 

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