US Beef and Dairy Outlook Report - January 2010

US beef exports have benefited from improved demand in Asian markets in late 2009,according to the USDA Economic Research Service (ERS) January 2010 Livestock, Dairy and Poultry Outlook. As the herd size continues to decline, increased demand is expected to push prices up in 2010.
calendar icon 24 January 2010
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USDA Economic Research Service

Beef Summary

In addition to further extending the 2009 fall harvest of grains, cold, snowy weather in the Plains States is increasing winter feeding costs and death losses while reducing cattle gains. The result is declines in average dressed weights beyond typical seasonal declines and a slight increase in cattle and beef prices.

Cold Snowy Weather Adversely Affects the Cattle and Beef Sectors

Heavy snows and cold weather throughout the Plains States have adversely affected the cattle sector. Supplemental feeding of cattle on snow-covered pastures increases wintering costs. Cattle gains are reduced and death losses also increase during harsh winter conditions. Cold, snowy, and wet weather also takes a toll on feedlot cattle, fostering costlier gains and higher death losses.

Cattle can endure cold weather relatively well, but the cold does affect them adversely. Cattle burn more energy in cold weather, so they eat more feed per pound of gain. For example, cattle marketed from feedlots in March, having gone through the coldest part of the winter, consume the greatest amount of feed per pound of gain and gain the least weight per day (see graph). While their hair is a good insulator when dry, it is not when wet, although, cattle can endure being a little wet if there is no wind. The combination of cold, wet, and windy conditions, as was recently the case on the Plains, is the worst combination for feedlot performance, resulting in high costs and reduced feed conversion.

If conditions become severe enough, cattle will quit eating and begin to crowd together to stay warm. They will also walk as far as fences will allow into downwind corners. If bunched too tightly, they can begin to inhale water from their neighbors’ hair coats, and in extreme cases can suffocate, literally drowning, which compounds declining feedlot performance with increasing death losses. The same can occur with stocker calves and, less often, cows on native pastures. Again, in extreme cases and especially if the storms come early in the season when cattle are not acclimated, death losses can be quite high. Usually, these death losses are localized, but given often heavy local concentrations of cattle, can result in large numbers of cattle deaths.

Dressed weights of fed cattle can also decline with cold weather. The decline in dressed weights during the last quarter of 2009 and into the first quarter of 2010 was exacerbated by the December snowstorms that swept through the Plains cattle feeding areas. In 2009, dressed weights began their typical seasonal decline in mid- October, until then beginning to increase in early November. Dressed weights returned to their typical seasonal decline in December, with the decline expected to continue into the first quarter of 2010.

Another factor that has affected average dressed weights of cattle for at least the last quarter of 2009 is the larger-than-typical share of cows in the slaughter mix. Aside from a slight increase in dairy cow slaughter, likely due to the last 2009 CWT cull, the beef cow cull rate appeared to increase appreciably in the fall (year-over-year basis: weekly data). As a result, 2009 cow slaughter exceeded 2008 levels during the middle weeks of November. Imports of Canadian cows also increased late in 2009, adding cows to the US slaughter mix.

Cow slaughter levels in 2009 were from a smaller cow-herd base, which implies an increase in the rate of culling in 2009 and a continuation of cow-herd liquidation. If the continued cow-herd liquidation is not accompanied by breeding heifer retention sufficient to more than offset it, the US total cow herd will likely continue to shrink. USDA’s National Agricultural Statistics Service Cattle inventory report, to be released 29 January, will provide important information regarding the short-term future of cattle inventories and calf crops and the resulting beef production for the next several years.

Byproduct values, up by just over a third from December 2008 (basis: average of year-over-year December weekly values), held steady through December 2009, but have since slipped a bit. As byproduct values decline, packers offer lower prices for fed cattle in order to cover processing costs. Most edible offal is sold in export markets, but some is consumed domestically, like oxtails, liver, and tongues, which appear both in grocery stores and on restaurant menus. While weekly wholesale cutout values for Choice beef are lower year-over-year (by 4 per cent during December 2009), prices for some edible byproducts are higher year-over-year at both wholesale and retail. For example, weekly wholesale prices for oxtails in early January were 45 per cent above values for the same week in 2008.

Beef/Cattle Trade

US beef exports have benefited from improved demand in Asian markets in late 2009, and 2009 total exports are expected to decline only slightly from 2008. Beef imports into the United States have been lower in the latter half of 2009 compared with high levels in the first half. Higher imports of Mexican cattle late in 2009 increased the total number of cattle imported into the United States.

Shipments to Asia Help Strengthen Beef Exports in Late 2009

The United States is expected to export 1.861 billion pounds of beef in 2009. This is a 1-per cent decrease from 2008 levels, which are comparatively lower due to the South Korean market being closed to US beef for part of the year. Increased beef sales to Asia continue to boost US beef exports. Demand for US beef in South Korea continues to recover after the global economic downturn that halted growth shortly after trade of US beef had resumed in the summer of 2008. US exports to Japan have increased 19 per cent year-over-year through November, as US beef continued to recover market share. Export growth to Vietnam (19 per cent year-todate compared with 2008) and Hong Kong (153 per cent) also continues.

The growth in Asia has helped mitigate decreased exports to the two largest US beef export markets, Mexico and Canada. US exports to Mexico fell 15 per cent through November compared with 2008, while sales to Canada are nearly 6 per cent lower year-to-date. Relative exchange rates and the pace of macroeconomic recovery will be important factors for recovering trade with North American trading partners.

In 2010, exports are expected to resume growth, increasing almost 10 per cent compared with 2009. US beef will benefit from continuing growth in the market shares of Japan and South Korea, as well as expanding markets for foreign beef in Hong Kong and Vietnam. Additionally, improved economic conditions in Mexico and Canada should result in growth in trade to these North American markets.

The United States is expected to import 2.703 billion pounds of beef in 2009. This would be a 7-per cent increase from 2008. Most of the growth occurred in the earlier part of the year, when the US dollar was relatively strong and global economic conditions impacted trade with other significant markets for beef. Imports from Australia, the largest foreign supplier of beef in 2009 through November, have been lower in the latter part of the year compared with very high levels in the first and second quarters. This is a result of a weaker US dollar relative to the Australian dollar and improved conditions in the economies of Australia’s other trading partners, particularly the nearby Asian markets.

In 2010 the United States is expected to import 2.795 billion pounds of beef, a 3- per cent increase. Expected lower production of cow beef in the United States this year should provide incentive for foreign producers to market to the United States.

Late Year Imports of Mexican Cattle Increase Total Cattle Imports

The United States is forecast to import 2 million head of cattle in 2009, almost all from Mexico and Canada. Imports of Mexican cattle increased the pace of imports, particularly in November and December. Imports of Canadian cattle, however, continue to be well below levels seen in the past few years. The price spread between US and Canadian markets for both feeder and fed cattle is much narrower than it has been the past few years, resulting in lower returns for Canadian producers that market their cattle in the United States. Next year the United States is forecast to import 2.15 million head as US demand for live cattle is expected to increase.

Dairy Summary

Moderating feed costs and higher milk prices improve the outlook for producers, but herd size will continue to decline. Stronger exports, especially on a skims basis, and higher domestic use presage higher milk and product prices throughout 2010.

Milk Production Declines Again in 2010, While Demand—both Domestic and International—Improves, Leading to Higher Milk and Product Prices in 2010

USDA projects 2009/10 corn and soybean meal prices at $3.40 to $3.85 a bushel and $265 to $315 per ton, respectively. The moderation in forecast feed prices compared with the last 2 years helps boost the milk/feed price ratio and the profit outlook for US dairy producers in the near future. The US dairy herd continues a moderate contraction that is likely to continue throughout 2010. Herd size is forecast to average just below 9 million head this year, down from 9.2 million in 2009. Lower expected feed prices should help boost production per cow that is expected to increase by a relatively robust 1.9 per cent this year. The milk-feed price ratio is not expected to reach 2.5, a range that typically signals a steady state in dairy cow numbers, until the end of 2010. While the worst of the economic contraction is over, many producers are not in a financial position to consider herd expansion at this time. After a year of culling, the lower average age of the dairy herd should also help boost output per cow, since it is younger, more productive cows that will remain. USDA projects 2010 milk production at 188.4 billion pounds, which would represent a further decline from the 2009 lower production.

Cheese prices are expected to strengthen throughout 2010 as economic recovery proceeds and milk supplies tighten. Cheese prices are expected to average $1.570 to $1.650 per pound in 2010, a rise from the $1.2966 per pound average posted for 2009. USDA’s December Cold Storage report placed total cheese stocks at the end of November at 961,376 pounds, 117 per cent of year-earlier levels. Butter prices, like cheese prices, are expected to rise through 2010 and are forecast to average $1.390 to $1.500 per pound, well above the $1.2096 average price for 2009. Butter stocks were 142,175 pounds, 119 per cent of November 2008’s level. Lower expected milk production in 2010 should reduce both cheese and butter production this year compared with last year, helping to support prices and drawing down stocks.

Exports on a skims basis are forecast to rise to 25.5 million pounds and reach 4.8 billion pounds on a fats basis. Exports of nonfat dry milk (NDM) and skim milk powder (SMP) are expected to rise in 2010 to 660 million pounds, a recovery from 2009, but still below 2008. Cheese and cheese product exports are expected to rise in 2010 to about 245 million pounds, and butter and butter fat exports are expected to climb to 71 million pounds. Continued improvement in exports will be a significant factor in the price outlook, especially for skim milk powders. In addition, domestic use on both a fat and skims-solids basis is expected to rise just over 1 per cent in 2010. Higher demand, both foreign and domestic, along with reduced production should tighten milk equivalent stock on both a fats and skims basis by year’s end. Year-end stocks are expected to fall to 8.85 billion pounds from 11.1 billion pounds milk equivalent on a fat basis. On a skims basis, ending stocks are projected to tighten to 9.5 billion pounds from 11.0 billion at the end of 2009.

The strengthening in dairy product prices translates into higher prices for milk in all classes in 2010 compared with 2009. The Class IV price is forecast at $14.75 to $15.60 per cwt, substantially above 2009’s average of $10.89 per cwt. The Class III price is expected to rise to $14.75 to $15.55 per cwt, up from 2009’s $11.36 per cwt average. The all milk price is forecast to average $16.20 to $17.00 per cwt, up from $12.79 per cwt in 2009.

Further Reading

- You can view the full report by clicking here.
January 2010

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