The culling of beef cows was a major reason why the size of the beef herd decreased during 2021 as beef cow slaughter was up by almost 9% from 2020 levels. A frustrating calf market and drought in much of the US led to herd reductions as a lot of cows were sent to market. Year-over-year, the increase amounted to almost 300 thousand cows, which was roughly 1% of the US beef cow herd.
While calf prices have been higher in the first three months of 2022, a large portion of the US remains in significant drought. Most significantly for the cattle sector, drought moved into the Southern Plains during the fall of 2021 and has seemed to intensify over the last several months. The chart below shows beef cow slaughter for 2022 (blue line), which has been running well ahead of 2021 (dotted line). Year-to-date, beef cow slaughter has been over 16% higher, but it is worth noting the very low slaughter week last year as a result of the February 2021 ice storm. But, even taking that week out of the comparison, harvest levels are still more than 13% higher so far this year.
Beef heifer retention was lower coming into 2022, which suggests continued contraction in beef cow numbers. It is still early in the year, but beef cow slaughter through the first few weeks of March points to another year of heavy culling. The combination of dry weather and strong cull cow prices is likely to keep cows moving and encourage producers to pull the trigger a little sooner on those cows as they approach the end of their productive lives. This is definitely something to watch as we move through the current year.
Dairy industry participants have had several tough years over the past decade as it relates to milk and milk product prices. However, the end of 2021 and the beginning of 2022 have been positive from a price received standpoint. With the U.S. all milk price sitting close to $25 per hundredweight, this is the highest all milk price since September and October of 2014. The price support is not coming from any one product. Rather, it is being supported by most dairy products as butter, cheese, dry milk and whey are demonstrating strength in the current market. Class IV milk prices are setting records while Class III milk prices are only $2 below the record.
Understanding that milk prices are not the only factor in profitability, the immediate concern in today’s dairy industry is feed price. The price of most feedstuffs has increased along with inputs for feed to be produced in 2022 including hay, silage, and grain. The national milk-to-feed price ratio sits just over $2 per hundredweight, which is considerably stronger than 2021 and represents a strong margin given the booming milk price. The same milk-to-feed ratio when milk is only $15 per hundredweight is not nearly as lucrative as the margins experienced when milk is hitting $25 per hundredweight. However, if the ratio shrinks with milk price remaining elevated then that results in a poor return on investment and increased financial risk. Dairy producers may find it advantageous to lock in milk and feed prices with this many dollars on the line.
The latest Cattle on Feed report was released last Friday and reported a record high level of cattle in feedlots for any March. The March 1st total of 12.16 million head was up 1.4 percent above a year ago and is the highest total since the data series began in 1996. Placements during February 2022 totaled 1.85 million head which is 9.3 percent above placements during February 2021. It is important to note that February 2021 was unique because of the major winter storm that affected cattle markets and limited cattle transportation among many other impacts.
The biggest percentage increase in placements was seen in cattle weighing 800-899 pounds. Placements of this category were up 12.5 percent compared to a year ago. However, other weight groups were also up sharply with the less than 600 pound group being the smallest increase but still up 7.5 percent above year ago. The 600-699 group was up 10.2 percent and the 700-799 group was up 8.6 percent. Marketings of fed cattle during February totaled 1.83 million head. This was nearly 5 percent above February 2021 which included the winter storm.
Dry conditions in many grazing areas likely contributed to some feeder cattle being placed sooner than normal. Looking ahead, the expectation of tighter supplies is still looming, but it is not clear exactly how or when those tighter supplies will be reflected in feedlot totals. Drought concerns remain a critical factor overhanging the cattle sector.
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.
It’s time for another USDA Cattle on Feed Report to be released on Friday, March 25th. 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.
