17 May 2011

10 minute read

Summary

Beef/Cattle: Weather-related events are affecting cattle and beef sectors across the board. Cool wet weather in major corn-producing areas has resulted in decreased demand for grilling cuts and has hampered field crop work, raising concerns about future feed prices. Drought and fires have reduced the availability of pasture in areas of the Southern and Southwestern United States, contributing to continued high rates of cow slaughter.

Beef/Cattle Trade: US beef exports for 2011 are forecast at 2.48 billion pounds, 8- per cent growth above 2010. First-quarter exports were 32 per cent above year-earlier levels. Much of this year’s export growth continues to stem from US beef export markets in Asia. The US beef import market continues to be hampered by the weak US dollar, as total first-quarter imports were 19 per cent below year-earlier levels.

Dairy: High feed prices, both this year and next, will pressure producer profits. Cow numbers will show a slight decline into 2012, but higher milk output per cow will continue to boost production in both the current year and next year. Exports of all products will serve to keep dairy prices relatively high, but declines in product prices and the all milk prices from 2011 are forecast for 2012.

Beef/Cattle

Weather Events Affect Cattle Markets

A variety of weather events have affected livestock and meat production at all levels. Floods and wet, cold spring weather in the North Central region and mid- Mississippi River drainage areas have slowed corn planting and other field activities, raising concerns about availability and prices of feed grains in 2012. The cold weather has also adversely affected meat demand for outdoor grilling. Continued drought across the South and Southwest has affected pastures and is at least partially responsible for an increase in beef cow slaughter. Fires fueled by high winds have also devastated some southern rangelands.

As a result of these weather-related events affecting beef cow herds and after a brief pause, weekly federally inspected total cow slaughter has increased again at rates generally 1 to 2 per cent above rates for the corresponding weeks last year, for at least the 5 weeks through 23 April. Slaughter for the week ending April 30 was down by almost 3 per cent. These slaughter rates likely reflect an about-face with respect to any plans for cow herd expansion in the southern tier of States most affected by the drought. Other parts of the country, notably the Northern Plains and Rocky Mountain regions, are beginning to exhibit signs of heifer retention for cow herd expansion. Weekly federally inspected dairy cow slaughter, on the other hand, has continued its relatively high ongoing rate in the 2-to-5-per cent range.

While demonstrating some weakness in concert with fed cattle and beef prices, feeder cattle prices have not declined as much as prices in other cattle/beef sectors. This relative strength in feeder cattle markets reflects the growing scarcity of feeder cattle, especially heavier weight, older calves and yearlings. Recent weakness in lighter weight feeder cattle prices likely reflects the uncertainty about pasture available for grazing in the Southern Plains this summer—or a known lack of pasture—due to drought and fires, in addition to the prospect for much higher feeding costs the remainder of the current corn-marketing year.

The decline in feeder cattle prices has contributed to the recent declines in fed cattle prices. Fed cattle prices declined sharply during late April and early May. Fivearea steer prices, all grades, have declined almost 7 per cent from their weekly high of $123.16 for the week ending 9 April.

Wholesale Choice beef cutout values have also declined 6 per cent from their weekly peak during the week ending 9 April. Meatpackers have wrestled with shrinking and erratic margins due to the recent high prices they have had to pay for fed cattle and to declining retail demand. This has been especially true for middlecut meats. As a result, kill levels have tended to bounce around. Relatively high byproduct values have bolstered packer margins.

Demand for middle cuts at retail has declined, likely due to the dampening effect the cool weather has had on outdoor grilling and the effects of escalating fuel prices on household budgets. The dampening effect of cool wet weather so far this spring is likely a factor in the decline in demand for beef in general, but especially for steaks and higher end cuts. Demand for ground products has also softened, in part due to the decline in grilling demand. If fuel prices increase much above current levels, household budgets are likely to be reevaluated, and demand for high-priced meat cuts could suffer further as a result.

Beef/Cattle Trade

For US Beef Exports and Imports, Same Song for Remainder of 2011 as in First Quarter

US beef exports for 2011 are forecast at 2.48 billion pounds, 8-per cent growth above 2010. First-quarter exports were 32 per cent above year-earlier levels. Exports in the second quarter are expected to be about 11 per cent higher year-over-year. Growth is expected to taper in the third quarter and should fall below year-earlier levels in the fourth quarter as US beef supplies continue to become tighter. Much of this year’s export growth continues to stem from US beef export markets in Asia. First-quarter exports to South Korea and Japan were 194 and 63 per cent higher than in 2010, respectively, and exports to Hong Kong were 64 per cent higher. US beef exports to Taiwan and Vietnam thus far in the year have been below year-earlier levels—for Taiwan, due to increased inspections in that country for specific meat residues. First-quarter US beef exports to Russia have been also been strong for the beginning of a year—27 per cent above 2010 levels during the same period. US beef exports for 2012 are forecast at 2.45 billion pounds, only fractionally lower than the current year’s forecast. Although total US beef supplies will be about 4 per cent lower in 2012, strong international demand for beef is expected to maintain elevated US beef export levels.

As the weak US dollar has inherently aided the US exports, the US beef import market has continued to be hampered by the exchange rate. The US dollar posted new lows against the Australian dollar, dipping to .91 AUD/USD in early May. The US dollar hit a low against the New Zealand dollar not seen since Spring 2008. US beef imports from Australia through the first quarter of this year were 35 per cent below year-earlier levels. Imports from New Zealand were not as reduced, at 4 per cent below 2010. Total first-quarter imports were 19 per cent below yearearlier levels, as, notably, Canadian imports were also 28 per cent lower. Typically, Australia and Canada have vied as the top beef exporters to the United States. Canadian cattle inventories are also lower, and the US dollar has been below parity to the Canadian dollar since the beginning of 2011. Total 2011 US beef imports are forecast at 2.18 billion pounds; 2012 beef imports are forecast at 2.48 billion pounds.

US Cattle Imports from Mexico Higher, but Down from Canada

The increase in Mexican cattle imports thus far in the year is being offset by the decline in Canadian cattle imports. Through March, imports of Mexican cattle were 35 per cent higher year-over-year, but imports of Canadian cattle were just over 35 per cent below year-earlier levels for the quarter. The largest impediment to higher Canadian cattle imports, beside a lower Canadian cattle inventory, is a lower US- Canadian slaughter cattle price differential, also a function of the higher exchange rate between the US and Canadian dollars. The US-Canadian slaughter steer price differential (5-Area, all grades vs. Alberta, mostly select 1-2) has remained well below the 5-year average thus far in the year and has yet even to match the price differential levels of 2010. Conversely, the spread between US and Mexican feeder cattle prices (Las Cruces imported feeders vs. live grass-fed Mexico city steers) has continued to widen, a trend beginning in January 2010, but noticeably increasing since the Fall of 2010.

The North American Drought Monitor also classifies almost the entire region of Northern Mexico as experiencing extreme to severe drought as of March 31, 2011. Imported Mexican cattle are mainly entering US feedlots directly, not surprising given the extension of drought conditions into Texas and surrounding States and US feeder cattle demand.

Dairy

Milk Production and Exports To Continue Growth, but Prices Could Weaken in 2012

The outlook is for continued high feed prices in both 2011 and 2012. The corn price is forecast to reach a record $5.50 to $6.50 a bushel in 2011/12, up from $5.10 to $5.40 this year. Although plantings are expected to rise 4 million acres and yields should recover from last year’s weather-reduced yields, stocks remain near historic lows. Soybean meal prices are forecast to rise in 2011/12 to $350 to $380 a ton, up from $350 a ton in 2010/11. Soybean prices are projected to be higher next year, based on lower production this season. Higher ingredient prices will continue to keep feed ration values high in 2012.

Although dairy producers have faced exceptionally high feed prices, high milk prices have helped producers remain profitable. The calculated milk-feed price ratio is expected to remain near 2.0 in 2011, but could slip in 2012 as milk prices decline next year from this year’s expected highs. The expansion in dairy cow numbers that began last year continues, but will likely crest in the third quarter, with the US dairy herd averaging 9.17 million head in 2011. In 2012, cow numbers are forecast to decrease slightly over the course of the year and average 9.16 million head for the year. Yield per cow is forecast to continue to climb modestly in 2011 above 2010. Output per cow in 2012 is forecast at a higher rate--reflecting the effects of herd freshening that has likely been ongoing since last fall--as the younger cows hit their stride and get an additional milking day next year.

The continued increase in milk per cow, to 21,305 pounds this year and 21,685 pounds next year, will more than counterbalance the small reduction in herd size expected in 2012. Milk production is projected to total 195.4 billion pounds in 2011 and to rise to 198.7 billion pounds in 2012.

Milk equivalent imports on a fats basis are forecast at 3.2 billion pounds this year; this represents a downward revision from last month. Although cheese imports appear to be ahead of last year, butterfat and food preparation imports are lagging. Fat basis imports are forecast at 3.0 billion pounds in 2012; high world prices and a relatively weak dollar offer little incentive to import. Milk equivalent imports on a skims-solids basis are projected at 4.3 billion pounds this year and are forecast to slip to 4.1 billion pounds in 2012. In 2012, the same factors affecting fats-based imports contribute to the forecast decline in skims-solids imports.

Commercial exports on a fats basis are expected to reach 7.8 billion pounds in 2011, an upward revision from last month. Total US cheese exports to date are well ahead of 2010. For 2012, strong expected economic growth, especially in emerging and developing markets, should buoy exports, which are forecast at 8.7 billion pounds on a fats basis. Exports on a skims-solids basis are forecast at 31.9 billion pounds in 2011 and 32.3 billion pounds next year. Chinese imports of dry milk products are expected to continue apace for the near future. Although production from Oceania is likely to expand, strong global demand for dairy products will support continued expansion in US dairy exports. Domestic commercial use on a fats basis will rise in 2011, but by less than 1 per cent. Domestic use will likely climb in 2012 as continued economic recovery boosts use and milk supplies increase.

Dairy product prices were revised upward from April’s estimates. Butter and nonfat dry milk (NDM) prices remained persistently high in April, in part reflecting continued export strength. Cheese prices have declined from March, but continued domestic demand should support cheese prices during the year. Seasonally higher milk production internationally could pressure dairy prices later in 2011 and into 2012. Cheese prices are expected to average $1.670 to $1.720 per pound this year and decline slightly to $1.595 to $1.695 per pound in 2012. Butter prices are forecast at $1.840 to $1.920 and $1.605 to $1.735 per pound in 2011 and 2012, respectively. NDM prices reflect the robust export outlook for NDM and will likely average $1.480 to $1.520 per pound in 2011 and decline slightly, to average $1.360 to $1.430 per pound in 2012. Whey prices are forecast at 45.0 to 48.0 cents per pound for the current year and 40.5 to 43.5 cents per pound in 2012.

The price outlook for the major dairy products points to continued high milk prices for the balance of 2011, with some decline in 2012. The Class III price is forecast at $16.45 to $16.95 per cwt this year and $15.35 to $16.35 per cwt next year. Class IV prices continue to lead Class III prices, both this year and next, averaging $18.40 to $19.00 per cwt and $16.30 to $17.40 per cwt in 2011 and 2012, respectively. The all milk price is forecast to average $18.95 to $19.45 per cwt in 2011 and $17.35 to $18.35 per cwt in 2012.

Further Reading

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