State of the 2012 cattle industry

by Dan Childs

The cattle industry is experiencing both production and market conditions that are unique and uncommon for the industry. Extreme heat and drought conditions in 2011 caused double digit percentage declines in beef cattle numbers in Texas and Oklahoma. In 2011, there were 660,000 head of beef cows that disappeared from Texas making it the largest single-year decline in history. Oklahoma producers reduced their herds by 288,000, dropping its rank in total beef cows in the U.S. from second to fourth behind Texas, Nebraska and Missouri.

On the other hand, many northern states experienced good growing conditions in 2011, allowing them to increase beef cow numbers. This helped soften the year-over-year decline of total beef cows in the U.S. to 3 percent. The good summer in some of the northern states also allowed them to produce and ship hundreds, if not thousands, of truckloads of surplus hay to the Southern Great Plains. Even at unprecedented high prices, southern producers were glad that hay was available. Even though Mother Nature dealt the Southern Great Plains a harsh summer in 2011, she has provided a mild winter through January that has helped stretch sparse hay inventories.

Somewhat surprisingly, cattle prices have remained strong despite the large numbers moving through the market. November 2011 prices for all cattle experienced more than a 25 percent increase over November 2010. Lightweight calf prices are at record levels causing “sticker shock” for buyers. Many producers are asking how high prices can go before consumers start to reduce beef purchases. The Consumer Price Index calculated a 10 percent increase in beef and veal prices from November 2010 to November 2011. Based on preliminary data reported by the University of Missouri, beef demand was up 4 percent in December 2011 compared to December 2010 and up 1 percent for all of 2011. This increase in overall demand follows three years of declining domestic beef demand. However, preliminary data for the fourth quarter of 2011 indicates that beef exports are expected to be over 10 percent higher than in 2003 (prior to BSE) and about 21 percent higher than in 2010. The weak U.S. dollar has contributed to stronger exports.

Beef production will be impacted for several years by the 2011 drought. The 2012 year-over-year decline in beef cows of 3 percent will result in the smallest calf crop since 1950. Smaller cattle numbers in combination with increased demand both domestically and internationally set the stage for a strengthening of prices. A surprising number in the Jan. 1, 2012, cattle inventory report was a 1 percent increase in beef replacement heifers relative to the previous year. This is an indication that the industry wants to increase herd numbers.

Overall, the future is bright for the cattle industry; however, many challenges persist. First, higher cattle prices typically translate into greater risks, thus making risk management strategies more important for producers. Second, input prices are likely to continue to rise. Managing costs, therefore, will be essential for profitminded producers. Lastly, government policies can materially affect farming and ranching operations, so it is important that producers become (and remain) politically engaged. Those who engage their political representation and manage production and market risk should prosper in the next few years.

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Beef-Demand Building Efforts To Increase

by TheCattleSite

US - Increases in support for beef demand-building efforts were approved by directors of the Federation Division of the National Cattlemen’s Beef Association (NCBA) at the organisation’s Board meeting held last week in conjunction with the 2011 Cattle Industry Summer Conference in Kissimmee, Florida.

Additional funding will go to programmes funded through the Beef Promotion Operating Committee (BPOC) and a special Federation Initiative Fund that channels money from states with large cattle populations to those with large consumer populations.

Federation directors voted to allocate $750,000 in expected surplus Federation funds to supplement the funding requests that will be considered by the BPOC in September. The BPOC determines national and international programmes for building beef demand. The funds are invested by state beef councils and are in addition to a $5.13 million initial FY2012 investment approved by the Federation Executive Committee and Federation directors.

According to David Dick, a beef producer from Sedalia, Missouri, and chairman of the NCBA Federation Division, the additional funds will be put to good use. “Matched with funds from the Cattlemen’s Beef Board (CBB), this money will support demand-building programmes that benefit US beef producers,” he said.

“It’s important that we put the money where it will do the most good.”

In that spirit the Federation also approved $198,300 in spending on demand-building projects through its Federation Initiative Fund. A total of $246,550 had been requested from the fund by 10 state beef councils in large consumer population states. The fund is made possible by state beef councils that have more cattle than people.

“Producers on state beef council boards across the country control half of the one dollar mandatory national beef checkoff they collect,” said Mr Dick. “While most of that money is used for in-state demand-building programmes, we’re also able to strengthen the national programme and get other funds where they’re needed badly.”

The NCBA Federation Division represents the 45 Qualified State Beef Councils, and elects 10 members to the 20-member BPOC. The other 10 are elected by the CBB. The BPOC determines which projects and programs will be funded through the 50 cents of each checkoff dollar sent to the CBB.

Other Actions

Also at the Summer Conference, Federation directors heard more about progress made through a Charter they approved at their meeting in Denver in February. The Charter establishes that the Federation is independent within NCBA.

Among the steps taken since February have been the hiring of a senior staff member whose sole responsibility is Federation activities, and the hiring of a compliance officer who helps assure that time and expense controls of Beef Checkoff funds are properly implemented.

“As a committed partner with CBB, we want to make sure that we have 100 per cent accountability,” said Mr Dick. “At the same time, we value the synergies that our association with NCBA provide.”

At the event’s Federation Forum state beef council representatives presented ways the Federation was involved with programmes taking place in their states. Staff from the Idaho Beef Council utilised Federation assistance in a state-initiated consumer promotion project, while the Nebraska Beef Council provided significant assistance in a nationally-developed Issues Management programme in Nebraska.

“State beef councils and their staffs are key to the Federation’s success,” said Mr Dick. “Not only do they financially support national Federation efforts, they directly participate in Checkoff-funded efforts taking place in their states. It’s a close relationship that works well.”

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Cattle futures defy weight of data to pare losses

by Agrimoney.com

Has a matter of size trumped a numbers question?

Cattle futures staged a surprise rebound on Monday despite a barrage of apparently bearish data showing a bigger US herd than had been expected – with the revival attributed by some to potentially smaller animals.

Both feeder and live cattle opened weak in Chicago, running to traders' script after a key US Department of Agriculture report showed the US herd - while dropping this month by 1.1% to 100.0m head, its lowest on record - had not fallen as far as analysts had expected.

The market had forecast a decline of some 315,000-head more, to 99.7m animals.

The number of cattle in feedlots was especially strong, a separate report showed, lifted by placements which rose 4.0% last month – in contrast to the slide of 6.6% that traders had expected.

"The ongoing drought in the south west appears to have forced more cattle off the range" and into feedlots, Jon Michalscheck at Benson Quinn Commodities said.

'Somewhat bearish'
The feedlot data were deemed especially bearish for nearer-term contracts, implying a jump late in the year in supplies of live cattle - fattened animals ready for slaughter.

"This ought to affect the October, December timespan," Mike Mawdsley at Market 1 said.

The inventory report echoed the dynamic in showing a calf crop of 35.5m animals, some 350,000 head higher than analyst estimates, implying a near-term boost to cattle numbers, but a beef cow herd which fell well short of expectations, indicating a diminished breeding herd ahead.

"In the short-term, the report could be construed as somewhat bearish for cattle prices," a report from Paragon Economics and Steiner Consulting said.

"The much larger [than expected] calf crop is bearish in the short term."

Heat stress

However, after a weak start, and poor sentiment in crop markets, both near and far-term futures in both live cattle and feeder cattle recovered most of their lost ground, to bring some lots back into positive territory in late deals.

"It is a little bit surprising. Futures could not stick it to the downside," Don Roose, president of broker US Commodities, said.

He attributed the resilience in part to prices in the cash market, which traded at $108 a hundredweight last week. "We do not know how this is going to do this week," Mr Roose said.

Furthermore, there was some evidence that weights may be coming down, limiting the impact of higher animal numbers in raising beef supplies.

Besides the impact of high corn prices in reducing feedlots' appetite for fattening cattle to the limit, Mr Roose noted a side effect of the heatwave in southern states home to one-third of the US herd.

"We spoke to one feedlot owner earlier who was wary of putting large cattle because of the risk in high temperatures.

"When you are moving a 1,400-1,500 pound steer in 105-degree [Fahrenheit] heat, that's going pretty stressful for the animal."

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Record-low cattle herd could herald profits surge

by Agrimoney.com

Data due on Friday expected to show the US cattle herd shrinking to its lowest on record could represent a marker on the road to a far more profitable ranching sector.

The US Department of Agriculture is due later, in a twice-yearly report, to show the domestic cattle herd falling by 1.4% from July 1, dropping below 100m head for the first time since the series began in 1973.

The decline is seen in part down to the sector's greater productivity since the spread of feedlots, which has allowed producers to shorten fattening periods while increasing animal weights.

US producers are expected to produce some 26m pounds of beef, nearly one-quarter more than in 1973, despite a herd which has shrunk by one-quarter over the same period.

But it is also "a reflection of the fact that grain farming is more profitable than cattle ranching", Don Roose, president of broker US Commodities said.

"It has been more profitable for farmers to tear up pastures and replace them with crops."

Supply squeeze ahead?

However, the extent of the decline in the cattle herd may swing the pendulum of profitability back towards ranchers, once high beef prices persuade the industry to go back into expansion mode, a report by Paragon Economics and Steiner Consulting said.

Expectations for USDA cattle herd data, as change in year to July 1 All cattle and calves: -1.4% Cows and heifers that have calved: -1.3% (Includes beef cows: -1.9% And dairy cows: -0.1%) Annual calf crop: -1.5% Source: Dow Jones survey

The increased beef production has come against a background of population growth to 7bn people worldwide, from 4bn people in the early 1970s.

"Increasing global incomes, lower trade barriers and more fluid markets have led to ever-rising beef demand globally," the briefing said.

"All of this will put more pressure on US beef prices long term, and cattle prices will rise to points that once again make it profitable to invest in this business."

Indeed, if cattle prices appear high now - with futures in both feeder animals, ready for placement in feedlots, and live animals, ready for slaughter, within 10% or so of record highs – "they will be even higher when producers finally decide to hold back heifers for herd rebuilding".

Friday's report is expected to show the calf crop falling 1.5%, implying some 2m fewer calves produced than five years ago.

'No feed in Texas'

One factor which has held back cattle production this year is the drought in the US South which has threatened pasture on an area home to roughly one-third of the US herd.

Expectations for USDA cattle on feed data, as year-on-year change Total cattle on feed, July 1: +2.7% Placed on feedlots in June: -6.6% Marketed in June: +2.8% Source: Thomson Reuters survey

Indeed, the dryness has been seen as a major impetus behind a jump in placements, even of smaller than-usual cattle, on feedlots, until a sharp slowdown in June.

Analysts are divided over whether a separate USDA report on Friday, a monthly census on feedlots, will show buy-ins of feeder cattle remaining weak last month, or whether the dryness revived placements.

At Country Futures, Jerry Stowell, while forecasting a 10% slide in placements for June, said the number "could be up 20% for July" because of the shortage of fodder.

"There is no feed in Texas – no hay, no nothing," Mr Stowell said.

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Cattle Futures Down As Drought Continues

by TheCattleSite

US - Beef production was up slightly this week in comparison to last years levels, whilst cattle futures saw a sharp decline, write Steve Meyer and Len Steiner.

Beef production for the week rose just 0.2 per cent from a year ago, mostly due to higher cow slaughter levels.

Nevertheless, cattle futures declined sharply this week as market participants fretted over the impact of extremely hot weather on beef demand as well as the pace of cattle auction sales.

Faced with deteriorating pastures and high feed costs, cow-calf operators have been trying to push more feeders into feedlots.

The nearby feeder cattle futures contract (August) lost almost eight dollars per/cwt or 5.5 per cent last week.

Nearby live cattle futures also declined by almost 400 points for the week.

The beef cutout actually managed to gain modestly from the prior week but the heat wave and surging cash corn values were seen as short term negative for feedlot sales.

As the heat wave spreads across multiple states, keep an eye on hog and cattle weights and the resulting impact on overall protein supplies.

On Friday, CME issued a special executive report noting that due to “a prolonged lack of trading volume and after significant discussion with industry participants, CME will be delisting Frozen Pork Bellies Futures and Options effective Monday, 18 July, 2011.”

Many agricultural futures contracts, including hogs and cattle, have been extremely successful in recent years as evidenced by the steady increase in open interest volume.

The delisting of the belly contract shows that, in the end, futures contracts needs to strike a delicate balance between hedgers and speculators.

The frozen pork belly contract was no longer seen by end users as an effective hedging instrument, particularly given the shift towards using more frozen bacon.

Also, the seasonality of pork belly prices no longer is what it used to be, with bacon becoming a staple of foodservice menus year round.

As a result, the industry found the frozen belly contract trading between February - August as insufficient to meet its hedging needs.

The weekly production data showed only modest increases in meat protein supplies for the week ending 16 July.

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Cattle market in US to face 'explosive situation'

by Agrimoney.com

The dry weather in the South has set up the US for a "potentially explosive situation" in cattle markets – although only after sapping prospects for the current rally in prices.

US beef cow slaughter topped 75,000 head in the week to June 26, the latest data available, the highest total of 2011 - and in a period when liquidation typically shows a small decline.

The rise has been attributed by some analysts to strong demand, with the July 4 weekend typically seen as a peak in America's barbecue season.

"We are seeing demand picking up from a lot of packers," said Drax Wedermeyer at US Commodities, which estimated beef processors' margins topping a "large" $55 a head in mid-June, amid the slaughter spike.

Margins had fallen back to below $30 a head by the end of last week.

'Simply not enough grass'

However, "one of the most severe droughts in years" in many parts of a swathe of America from Arizona in the west to Maryland in the east may also be encouraging farmers to accept strong prices for cattle, two leading analysts said.

"There is simply not enough grass to support cow herds," Steve Meyer and Len Steiner said.

Official data overnight showed US pasture rated on average as 49% in "good" or "excellent" condition, compared with 65% a year before.

In Texas, where 86% of pasture was in "poor" or "very poor" health, "some livestock problems were encountered with cattle drinking high salinity water from wells and windmills", the US Department of Agriculture said.

With hay expensive too, "many cattlemen simply do not have the necessary resources to hang on", Dr Meyer and Mr Steiner said.

'Must be a reckoning'

The dent to breeding stock, at a time when the US herd is already at among its lowest levels in decades, looks set to dent future supplies – and lift prices.

"There must be a reckoning," the analysts said.

"The number of available calves must fall, setting up a potentially explosive situation for calf prices and, eventually, for feed cattle, fed cattle and beef."

Short-term blip?

However, it could curtail in the short-term the rise in prices of feeder cattle, those ready for fattening, if ranchers are opting to place stock in feedlots as well as take them to slaughter.

"It now appears that the drought and high fertilizer prices have reduced available grass pastures enough to push more cattle, even some spring calves, into yards.

"Our contacts tell us to not be surprised to see June placements [of feeder cattle on feedlots] at or above year-ago levels and easily high enough to keep feedlot inventories above year-ago levels.

"That would suggest higher live cattle numbers, year-on-year, through the end of this year."

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Corn could stem rally in feeder cattle prices

by Agrimoney.com

A further rebound in corn prices could curtail the rally in feeder cattle futures, which rose to a record high on Tuesday amid expectations of a scramble by feedlots for extra animals.

Feeder cattle - cattle ready for fattening on feedlots – touched 141.85 cents a pound in Chicago for August delivery, an all-time high for a spot contract, and extending to 13% gains over the last month.

The rally has been supercharged by expectations that weaker corn prices will encourage feedlots to take on extra animals, at a time when the pipeline of feeder cattle appears thin.

Farmers in drought-affected areas of the US South, accounting for roughly one-third of the national herd, sold cattle at lighter weights than normal because of the poor pasture conditions and, with the national herd at its smallest for decades, replacement supplies are expected to be hard to come by.

"We have a small herd anyway, and on top of that the picture has been distorted by placing cattle [on feedlots] early," Jerry Stowell, at broker Country Futures, based in Kansas state, said.

Corn factor

However, while there still looked considerable potential for feeder cattle prices to rise further, the upside could be limited by a further revival in the price of corn, a major fodder source for feedlots.

"We are bullish feeder cattle. But if corn yields come in slightly below expectations, we could see feeder cattle falter at the mid-150s [cents a pound]," Mr Stowell said.

Conversely, the prospect of a rash of fattened animals emerging from feedlots later in 2011, following the strong pace of placements of feeder cattle in the spring, has kept a lid on prices of live cattle- those ready for slaughter.

Live cattle for October shed 0.1% to 119.50 cents a pound, with those for August delivery adding 0.4% to 113.325 cents a pound, helped by stronger cash markets - and positive packer margins, of about $13.25 a head, even at these higher prices.

Regulatory data show speculators taking an increasing interest in cattle, with "managed money's " net long in Chicago feeder cattle tripling to 1,000 lots in the week to last Tuesday, and rising 4,800 lots to nearly 65,000 contracts for live cattle.

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Cattle prices jump, as feedlots put the brakes on

by Agrimoney.com

Cattle prices soared again on Monday, with feeder cattle touching limit up for a third successive session, as data showing a tumble in feedlot animal populations encouraged buyers to bid up.

Live cattle for August, the best traded lot, stood 1.6% higher at 111.975 cents a pound in late deals in Chicago, seeking its highest close in six weeks, and taking its gains in three sessions nearly to 8%.

Feeder cattle - animals ready to be placed on feedlots rather than the live cattle already fattened for slaughter - stood up the maximum 3.0 cents that the Chicago exchange allows, taking the contract to 135.65 cents a pound, also up nearly 7% since Wednesday.

"Cattle are in a run-away to the upside," Jerry Stowell at broker Country Futures said.

"We got the bullish [[US cattle on feed] report, and we are off to the races again today."

'Prices still too low'

The US Department of Agriculture briefing on Friday showed US feedlots running, at 10.9m cattle, with some 140,000 fewer animals as of the start of the month than investors had expected, if a number higher than at the start of June last year.

The shortfall was down both to a jump in sales of cattle for slaughter to well above expectations as well as to a 10.8% slide in the number of animals placed on feed last month, compared with a year before.

In part these dynamics reflected the difficulty some feedlot operators are having in turning a profit in the face of high corn prices.

"Feedlots are finding it increasingly difficult to realise a positive margin," a report from Paragon Economics and Steiner Consulting said.

"Live cattle prices are still far from where they should be in order to encourage placements," despite gains in futures markets which were echoed on cash markets, where prices gained some $3-4 a hundredweight in the south of the US last week to hit $109-110 a hundredweight.

In the north, prices rose by $4-5 to reach $111-112 a hundredweight.

Feeder shortage

However, the slide in placements was also seen down to supplies of feeder cattle dwindling – as long foreseen - after being boosted by drought in Mexico and the south of the US.

"With the smallest calf crop in over 50 years, feedlots will find it increasingly difficult to find feeders that have breakevens anywhere close to acceptable levels," Paragon Economics and Steiner Consulting said.

With feeder cattle supplies potentially dwindling, and live cattle supplies coming out of feedlots to dwindle as lower placements feed through, the USDA data was "bullish across the board", Terry Roggensack at Hightower report said.

Question of speed

Nonetheless, Mr Roggensack was among analysts surprised by the extent of Monday's reaction, given the "strong moves the market has already made this past week".

Mr Stowell, at Country Futures, said: "With all due respect to the bull outlook, we question the speed to which we are rising."

Price rises are seen being fuelled by buying by speculators who had a relatively small net long position in live cattle, and were net short in feeder cattle, last week heading into the rally, official data show.

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Cattle futures surge as packers pay up

by Agrimoney.com

Cattle futures rose the exchange maximum in Chicago – in sharp contrast to the slump in crop prices – after data showed buyers paying up for animals, even in the face of a stream of supplies from drought hit Mexico.

Futures in both live cattle, animals fattened for slaughter. and feeder cattle, those ready to be put into feedlots closed up the limit of 3.0 cents a pound, at their highest in nearly a month, even as grains and many soft commodities posted another session of heavy losses.

The jump followed reports of meat packers paying up to $109 per hundredweight for fattened cattle on cash markets, up some $3 on the day.

US beef export sales came in at 15,800 tonnes, according to weekly government data, keeping the country on track to complete its recovery, in trade volume terms, from losses sustained following a BSE outbreak in 2003.

'New trend higher'

The data were seen as fuelling a round of covering by speculators of short positions –that is, bets on falling prices.

"It's been a while since we have had cattle and feeder cattle up the limit," Mike Mawdsley at Market 1 said.

"Of course, funds have been short."

And the revival raised hopes of an end to a correction which, at its early-June nadir, took feeder cattle prices down 14% from their record high in early-April, and live cattle down 18%.

"Fundamentally, it feels too early for this upside breakout, but the market is saying it's time to go," Jerry Stowell at Country Futures said.

"The market now looks poised to start a new trend higher."

'Could endanger animals'

The rise in cattle prices comes at a time when many ranchers in the southern US and Mexico have been running down herds in the face of drought which has left little pasture.

Indeed, the "principal forage-producing states of Mexico are facing extreme drought conditions that could endanger animals, particularly if critical rainfall is not received in June and July", the rainy season for these areas, US Department of Agriculture analyst Rachel Johnson said.

Some 40% of Mexico is suffering a drought billed by President Felipe Calderon as the worst in seven decades – while 2010 was the rainiest year on record.

US cattle imports from Mexico, often this year for placement directly on feedlots given the shortage of pasture, have remained firm after jumping 28% in the first four months of 2011, compared with year-before levels

"These higher imports have been maintained in recent weeks, as weekly [official] data reports through the first week of June also show cattle imports from Mexico 27% higher year-over-year," Ms Johnson said.

Staying north

Conversely, exports of live sheep from the US to Mexico tumbled below 5,000 animals in the first quarter to their lowest in at least six years, and down by two-thirds on the same period of 2010.

US sheep exports to Mexico hit 22,000 animals in the April-to-June quarter last year.

The US Department of Agriculture will on Friday release monthly data expected to show placements of cattle on feedlots falling 7.8% in May from a year before, as supplies of feeder cattle wane.

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Cattle sending a clue to the S&P 500's future direction?

by Kimble Charting Solutions

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Cattle supplies could still end year 'very tight'

by Agrimoney.com

It is still possible that supplies of fattened cattle will be "very tight" in the US towards the end of the year, despite a jump in placements in April at twice the pace that the market expected, a leading analyst said.

Prices of live cattle - that is, those ready for slaughter - tumbled in Chicago, with some contracts including the August, October and December lots falling the exchange's maximum daily limit, on data showing the number of animals placed for finishing in US feedlots jumping 9.9% last month.

The rise was way above a market forecast of a 4.3% increase, and put placements at nearly 1.8m head, the second-highest April figure since the US Department of Agriculture began publishing this data series in 1996.

Market sentiment was further damaged by separate statistics showing a rise of 20%, year on year, to 442.8m pounds in the amount of beef in cold storage as of the start of this month – the highest figure for 37 years.

'Down sharply'

However, Steve Meyer, at Paragon Economics, said that the robust growth in placements could not continue given the declines in feeder cattle – those suitable for putting into feedlots - identified in separate USDA sector inventory reports, and falls in US calf numbers.

An alternative was that the inventory data themselves would prove erroneous.

"But most of us still think these [placement] numbers are going to go down pretty sharply," Dr Meyer told Agrimoney.com, adding that rebounding corn costs offered a disincentive for feedlots to take on animals too.

With the cattle placed on feedlots last month set to come ready for slaughter in October, there was still potential for numbers of fattened animals to dip into Christmas.

Dr Meyer said that he still expected the "'supplies are going to get very tight' idea" to come true later this year.

Drought and imports

The jump in April's placements was attributed in part to the deterioration of pasture conditions in America's drought-struck southern states, responsible for about one-third of the US cattle herd, and where winter wheat crops and cotton sowings have also suffered.

Placements in Kansas surged by 21%, in Texas by 28% and in Oklahoma, where some areas are suffering drier conditions than during the 1930s Dustbowl, by 33%, as farmers gave up on grass-finishing their animals.

Higher supplies from Mexico also played a role, although they "do not go anywhere near close to explaining all the difference" between the actual USDA number and market expectations, Dr Meyer said.

Live cattle slid 2.6% to 102.20 cents a pound in Chicago for June delivery, the weakest price for a spot contract since the run up to Christmas, and down nearly 17% from last month's record high.

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Cattle prices exposed after beef fails April test

by Agrimoney.com

The rally in cattle prices, which took them to record highs early in the month, appears to have failed the "April test", meaning that they may have further to fall, even after steep losses in the last session.

The results of the April switchover in beef demand, from cuts such as rounds popular in the winter to the summer barbecue items such as rib and loin, have "not been very positive", a note from Paragon Economics and Steiner Consulting said.

Since April 5, when cattle futures peaked in Chicago, wholesale prices of winter beef cuts have lost nearly half their advantage over values a year before, which might be expected given the seasonal switch in tastes.

However, summer cuts have failed to pick up the baton. Indeed, loin prices are only 4 cents a pound higher than a year ago, compared with 13.3 cents three weeks ago.

"[This] does not bode well for overall beef demand," the briefing said.

"In all, the weakness in beef prices in large part reflects the failure of high value steak cuts to carry more value and justify the lofty cattle prices.

"It is uncertain as to whether the consumer is willing, given cheaper pork and chicken, or able, given high fuel and related costs, to pay for that nicely marbled $15 steak."

'Move to slaughter'

The forecast was echoed by Purdue University economist Chris Hurt who noted "trouble signs on the horizon" for beef consumption as supermarkets in the summer pass on the spring rise in beef costs, taking retail prices, which averaged a record $4.64 a pound in the first quarter, "toward $5.00 per pound".

"Consumers are expected to become more reluctant buyers of beef as the spring and summer progresses," Mr Hurt said.

However, supplies could be boosted by stimulus that the drought in the southern Plains, which has affected areas housing one-third of the US cattle herd, is providing for livestock farmers to slaughter animals.

"Liquidation could become a factor. A number [of farmers] may move to slaughter, increasing the beef supply and edging cattle prices lower."

Feedlot dynamics

Broker US Commodities added that data out late on Thursday, showing a continued rise in cattle placements on feedlots, pointed to a rise in beef supplies from this source too.

"March placements are at a four-year high and cattle on feed in March are at a three-year high," teh broker said.

"Heavyweight placements advanced the most. Fed cattle supplies will now remain large through the summer."

Peak slaughter was "now ahead of us", with rates, in the last 21 years, peaking 13 times in June, seven times in May and once in July.

Yet demand was "slowing", highlighted by data showing a 16.5% rise, year on year, in the level of beef in cold storage in the US.

Live cattle for July, Chicago's best-traded lot, closed down 0.3% at 112.45 cents a pound, with the August feeder cattle contract 0.6% lower at 133.20 cents a pound.

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US Cattle On Feed Up Five Per Cent

by TheCattleSite

The inventory included 7.12 million steers and steer calves, up seven per cent from the previous year. This group accounted for 63 per cent of the total inventory. Heifers and heifer calves accounted for 4.10 million head, up 2 per cent from 2010.

Placements in feedlots during March totaled 1.92 million, three per cent above 2010. Net placements were 1.87 million head. During March, placements of cattle and calves weighing less than 600 pounds were 380,000, 600-699 pounds were 360,000, 700-799 pounds were 588,000, and 800 pounds and greater were 590,000.

Marketings of fed cattle during March totaled 1.99 million, four per cent above 2010. This is the second highest fed cattle marketings for the month of March since the series began in 1996.

Other disappearance totaled 52,000 during March, 13 per cent below 2010. 

'

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Hay prices may 'spike', even if cattle futures dip

by Agrimoney.com

Hold on to your hay. Prices of the fodder may "spike" thanks to the high prices of feed grains, even if – in fact, especially if – livestock values fall.

Hay prices have lagged other feed sources since the grains rally started last June, with official data showing prices of baled US alfalfa rising 17% since then to $136 a tonne.

This reflects a long-term trend, fuelled by the reduction in the US cattle herd, which has declined to its lowest levels since the late 1950s.

Hay values have risen some 60% since 1990, compared with a more than doubling in prices of feed grains, such as corn, which have found alternative industrial uses as sources of ingredients and biofuel.

Herd expansion?

However, hay prices may play some catch up, if rises in cattle prices to a record high earlier this month encourage cow-calf producers to attempt to raise their game, raising demand for quality fodder.

"It is important to keep in mind that for cow-calf producers, no expansion will take place unless they have enough grass on their pastures to feed an expanding herd and there is enough hay availability to cover their needs over the winter," a report from Paragon Economics and Steiner Consulting said.

Yet supplies face a double whammy, first from a lower area allocated to the crop, as farmers plough up alfalfa to make way for the likes of corn, which set a record price last week in Chicago.

The US Department of Agriculture forecasts America's hay area falling by nearly 900,000 acres to a 17-year low just below 58m acres, the fourth-lowest figure on record.

'Running low on hay'

Secondly, dry weather in the southern Plains, where one-third of the US cattle herd are stationed, could lower hay quality as well as increase demand for fodder.

USDA officials on Monday highlighted that in Oklahoma, one of the biggest cattle states, the dire condition of pasture, of which 59% was rated "poor" or "very poor", had prompted a switch to alternative feed and meant "producers are running low on hay".

Paragon Economics and Steiner Consulting said: "Drought in the southern Plains is a significant concern going into the summer. If there is not enough moisture now, how will those pastures be in July and August?"

'Spike in values'

While it is possible that a decline in cattle prices, which some analysts believe have passed a seasonal peak and set in for a falling trend, by decrease the enthusiasm of breeders for maximising calf production, that may not prevent hay values falling thanks to a knock-on effect from feedlot dynamics.

Feedlots have been hoovering up available supplies of feeder cattle to fatten on grain-based diet, reducing the number of animals relying on other fodder sources.

Indeed, this dynamic, which is expected to see USDA data on Thursday show a rise of 6-8% in livestock placements on feedlots last month, has been a big factor in curbing the rise in hay prices.

"If cattle prices stall, however, the situation could reverse and we could see a spike in hay values," Paragon and Steiner said.

In hedge fund terms, alfalfa prices would gain a bit of alpha.

See the original article >>

Cattle Outlook

by TheCattleSite News Desk

Beef trade continues to be very favorable. Beef exports during February were 25.4 per cent higher than 12 months earlier and beef imports were 16.5 per cent lower.

The big growth markets for beef exports were South Korea, Japan and Canada. Canada, Australia and Brazil account for the drop in beef imports. During the first two months of 2011, the US exported 9.4 per cent of US beef production while imports equaled 6.9 per cent of production. Exports have exceeded imports during each of the last six months. A stronger world economy and a weakening dollar are two main causes of the trade gains. The trade-weighted value of the dollar was down 4.6 per cent in February compared to a year earlier.

The year-over-year inflation rate for March was 2.7 per cent, the highest since December 2009. Rising inflation poses a threat to economic growth.

The 5-area daily weighted average price for slaughter steers sold through Thursday of this week on a live weight basis was $119.23/cwt, down $3.97 from last week’s record. Steers sold on a dressed weight basis this week averaged $190.15/cwt, $6.37 lower than the week before. This week last year, slaughter steer prices averaged $99.53/cwt live and $159.26/cwt dressed.

On Friday morning the choice boxed beef carcass cutout value was $187.09/cwt, down $3.89 from last week’s record. The select carcass cutout was down $3.46 from the previous Friday to $184.24 per hundred pounds of carcass weight.

This week’s cattle slaughter totaled 640,000 head, up 1.4 per cent from the week before, but down 0.5 per cent compared to the same week last year. Steer carcass weights averaged 821 pounds during the week ending April 2. That was down 6 pounds from the week before, but 8 pounds heavier than a year ago. Steers weights have been above year-ago for the last 17 weeks.

Cash bids for feeder cattle around the country this week were mostly steady to $4 lower with a few reports as much as $10 lower. Oklahoma City prices were $2 to $4 lower on stocker cattle and $2 to $5 lower on feeder cattle than the previous week with price ranges for medium and large frame #1 steers: 400-450# $174-$179.50, 450-500# $163, 500-550# $151-$159, 550-600# $142.25-$151, 600-650# $140-$149, 650-700# $135.25-$139.50, 700-750# $132.50-$138, 750-800# $128-$137.25, 800-900# $122.50-$130.75 and 900-1000# $119-$123/cwt.

The April fed cattle futures contract ended the week at $117.40/cwt, down $1.42 from a week ago. The June contracted closed out the week at $115.30/cwt. The August contract settled at $117.25 and October contract ended the week at $121.825/cwt.

May corn futures settled at $7.42 on Friday, down 26 cents from 7 days earlier. September corn ended the week at $7.014/bushel.

See the original article >>

Has the missing link in the US feed chain been found?

by Agrimoney.com

Have analysts found the missing link to US animal feed supply chain?

The market has been puzzling over how livestock farmers will keep their animals fed since the US Department of Agriculture on April 8 cut its estimate for American feed usage of corn in 2010-11 by 50m bushels.

This despite data implying that America consumed a record 7.2bn bushels in the first half of the crop year – with much of the increase assumed down to animal feeding fostered by record cattle and hog prices, which are allowing livestock farmers to cash in even while paying elevated prices for grain.

"Cattle on feed in February increase 5% year on year, the poultry industry continues to grow at a pace of 2% year on year, and hogs kept for the breeding increased for the first since 2008-09," Rabobank said.

If the USDA is right, overall corn consumption plunge to 4.4bn bushels in the second half of the crop year, the biggest drop for nearly 20 years, with livestock farms expected to bear the brunt of the decline.

Analysts have come up with three answers so far for filling the apparent hole in feed supplies.

Damn lies and statistics

The first is to doubt the USDA forecast, which is predicated on an idea of US corn stocks ending the year at 675m bushels – way above market expectations.

Goldman Sachs on Friday became the latest in a series of commentators to question an inventory figure branded "a joke" by one commentator.

"While the USDA continues to report stabilisation in old-crop inventories at low levels, strong near-term demand, especially for corn from exports, feed and ethanol, points to further declines in inventories," Goldman said.

Informa Economics on Wednesday, in the first estimate from a major analyst since April 8, pooh-poohed the USDA figure, pegging year-end stocks at 575m bushels.

If correct, that would allow some loosening of the supply corset. Especially when combined with supplies rushed to feedlots and hog farms from the early corn harvest, which starts before the 2010-11 year finishes in August.

Big saving

The second answer is to take the USDA's own assessment on board.

The department believes that soft red winter wheat, which is already in decent supply and for which an abundant harvest is expected, will take over from corn in animal feed.

That certainly makes financial sense.

At prices as of Wednesday's close, livestock farmers buying wheat would save $0.70 a bushel, using 100 pounds of the grain to replace 92 pounds of corn and eight pounds of soymeal, according to a report by Paragon Economics and Steiner Consulting.

Not so easy

The trouble is that switching over from corn to wheat is not as simple as it might appear.

"To include a new feed requires more than just replacing corn with wheat, it requires a change of the entire feeding regimen, the feed also needs to be handled differently and may require additional work," the groups said.

"It takes time to transition cattle into a ration that contains wheat. Some of the research we have seen recommends a transition period between 30-45 days," they added, noting that wheat's high starch content "causes digestive problems".

For poultry farmers, meat attributes such as fat colour may be an issue for customers used to, for example, corn-fed chicken.

"We will likely see some wheat feeding. But we think that this will not be as quick to implement as some may think," the groups concluded.

Missing link?

So can a byproduct of ethanol plants square the circle?

Dried distiller's grains, or DDGs, have a lower starch content than wheat. They do not need to be processed or ground to put into a feed rations. And, while their supplies are less closely monitored than those of the main grains, they are undoubtedly increasingly available, thanks to the growing proportion of US corn, nearly 40%, going to make ethanol.

The USDA itself highlighted the "substantial" rise in "available supplies of feed byproducts" prompted by use of corn in biofuel plants.

Nearly 30m tonnes of DDGs will be available in 2010-11 for domestic US feed use – double that five years before - according to Australia & New Zealand Bank.

Adding this to corn supplies, as proposed by the USDA, "leaves the animal feed sector with 1% greater feed rations for 2010-11" than in 2009-10.

Combined with a switch to soft red winter wheat, "these factors could well mean more downside risks already exist to 2010-11 corn animal feed usage", ANZ said.

Two birds, one stone

It's an attractive idea, and not just for livestock farmers.

The ethanol industry is attempting to deflect criticism over levels of crops used in biofuels by highlighting its DDG production, and indeed won a concession last week over its labelling by the USDA.

And DDGs do have potential for taking up a bigger proportion of feed rations. Canadian hog farms are using DDGs at up to 40% in feed rations, according to the US Grains Council.

US cattle farmers can use it at rates of 35%, according to Steiner Consulting.

Fear of the new

However, there is still the problem that animals tend do better if kept on a constant diet.

"And there is the matter over whether farmers are happy to use it," Steiner analyst Alton Kalo told Agrimoney.com.

"They need to be comfortable with handling it, and may be reluctant to start using something new."

Especially, after all, when live cattle are worth approaching 120 cents a pound on the Chicago futures market, and lean hogs more than $1 a pound too.

Only time may provide the answer as to how US animals get fed this summer.

See the original article >>

Drought imperils moves to end decline in US cattle

by Agrimoney.com

The drought in the US Great Plains, which is causing consternation among wheat growers, is also threatening moves among cattle farmers to rebuild herds after a decline lasting since the 1970s, US farm officials said.

More than one-third of the American cattle herd is held in the southern states has been left parched by a dearth of rain which has reached "critical" levels in Oklahoma, and encouraged bush fires, largely in Texas, which have burned more than 360,000 acres of land in the past week.

The harsh conditions are threatening to snuff out an apparent willingness among farmers to restock, encouraged by high cattle prices, which set a record 122.875 cents a pound in Chicago last week.

A 5% fall in the slaughter of beef cows in the first three months of the year "could be an indication that producers may be beginning to consider cow-herd stabilisation or even expansion", US Department of Agriculture analyst Rachel Johnson said.

"However, continued dryness in the southern tier of States and scattered additional areas will likely dampen expansion plants in those affected areas."

Indeed, the conditions "could lead to further cow herd reductions", and reduced regional demand for feeder cattle for fattening up on pasture in spring and summer grazing programmes, Ms Johnson said.

Long-term fall

A rebound in cattle numbers would end, or at least interrupt, a decline in cattle numbers dating back to 1974, when US herd numbers peaked at 132m head before beginning a fall which has cut their numbers by 30%.

Part of the decline since has been down to breeding improvements which have increased vastly milk yields in dairy cows, whose total nearly halved over the last 50 years.

Americans' lower beef consumption rates, per person, have also played a part, along with the efficiency savings, and higher returns, which can be made by switching to arable farming.

Fatter margins

Nonetheless, cattle feeders have, so this year, "been in a positive situation, with margins not seen since last May", Ms Johnson said.

"Despite increasing grain and feed prices, margins in Match were well over $100 per head."

However, she warned that beef values "may begin to slip" as the rise in cattle placed on feedlots in the winter feeds through into growing supplies of the meat.

Separate data showed wholesale beef values falling, after rising on Tuesday for the first time in week.

Broker US Commodities said: "Boxed beef continues to struggle to hold recent strength", adding that it expected that live cattle futures have already set a seasonal high.

Ms Johnson added that a USDA cattle report on July 1 would provide an insight on prospects for a herd rebuild, revealing the numbers of heifers that farmers are keeping to breed from.

See the original article >>

Live Cattle

Segnale di vendita sulla chart giornaliera del Live Cattle. Come si può vedere sulla chart a lato, il mercato sta tendando di uscire da un canale ribassista di medio periodo. L'assenza di divergenze negative non conferma il pattern, ma vista la situazione tecnica del mercato ed i contenuti livelli di rischio si può comunque tentare uno short con buone possibilità di successo.

Sell signal on daily chart of Live Cattle. As you can see on the chart at right, the market is tending to leave the bearish channel of medium term. The absence of negative divergence does not confirm the pattern, but given the technical content and levels of risk can still groped a short trade with good chance of success.