Category: Livestock Marketing

Last summer, I wrote a Southern Ag Today article about the strength of dairy prices. After a great deal of volatility during 2020 and 2021, prices for cheese, butter, and nonfat dry milk pushed farm level milk prices beyond what was seen in 2014. The US All Milk price actually exceeded $27 per cwt last April and May and just missed that level in June. Increases in feed cost definitely bit into those price levels, but margins were as attractive as they had been in several years. Since that time, milk price has fallen by about $4 per cwt. Feed costs have also decreased, but not by as much proportionally. The figure below shows both US All Milk Price and Dairy Margin Coverage (DMC) feed costs since January of 2014. (Note: Dairy-DMC did not exist for this entire time period, but the chart was intended to give historical perspective).

US All Milk Price and DMC Feed Cost

January 2014 to January 2023, $ per cwt

The last data point in the chart above is for January of 2023 and that is where I want to focus this discussion. Dairy margins have shifted in recent months such that the DMC margin for January of this year was $7.94, so payments will be made at the $9.50 coverage level. This is the highest level of coverage available to producers covering up to 5 million pounds of annual milk production history. This means that a payment of $1.56 will be made on one-twelfth of the year’s covered production. The January payment alone will cover over 80% of the total premium cost for 2023 and coverage is still in place for the remaining 11 months for which margins are not yet known.

The figure below shows the DMC Margin from January 2014 to January 2023. This is just the difference in the two series shown in the previous graph and tells the story very well. One can see the $2.96 decrease in margin from November of 2022 to January 2023 as well as the overall volatility in milk price over DMC feed costs had the program been in existence since 2014. Had DMC been around in 2009 and 2012, the margin would have been below $4 at times.

DMC is similar to many other risk management tools in that producers are typically better off if they don’t receive payments from it. Ideally, market conditions are such that the difference between milk price and feed costs allow for acceptable returns. But in times when that is not the case, DMC can provide solid risk protection. Dairy producers should consider all risk management opportunities available to them including Dairy Revenue Protection, Livestock Gross Margin for Dairy, forward contracts, futures and options. But because DMC is a relatively inexpensive form of margin protection on coverage up to 5 million lbs of production history, I typically view it as the first layer of risk protection in a dairy farm’s risk management plan.

DMC Margin – US All Milk Price Minus DMC Feed Cost

January 2014 to January 2023, $ per cwt

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Burdine, Kenny. “Dairy Margin Coverage Program Begins 2023 with Payment.” Southern Ag Today 3(11.2). March 14, 2023. Permalink

When US cattle slaughter facilities temporarily shut down during COVID-19, the live cattle to wholesale boxed beef price spread, which is the difference between the value of live cattle price and wholesale boxed beef value, reached record highs. The processing disruptions caused the fed cattle price to decline and beef price to increase. The price spread had a similar, but less extreme, reaction when beef processing capacity was temporarily shut down after the Tyson beef-packing plant fire in August 2019. These events led to questions regarding the interaction of the number of cattle slaughtered nationally each week and the price spread. Now that cattle numbers are declining and packing capacity is increasing questions about capacity utilization and the price spread remain.  

In a recent article, my co-authors and I investigate the dynamic relationship between industry-level weekly (Monday through Friday) and Saturday operational slaughter capacity utilization with the live cattle to box beef price spread. Below are the highlights of the journal publication and our estimates of weekly and Saturday slaughter capacity utilization. 

Key results from our study:

• We find bidirectional causality between weekly slaughter capacity utilization, Saturday slaughter capacity utilization, and the live cattle to box beef price spread over the entire study period (2010-2021). In plain English, this means that the number of cattle processed on Saturdays affects the price spread and vice versa.  However, additional analysis indicates these causal relationships don’t always occur.
• An increase in the price spread in the previous week positively impacts the number of cattle processed nationally on Saturday in most weeks.  That result makes a lot of intuitive economic sense because the larger spread implies more profits which is the market signal to produce more beef.  This might suggest Saturday slaughter is more than a “catch up” day of processing but could also be a strategy to increase slaughter when the price spread is increasing.
• This study does not find statistical evidence to support the notion that weekly, or Saturday slaughter capacity utilization is used by the beef packers to control the price spread.

Figure 1. Weekly (Monday through Friday) and Saturday Operational Cattle Slaughter Capacity Utilization from 2010 to 2021 in the United States

Paper Citation

Martinez, C., Li, P., Boyer, C. N., Yu, T. E., & Maples, J. G. (2023). Beef price spread relationship with processing capacity utilization. Journal of the Agricultural and Applied Economics Association.https://onlinelibrary.wiley.com/doi/full/10.1002/jaa2.48

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Martinez, Charles, Pengzhen Li, Christopher N. Boyer, T. Edward Yu, and Joshua G. Maples. “Beef Price Spread Relationship with Processing Capacity Utilization.” Southern Ag Today 3(10.2). March 7, 2023. Permalink

The U.S. hit “peak meat” production in 2022 totaling 107 billion pounds, a record for meat production that includes beef, pork, chicken, turkey, lamb, and veal.  Even though there are cycles in beef production and seasonal patterns in demand and supply, meat production has trended upward over the long-term.  However, meat production should decline in 2023 and again in 2024 due mostly to supply challenges.  

Record meat production last year was driven by increases in beef and chicken production while pork and turkey declined.  The beef production increase was due to reduced heifer retention and increased beef cow culling brought on by drought and cost increases relative to cattle prices.  Broiler production surged as high chicken prices fueled profits.  Pork production declined about 2.5 percent to 27 billion pounds brought on by animal disease pressures and sow productivity issues.  Turkey production was reduced by Highly Pathogenic Avian Influenza (HPAI). 

While each species has its own circumstances that affected production, there are some common reasons for less production.  First is feed costs.  High feed costs reduce profits for producers and that leads to less production.  Other production costs like fuel, building costs, and higher interest rates also lead to less production.  Drought conditions have hurt cattle and beef production.

In 2023, total meat production is expected to decline about 1 percent, to about 105.9 billion pounds.  Beef production is expected to fall by about 5 percent.  Pork production is expected to decline slightly (less than 1 percent).  Broiler production may show a small increase over 2022.  Turkey production is likely to increase by close to 3 percent as it recovers from HPAI and high prices should deliver some profits.  Total meat production is likely to decline again in 2024 as increases in broiler production are not enough to offset declining beef production.  

So, was last year the peak of meat production for many years to come?  Not likely.  Drought recovery, declining feed prices, and easing disease pressures will boost meat profits and production in the future.

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Anderson, David. “Peak Meat.” Southern Ag Today 3(9.2). February 28, 2023. Permalink

USDA reports cold storage supplies of meat (and other agricultural commodities) each month.  In December 2022 there were 544 million pounds of beef in cold storage facilities.  That was the largest amount of beef in storage since December 2016.  It also was the second largest amount of beef in storage on record, at least going back to 1973.  What does this mean, if anything?

Cold storage stocks of meat are much different than grains or cotton.  Meat is not storable for very long, compared to grains.  It should be thought of as a flow stock, or product in the system, or cold chain, that is in movement eventually to its final destination.  The meat is often frozen which causes a price discount compared to fresh.  We often think about a buildup of stocks as an indicator of a demand problem.  But, it can often reflect more production moving through the system, or that we have more imports and exports reflecting growing trade or even meat company strategies to stock up on items due to favorable prices for example in pork bellies.  

Cold storage stocks of beef tend to peak in December-January and reach a low in June-July.  The seasonal decline in stocks has been, on average, about 82 million pounds over the last 5 years.  In 2022, there was very little seasonal decline and supplies grew to 544 million pounds by the end of the year.  

Why are stocks so large?  One factor is that beef production was a record large 28.3 billion pounds in 2022.  U.S. total beef trade, exports plus imports, was also a record large 6.78 billion pounds in 2022.  Beef exports were a record large 3.43 billion pounds and imports, 3.35 billion pounds, the most since 2015.  That’s a lot of beef moving in, out, and around the country.  The beef in storage is reported as boneless (mostly for ground beef) and cuts (think of steaks and other cuts).  Of the 544 million pounds in storage, 498 million pounds are boneless beef, and that was 6.5 percent more than in December 2021.  This beef is likely related to the large number of cows that were culled in 2022.  The remaining 45.7 million pounds are beef cuts. Another way to put this in context is that 544 million pounds is about 1.6 pounds per person, which is not a lot different than per capita stocks over the last several decades.  Per capita cold storage stocks were over 2 pounds back in the early to mid-1970s when the U.S hit peak cattle numbers and beef demand began to decline. 

While the amount of beef in cold storage is curious, it’s not likely a sign of weakening demand yet.  The next USDA cold storage report will be released on Friday afternoon and should add more context to this curious statistic.  

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Anderson, David. “An Interesting Curiosity, for Now.” Southern Ag Today 3(8.2). February 21, 2023. Permalink

Photo by Dana Sredojevic: https://www.pexels.com/photo/a-butcher-holding-a-slab-of-steak-13279400/

Calf prices bounced around in the first month of the year, but they rebounded significantly higher in the last couple of weeks.  Higher fed cattle prices, hitting $160 per cwt last week, and tighter supplies of calves and feeders are fueling this price run.  

In the Southern Plains, 5-600 pound steers have increased from $203 per cwt to $214 in the last two weeks.  During the same period, the same weight calves in Georgia bounced from $181 to $188 per cwt.  Heavier feeders, (7-800 pounds) saw more modest gains in the Southern Plains, up about $4 per cwt to $182.  In Georgia, those heavier calves actually dropped about $2 per cwt to $163.  Calf prices tend to be lower the further South and East from feedlots in the Plains and Corn Belt.  Prices in both the Plains and Georgia were about $26 per cwt higher than last year.

Fed cattle prices hit $160 in several markets last week.  Higher prices for fed cattle certainly boosted calf prices.  Fewer available feeder cattle are also working to boost prices.  Calculating feeder cattle supplies from information in USDA’s cattle inventory report indicated that 25.3 million head were outside of feedlots, about 270,000 head fewer than the prior year.  That is the fewest since the 24.6 million available in 2015.  

Tight supplies of calves will keep prices higher than a year ago.  But, there is likely to be some volatility as feed prices and demand for cattle move throughout the year.  Prices for lighter weight calves and feeders tend to increase seasonally into March and April.  Heavier feeders are often pressured by winter pasture cattle coming to market in the Spring.

Author: David Anderson

Professor and Extension Economist Livestock and Food Products Marketing, Dairy, Policy

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Anderson, David. “Calf Prices Jump.” Southern Ag Today 3(7.2). February 14, 2023. Permalink