Category: Livestock Marketing

USDA is scheduled to release the August Cattle on Feed report this coming Friday, so this is a good opportunity to look at some pre-report estimates.  

I think placements will be the most interesting number in the report.  A couple of years of a shrinking cow herd leads us to fewer feeders to place. However, drought in some major cattle areas, falling feed costs, profitable feeding returns, more cattle imported from Mexico compared to a year ago, and high feeder heifer prices may cause placements to not be down as much as we might expect. My estimate of placements is 96 percent of a year ago (down 4 percent).  I am on the high end of placements among the market analysts who publish estimates ahead of the report.  

Placements are where the most uncertainty lies.  The number of heifers placed in feedlots are a large source of this uncertainty.  Heifers can be held back to enter the cow herd or they can be sold to go on feed.  Currently, high calf prices and expectations of even higher record prices in the future should eventually begin to encourage producers to hold back heifers to enter the cow herd.  But, high current calf prices also encourage ranchers to take the money and sell heifers now as feeders.  Examining cattle auction prices suggests that, in some cases, feeder heifer prices are higher than prices of animals designated as replacement heifers and bred cow prices.  There is certainly anecdotal evidence of some producers selling heifers they had intended to keep because current prices were too good to pass up.  

The number of heifers on feed is reported quarterly and was in last month’s Cattle on Feed report.  It indicated that the number of heifers on feed was equal to the same quarter of last year while fewer steers were on feed.  We’ll get another quarterly report of heifers on feed in the October Cattle on Feed report. 

Based on steer and heifer slaughter, July marketings from feedlots with more than 1,000 head should be about 5.4 percent lower than a year ago.  Combined with fewer placements, this leaves the number of cattle on feed at about 98.5 percent of a year ago.  Some more data this Fall will shed some light on how much we are “robbing Peter to pay Paul” by using heifers to boost near term beef production at the expense of future production.

As we approach the fall months, folks in the cattle industry might expect to see some weakness in cattle prices as many producers sell their spring born calves. However, 2023 could shape up to be one of the abnormal years when the broader upswing in prices outweighs the typical seasonal pressure. 

The chart above uses monthly average prices for 500-600 pound medium and large #1 steers sold at auctions in Texas. The lines for 2014, 2015, and 2023 use the left axis and are dollars per hundredweight. The solid black line with markers represents the 10-year average monthly index values from 2013-2022 and uses the right axis. Without getting too deep into the details, this index calculation is one way to visualize seasonal patterns. An index value of 96 (October) means that during 2013-2022, prices were 4 percent lower than the annual average. Similarly, an index value of 103 (March) means prices were 3 percent higher than the annual average.  

As the chart shows, normal seasonal patterns would suggest falling prices for the next few months for 5 weight cattle. But 2023 has been anything but normal. History shows us years when prices seem to mostly ignore within-year seasonal patterns because of broader uptrends or downtrends in prices. 2014 is an example year when prices rose throughout the year and overshadowed seasonal patterns. 2015 is an example of a market downtrend that concealed seasonal patterns, 

So far in 2023, this year has been more similar to 2014 with prices rising steadily throughout the year. Instead of the typical dip from March-May, prices rose in 2014 and 2023. This could well be the story this fall too as overall strength in cattle markets (and tighter supplies) outweighs the within-year seasonal patterns we might expect. 

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Maples, Josh. “Counter Seasonal Runs in Cattle Prices.” Southern Ag Today 3(32.2). August 8, 2023. Permalink

It seems like a long way to Thanksgiving but, in a production sense, most plans are already made for turkey production for the Fall.  Thanksgiving turkey prices have been a hot topic for the last couple of years as high prices were fueled by reduced production due to High Pathogenic Avian Influenza (HPAI), high feed, other costs, and changing demand.  Now, producers have had a chance to respond to high prices by increasing production.  Increasing supplies are driving down prices providing some hope for lower prices this Fall.

For the year, turkey production is 3.4 percent greater than last year but that masks that production has jumped even more dramatically in the last 8 weeks.  In the last 8 weeks ending July 15^th, turkey production is 12.3 percent greater than the same period last year.  Last year’s production was greatly impacted by HPAI. Normally, production peaks seasonally in October just in time for Thanksgiving.  With the latest June data indicating that poults placed for grow out is 3.5 percent greater than June 2022 and poults hatched were 4.3 percent more than a year ago, it looks like production will remain above a year ago.

The amount of turkey in cold storage increases throughout the year before being drawn down in the Fall.  Total turkey cold storage stocks in June were about 6.3 percent above a year ago. It’s important to note that the increase is in breasts and other cuts.  Whole birds in storage are about 5.5 percent below last year.  While we normally think of the whole birds for the holiday, turkey breasts are an important part of grocery deli sections, sandwich restaurant chains, and other retail outlets.  

Turkey prices have declined since the first of the year and are now below a year ago for both whole birds and boneless, skinless breasts.  For the week of July 22, 2023, 8-16 pound frozen hens were $1.45 per pound compared to $1.55 per pound the same week last year.  Bigger, 16 to 24 pound, toms were $1.40 compared to $1.57 a year ago.   The breast market has seen a much more dramatic decline in price, 61.5 percent, from $6.65 a year ago to $2.56 per pound this year.

More turkey production and lower wholesale prices are providing the opportunity for lower turkey prices this Fall.  After the last couple of years, that’s some good early Thanksgiving news!

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Anderson, David. “Is It Too Early to Talk Turkey?” Southern Ag Today 3(31.2). August 1, 2023. Permalink

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.