Category: Livestock Marketing

Lamb and mutton production has followed the usual historical pattern this year, hitting a peak in Spring and increasing from Summer lows this Fall. Production peaked at the end of the first quarter, outpacing 2022 numbers. Then, production declined, reaching a low in July. In recent weeks production has exceeded that of 2022.  You’ll notice the sharp production decline in the chart indicating the Thanksgiving shortened work week.

From January to November 2023, federally inspected (FI) lamb and mutton production totaled 102.1 million pounds. This represents a 2.7 percent drop compared to the same period of 2022. Despite that production decline, the number of sheep and lambs slaughtered jumped 3.4 percent, from 1.38 to 1.63 million head. Weight is the crux of the matter. Average FI live weight declined by 6.3 percent. Over the abovementioned period, the average sheep and lamb live weight dropped from 132.7 to 124.3 pounds. Likewise, dressed weight has decreased, on average, by 6%. Lighter weights reflect more, lighter hair sheep, lambs going to non-traditional markets at lighter slaughter weights, and likely fewer fed in feedlots this year.

Total supplies include imports and cold storage stocks. The cold storage reached 26.1 million pounds in October, 9 percent less than the same month in 2022. Lamb and mutton imports plummeted 17.4 percent so far this year. From January to September 2023, the U.S. imported 174 million pounds. The country brought in 211 million pounds during the same period last year.

Live lamb prices collapsed midway through 2022 and have spent most of this year trying to recover.  By mid-year 2023 lamb prices had recovered to exceed those of 2022. After that, national negotiated live prices have hovered at around $200 per cwt.  Even though prices have begun to decline in recent weeks, tighter overall supplies from domestic production, reduced imports, and less in cold storage have boosted prices above year ago levels.

There appears to be renewed interest in lamb production in the South, based on questions some of us livestock economists here at SAT receive.  Price recovery should continue that interest over time and provide a boost to those who have started production.

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Clemets Daglia Calil, Yuri. “Lamb And Mutton Production Shrinks This Year.” Southern Ag Today 3(48.2). November 28, 2023. Permalink

We might not think much about turkey prices and production much of the year, until now.  Thanksgiving is when turkey gets all the center of the plate attention.  Record high turkey prices raised a lot of eyebrows last year.  High Pathogenic Avian Influenza (HPAI) cut supplies leading to higher prices.  The unexpected HPAI impact was on top of reduced production driven by a lack of profitable production.  

Those record high prices spurred production increases in 2023.  Halfway through November, turkey production is 5.5 billion pounds, up 4 percent from the same period last year.  It’s worth pointing out that while production is higher than last year, third quarter production is the smallest since 2015 (not counting last year) which was the last time we had a major HPAI outbreak.  Production for 2023 will be higher than last year but is still likely to be the second smallest production year since 2000.

Prices have responded to increased production by falling dramatically.  Frozen tom turkeys weighing 16-24 pounds were $0.88 per pound, 50 percent lower than last year in mid-November.  Smaller frozen hens were 44 percent lower than last year.  Fresh whole birds are normally higher priced than frozen birds.  Fresh hens were $1.47 per pound in mid-November compared to $1.88 last year. 

USDA reports retail turkey prices featured or on special at more than 29,000 retail, grocery stores around the country.  Turkey item specials normally ramp up right before Thanksgiving and this year is the same with 72.5 percent of stores reporting some feature on a turkey item.  That is compared to 56.3 percent of stores last week.  Featuring is a little slower than last year when 86 percent of stores had some feature.  USDA defines specials as a sale with some kind of “no price” or a buy one, get one free special.  Twelve percent of stores had a special advertised this year compared to only 4 percent last year.  So, while there are slightly fewer features, there are more buy one, get one free specials this year.  Grocery stores often use turkeys to boost sales throughout the store, so, you may pay a lot less for your turkey than quoted wholesale prices.  

Us livestock economists at SAT have a lot to be thankful for this year.  We hope you have a great Thanksgiving!

Anderson, David. “It’s Turkey Time!” Southern Ag Today 3(47.2). November 21, 2023. Permalink

Cattle markets finished October on a weak note with the CME Feeder Cattle Index around $237 per hundredweight. This price represents a $17 per hundredweight decline compared to the peak value, which occurred in September. However, the decline in prices is not the worst of it. The worst of it was that many cattle producers missed out on the opportunity to hedge cattle to be sold in the fourth quarter of 2023 and the first eight months of 2024 and will likely receive lower prices.

Traders and market participants clearly had high expectations for feeder cattle as can be seen in Figure 1 with most contracts finding their life of contract high in September. Most contracts are $20 to $30 off their contract high as of this writing with more weakness evident in the market. Despite a favorable opportunity to hedge the sale of cattle in September and early October, not all hope is lost. One could easily compare the Christmas tree in A Charlie Brown Christmas with cattle market prices, but most would look at it from the glass half empty perspective instead of the glass half full perspective. One could certainly sulk in the losses and the missed hedging opportunities, but one must remember that markets are still alive just like the Christmas tree Charlie Brown chose. This means there are opportunities for gains in the current market.

The first aspect to consider is that feeder cattle futures are still offering a favorable price to hedge the sale of feeder cattle through most of 2024. If a profitable price can be achieved with current futures prices, it could still be a wise move to secure those profits. If there is concern of missing out on larger profits if the market price strengthens, then there are strategies using put and call options to capitalize on a stronger market. The primary objective is to be an active marketer instead of passive.

Figure 1. Daily feeder cattle futures close price by contract month.

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Griffith, Andrew P. “A Charlie Brown Christmas for Cattle Prices.” Southern Ag Today 3(46.2). November 14, 2023. Permalink

Price risk management for beef cattle producers is an important tool in navigating cattle markets. As last week’s Southern Ag Today article on livestock marketing showed, many more producers are using Livestock Risk Protection (LRP) insurance, which correlates to program changes and a run up in cattle prices. LRP and many other price risk management tools, including futures and options contracts, mitigate futures price risk, however, it does not set the actual cash selling price for a producer. The difference between the cash price and the futures price is called basis. Basis varies from year to year, by time of year, location, weight class, and other factors.

Figure 1. Range of Basis Values for 500-600 lb Steers in Georgia and the Average Range of Feeder Cattle Futures Prices, 2018-2022

Source: LMIC using data from USDA-AMS and CME Group

LRP and other price risk management tools that lock in a futures price still leave the producer exposed to basis risk. Producers are often more comfortable with taking on basis risk because basis risk is generally much smaller than futures price risk. Figure 1 presents the average range of monthly basis values and feeder cattle futures prices by month over the last five years for 500-600 lb steer calves in Georgia. As seen in Figure 1, the range of futures prices is much larger than the average range of basis values. Data from other states show similar gaps between basis variability and feeder cattle futures price variability.

LRP, futures, options, and other price risk management tools provide protection from futures price changes but basis fluctuation may still affect the final cash selling price making it important to understand basis risk and to include it when making risk management decisions.  

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Secor, Will. “Understanding Basis When Managing Feeder Cattle Price Risk.” Southern Ag Today 3(45.2). November 7, 2023. Permalink

Producers across the United States and the Southern States are increasingly adopting the Livestock Risk Protection Program, commonly known as LRP. This program, which is designed to protect ranchers against falling cattle prices, has witnessed a remarkable surge. From a mere 71 thousand head covered in 2017, the usage of LRP has increased rapidly to 5.2 million head by October 2023. In 2022, ranchers insured 3.4 million head, up from 1.8 million in 2021. Ranchers’ use of LRP in the Southern region has contributed significantly to this growth (Figure 1). As of October 2023, ranchers have insured approximately 1 million head annually through the LRP program, with Texas and Oklahoma insuring 56% and 34% of this total, respectively.

Figure 1: LRP Usage in the Southern States

This increase occurs alongside increases in subsidy levels and other changes to LRP and the significant improvement in the market feeder and live cattle prices (Figure 2). During 2019 and 2021, the USDA introduced several modifications to the LRP program. These changes not only reduced the producers’ portion of premium payments but also allowed them to defer premium payments until the end of the endorsement period. The option to pay premiums at the ending date offers ranchers a considerable cash-flow advantage. Another benefit of the LRP program is it doesn’t require a minimum number of cattle to be insured, meaning cow-calf or stocker producers with just a few head can use it.

Additionally, the rise in cattle prices has emphasized the importance of implementing a solid price risk management plan. LRP can help minimize financial losses, secure profit margins, and reduce the risk of business failure, particularly in the face of higher investment levels. The increased adoption of LRP reflects a growing number of ranchers who are utilizing risk management plans in their operations.

Figure 2: LRP Head per Year and Feeder and Live Prices per Month

Source: USDA – RMA. Livestock Risk Protection Participation. https://www.rma.usda.gov/Information-Tools/Summary-of-Business/Livestock-and-Dairy-Participation

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Abello, Pancho. “Producers Embrace USDA’s Livestock Risk Protection Program.” Southern Ag Today 3(44.2). October 31, 2023. Permalink