Category: Livestock Marketing

Highly Pathogenic Avian Influenza (HPAI) is once again rearing its ugly head across the poultry industry. This year’s bird flu outbreak has taken millions of birds from the commercial broiler industry, egg industry, and turkey industry. According to USDA numbers as of March 21, 2022, a grand total of 11,901,888 commercial birds have been destroyed from control efforts in confirmed cases of highly pathogenic avian influenza (https://www.aphis.usda.gov/aphis/ourfocus/animalhealth/animal-disease-information/avian/avian-influenza/hpai-2022/2022-hpai-commercial-backyard-flocks the current count at the time of this printing may be higher). This number is sobering but is thankfully still much less than the over 50 million chickens and turkeys destroyed during the 2014-2015 outbreak.  Considering the Delmarva area as part of the southeastern poultry region, 3.59 million birds have been lost to HPAI thus far in the southeast alone. 32% of these, or 1.1 million, have been broiler type birds.

Table 1: Total Bird Losses due to HPAI for Southeastern Poultry Industry (as of 3/21/22)

	Delaware	Maryland	Missouri	Kentucky	Total
Broilers	421,800	150,000	360,000	231,398	2,310,135
Layers	1,146,937	1,160,333			1,160,333
Turkeys			62,785	53,286	116,071
Total	1,568,737	1,310,333	422,785	284,684	3,586,539

Focusing on Broiler Impacts

Since the southeastern poultry region is considered the “broiler belt”, and the highest percentage of losses in that region has been broilers, let’s focus on that impact. How do these losses compare to the total inventory of broiler type birds in this region? If you take the recent 2020 USDA inventory data (which excludes LA) and estimate a 2% inventory increase over the last two years, the southeastern region currently has approximately 9 billion live broilers in inventory. Losing 1.1 million broilers equates to losing 0.013% of the total inventory of the region – which doesn’t sound like much when you put it in those terms. Estimated total dollar value lost is a little more impactful number. Using an average live weight of 6.4# per broiler with a 75% dressing percentage and current combined southern states average traded value of $0.64 per pound of chicken, the lost broilers represent a total dollar value of $3,573,344 in lost revenue to the industry. According to a recent report from the National Chicken Council’s (https://www.nationalchickencouncil.org/wp-content/uploads/2022/03/Live-Chicken-Production-FARMECON-LLC-2022-revision-FINAL.pdf), the current average contract broiler pay rate across companies was estimated at $0.0676 / pound of live bird delivered to the plant. Using this rate, $503,246, or roughly 7% of the total industry value, would have gone to the contract broiler growers raising these birds. For these individual commercial poultry growers, the loss of a flock could represent up to 25% of their annual revenue and could be truly devastating to their operations.

Is There Relief in Sight?

The U.S. Department of Agriculture and state level agencies have the responsibility of protecting the nation’s agricultural industry population from disease outbreaks. Everyone involved in commercial poultry is focusing on tight biosecurity to avoid the HPAI losses seen in 2014-2015. Unfortunately, HPAI infection means mass depopulations. Fortunately, the Animal Health Protection Act authorizes USDA to provide indemnity payments to producers for birds and eggs lost due to HPAI, including costs of actual depopulation and mortality disposal. While these payments may not completely cover all losses, and this program does not cover losses incurred through additional out-times or other future business interruptions, they can go a long way to securing the future of the farm in the face of these catastrophic situations. Poultry growers can go to https://www.aphis.usda.gov/publications/animal_health/2016/hpai-indemnity.pdf for additional HPAI indemnity program information.

Brothers, Dennis. “The Cost of Avian Influenza to the Southeastern Broiler Industry“. Southern Ag Today 2(14.2). March 29, 2022. Permalink

It’s time for another USDA Cattle on Feed Report to be released on Friday, March 25^th.  The most interesting number in the report is going to be placements, e.g. the number of cattle placed on feed, in a feedlot with 1,000 head or more.  Market analysts expect placements to be well above a year ago, almost 10 percent more in some estimates.  Both USDA’s feeder cattle receipts data and the CME feeder cattle index data indicate more feeder cattle sales this February than last.  While feeder cattle imports from Mexico were down about 23,000 head during the month, imports from Canada were up about 29,000 head.  It’s also worth noting that placements in February, 2021 were relatively small.

Certainly, expanding drought is likely leading to increased placements.  Some profitable recent closeouts also help boost placements.  The war driven boost in corn and wheat prices occurred after the period for this report so placements were likely not driven by the events in Ukraine. 

Marketings, as related to fed cattle slaughter, were quite good during February.  They are expected to be up about 4.5 percent over last year.  Combining marketings and placements indicate that the number of cattle on feed will be a bit more than 1 percent larger than last year.  That will be close to the record large number of cattle on feed that was set in February. 

Anderson, David. “Another Big Placement Month“. Southern Ag Today 2(13.2). March 22, 2022. Permalink

War has contributed to cattle market uncertainty and sharply higher feed costs, record-high cattle on feed, and falling cutout values have hit heavy feeder prices hard.  But, cull cow prices have continued to skyrocket since the beginning of the year, shooting past $75 per cwt in the Southern Plains.  A year ago, 85-90% lean cull cows averaged about $46 per cwt.

Cow prices are increasing in spite of large cow slaughter.  Cow slaughter during the first two weeks of February totaled 145,000 head, or more, per week.  That is the largest weekly slaughter since December 2012.  Beef cow slaughter is extremely large, rivaling peak Fall slaughter levels.  This large beef cow slaughter is coinciding with seasonally large dairy cow slaughter, which typically peaks early in the year. 

High cow beef prices are providing some insight into beef demand.  Both the cow beef cutout and the wholesale 90 percent lean beef for ground beef are well above a year ago, at $229 and $284 per cwt, respectively.  But, wholesale middle meat prices have dropped in recent weeks with both wholesale ribeye and strip loin prices lower than last year.  Consumers may be shifting purchases to more ground beef and fewer steaks in response to high retail prices.

Increasing milk prices should slow dairy culling in the coming weeks.  Beef cow culling is going to be greatly influenced by drought and costs.  The rate of culling over the last year should have already moved older, less productive cows.  Reduced dairy culling should pull down total cow slaughter and support prices in the coming weeks.

Anderson, David. “Cull Cow Prices Skyrocket“. Southern Ag Today 2(12.2). March 15, 2022. Permalink

The Russian invasion of Ukraine has led to far-reaching impacts on commodity markets across the globe. In particular, oil and grain prices have surged which contributes to increases in the cost of production throughout livestock supply chains. Feeder cattle futures prices have dropped roughly $10 per CWT since mid-February depending on the contract (though prices were higher in Monday trading).

 Near term corn prices have jumped by around a dollar per bushel in the past few weeks. As shown in the chart above, the May 2022 CME corn futures contract closed last week at $7.50 per bushel. Higher corn prices generally put pressure on feeder cattle prices since feeder cattle and corn are two primary inputs into producing fed cattle. Poultry and hog producers of course also feel the brunt of higher feed prices. Corn futures contracts expiring further in the future have also increased though not by the same magnitude. For example, the December 2022 CME corn futures contract closed last week at $6.30 which is up about $0.40 above mid-February.

 Cattle prices are caught in the broader uncertainty and market volatility. Many input prices were already high compared to recent years. The severity and length of time that higher feed costs will persist are key questions without good answers. Feed costs (among other inputs) will be higher in the near term. Planting season is just around the corner in the U.S. and the amount of corn planted will be important for supply and price forecasts. 

Maples, Josh. “Higher Feed Costs for Livestock Producers“. Southern Ag Today 2(11.2). March 8, 2022. Permalink

Each year there are opportunities for producers to market feeder cattle near the high-end of the year’s market. Cattle producers will likely be marketing cattle throughout 2022 at the highest prices since, at least, January 2016. While great news, we still need a marketing plan for feeder calves. One useful method is to compare the relationship between the futures price (CME Feeder Cattle Futures) with the current market price (CME Feeder Cattle Index Price). The difference between these two prices provides the market’s expectation of price movement in the short run and expectation of market highs.  Note, this was written just prior to the market fluctuations following the beginning of the Ukraine-Russia war.

Using the current CME Feeder Cattle Index price and the August 2022 Feeder Cattle Futures contract prices, as an example (Table 1.), Friday, February 18^th’s CME Feeder Cattle Index was $162.14 per cwt (Reporting Date: 02/17/2022) and the settlement price of the August 2022 Feeder Cattle Futures Price was $186.08 per cwt.  The market’s expectation is for Feeder Cattle prices to increase from $162.14 to $186.08 per cwt. The market is pricing in a $24 per cwt, $191 per head, and $11,968 per truckload increase between now and the expiration of the August futures contract. Of course, basis adjustments may need to be made for your individual situation.

The futures market expects feeder cattle prices to increase each month during 2022.  Over the last five years, market price highs have occurred during the second half of the year, and that is expected this year, as well.

Prevatt, Chris. “Marketing Feeder Cattle at 6-Year Price Highs“. Southern Ag Today 2(10.2). March 1, 2022. Permalink