Closing Futures Summary
Live cattle futures
saw a choppy day of trade. In the end, February live cattle closed $1.65
lower for the day. Deferred months ended narrowly mixed, with a downside
bias. This represented a low-range finish for most contracts. Cattle futures
saw a mix of followthrough selling and short-covering today, but in the
end the former won out. Yesterday's plunge after a gap-lower start eroded
the technical posture of the market. The beef market continues to erode,
with both Choice and Select beef down from week-ago levels. In addition,
movement has remained stubbornly light. Feeder cattle also traded in a
choppy range today, but the market favored the upside on the close. The
front-month settled down 32 1/2 cents, but deferreds posted gains of 12
1/2 to 55 cents for the day.
Corn futures settled
around a penny lower, which was near the middle of today's trading range.
Price action was light and choppy ahead of USDA's February Supply &
Demand Report -- and after the data was released. USDA increased its U.S.
corn carryover projection slightly more than anticipated. USDA lowered
is global corn ending stocks forecast, but not as much as anticipated.
While the report data had a slightly negative tone, it failed to trigger
active post-report selling since futures dropped the previous four days.
Soybean futures posted
small losses through much of the trading day and then firmed to close 1/2
to 3/4 cent higher. Trading activity was limited today ahead of the release
of the USDA's Supply & Demand Report. Traders even had a muted reaction
to the higher-than-expected carryover pegs. USDA raised U.S. 2015-16 carryover
by 10 million bu. from last month to 450 million bu. and raised global
2015-16 carryover by 1.14 MMT to 80.42 MMT. But steep losses in the U.S.
dollar index helped to limit losses from USDA's negative reports, as the
dollar slipped to its lowest level since Oct. 22. It also signals traders
had the bearish USDA data already factored into the market.
Wheat futures saw
two-sided trade and ended mid- to high-range. SRW futures ended around
a penny lower, with HRW down 1/4 to 3/4 cent. HRS futures closed 1/2 to
2 1/4 cents higher. A weaker tone in the U.S. dollar index helped to limit
selling pressure throughout the day from bearish USDA data. USDA raised
U.S. 2015-16 carryover more than expected to 966 million bu. and raised
global 2015-16 carryover by 6.83 MMT to a lofty 238.87 MMT. Given plentiful
supplies, rally attempts will be limited in the year ahead unless there's
a major weather threat.
Lean hog futures
closed fractionally mixed, ranging from 32 1/2 cents lower to 22 1/2 cents
higher. Cash hog bids were mostly steady today as packers, still operating
with positive margins, pushed to fill needs. The wholesale market provided
some additional positive news as pork cutout values rose 54 cents this
morning and movement was a healthy 281.49 loads. Early expectations are
for steady bids again tomorrow.
More Feeder Cattle -- But Where Are They?
Derrell S. Peel,
Oklahoma State University Extension
The annual Cattle
report estimated that total cattle inventories in the U.S. were up 3.2
percent year over year at 92.0 million head. From various inventories
categories we can calculate an estimated supply of feeder cattle outside
of feedlots. For January 1, 2016, this estimate is 25.9 million head,
up 5.3 percent from one year ago. This is a 1.31 million head increase
in the estimated feeder supply. This compares to the 2.3 percent year over
year increase in the 2015 calf crop, up 780 thousand head. The ratio
of the estimated feeder supply to the 2015 calf crop is 75.5 percent, up
slightly from last year and indicates some increase in carryover of feeder
cattle from 2015 into 2016. That leads to the question of where those
In general, the states
that typically have large feeder supplies on January 1 got bigger with
these numbers. The exception was Texas, which has the largest estimated
feeder supply among states but was down 3.4 percent on January 1, from
one year ago. Other major feeder supply states, in rank order including
Oklahoma, Kansas, Nebraska, Missouri, California, Iowa and South Dakota
all have more than one million head of feeders and all increased from 2015
levels. Increased feeder supplies in those states accounted for 59
percent of the total increase in U.S. feeder supplies. Feeder supplies
were also up significantly in Colorado, Kentucky and Tennessee.
A bit of a surprise
was the sharp increase in feeder supplies in Montana, typically a state
with little carryover of feeder cattle through the winter. The estimated
feeder supply in Montana was up 139 thousand head, resulting in the highest
feeder supply in the state since 2010. The ratio of feeder supply
to calf crop in Montana, which has averaged 32 percent the last ten years,
is estimated at 37.2 percent for 2016. Additionally, Montana, which
typically has a small cattle on feed inventory, posted a 75 percent year
over year increase in cattle on feed to the highest level since 2004.
Similarly, South Dakota, the seventh largest cattle feeding state, posted
the highest January 1 on feed total in data back to 1965. Missouri,
though a small feedlot state, also posted the highest on-feed total since
In summary, the biggest
increases in feeder supplies were in the Plains states from South Dakota
south through Oklahoma plus Colorado and Iowa. Kentucky and Tennessee also
had sharp increases in January 1 estimated feeder supplies.
Kansas stands out with notable increases in both feedlot inventory and
estimated feeder supplies. For several months there has been concern
that reduced feedlot placements was resulting in a buildup of feeder supplies
in the country. The estimated feeder supplies do indicate some increase
in carryover feeder cattle from 2015. Most of these are in places
that often have large supplies of stocker or backgrounding cattle but also
higher feeder and/or feedlot inventories in less typical places, such as
The question of how
many of those carryover feeder cattle are big feeders that will need to
be marketed soon in 2016 is less clear. The January 1 inventory of
steers over 500 pounds was up 4.4 percent. However, that total includes
the January 1 inventory of steers on feed which was up 3.1 percent. Feedlot
placements of cattle over 800 pounds has been up has been up 6.2 percent
the last four months despite overall feedlot placements being down 4.7
percent over the period, compared to a year earlier. The implication
is that many of the big steers are already in feedlots. The 2016
estimated feeder supply included a January 1 inventory of calves under
500 pounds that was up 3.3 percent year over year. The overall implication
is that, while there are more feeder cattle on the ground in 2016, it does
not appear that immediately available supplies of heavy feeder cattle are
likely to be especially burdensome to feeder markets.
Canadian & Mexican Cattle Imports
Cattle imports from
Canada (reported weekly by USDA-APHIS) and Mexico (reported weekly by USDA-AMS)
have started the year off significantly below 2015’s.
We only import feeder
cattle from Mexico, however we import both feeder and slaughter cattle
from Canada. Within the 36% decrease in cattle imports from Canada, feeder
cattle imports were down 16,000 head and slaughter steer and heifer imports
were actually up 5,000 head.
Feeder cattle imported
from Mexico were down 33% (down 27,000 head).
Through the first three
weeks of January (most current data available), total cattle imports from
Canada were down 36% (down 11,000 head).
Chasing the Elusive Cash Markets
No problem has remained
front and center any more than the loss of reported cash markets. The charts
demonstrating this phenomena have been shown over and over and there remains
little disagreement over the trend and current status of our cash markets.
Traders wanting to enter the cattle futures markets are discouraged from
doing so because they are unable to understand how it works or see the
cash markets the futures are referencing. A trader in the futures was able
to see maybe reports of maybe 1000 head as of Friday morning this past
week. This causes liquidity in the contracts to dry up and volatility to
Restoring the reporting
of cash markets is no easy fix. Cash markets continue to exist and of the
450,000 cattle slaughtered each week, about half go to market under negotiated
transactions. The problem is only about 10% of these are reported. The
balance are thrown into pools of trades classified as formula trades and
combined in reports that almost impossible to decipher.
There are several
efforts underway to remedy this important problem:
Live fed cattle
auctions: The internet has provided the world with the tools to bring
trading to the web and the cattle industry has been slow to embrace these
new technologies that can provide not only simple trade matching through
live auctions but trade standards for electronic settlement and clearing
of those transactions.
Rule changes at
USDA's Mandatory Price Reporting: The cattle industry has yet to present
suggested changes to an outmoded reporting system. Both pork and poultry
send suggested changes to reporting and they were quickly adopted by USDA.
The associations coupled with the beef processing companies need to draft
and submit agreed suggested changes.
Appoint a trusted
third party to construct a cash index: It is possible to take the current
MPR reports and after the fact to construct a cash index number. The cash
index would be built from formula results, negotiated grid results, basis
trades, and dressed sales which would all be compiled into an index based
on standard carcass yields and standard premiums and discounts.
The common denominator
for all cattle transactions is a dressed price for the beef carcass at
a beef plant. The packer buyer who is negotiating a live transaction at
a feedyard is turning in a dressed profile for the purchase to the plant
and is judged over how accurately he or she forecasts the dressed results.
The most rational end result for all trading is a dressed base for a YG3
Choice carcass and that particular plants premiums and discounts designed
to attract the type beef they want to process.
Ag Center Cattle
National Feeder & Stocker Cattle Summary
Dept of Ag Market News
Auctions Direct Video/Internet
Compared to last
week, major winter storm moved across the Central Plains on Monday evening
and Tuesday with plenty of high winds closed parts of I-70 and I-80 across
Kansas and Nebraska with 10-12 inches in many areas. The storm also
affected parts of Colorado, eastern Wyoming and extended back into the
upper Midwest across Iowa. This halted production of several packing
plants and a number of auctions cancelled. Lower undertones were
prevalent on most classes of feeders sold throughout the Southern Plains
and the Midwest with prices ranging steady to 5.00 lower on calves and
yearlings through mid-week; as many feedlots were digging out and trying
to get cattle fed.
A number of auctions
from mid to late week reported sales steady to 5.00 higher as many feedlots
resumed normal operations after the storm. Some of the better tested
markets this week were in the Southeast trading mostly steady to 5.00 higher
with instances 10.00 higher on calves. Last Friday’s Cattle Inventory
Report pretty much confirmed that the nation’s cattle herd is expanding,
but rebuilding a little faster than anticipated. Feeder cattle futures
struggled the most with this to start the week but Live cattle futures
seem to like a winter storm and moved in a higher direction early in the
week. Cattle futures retreated Friday with triple-digit losses cooling
on upside potential. There remains some skepticism regarding the
cash strength in the feeder cattle market as theinventory report showed
plenty of feeder cattle outside of feed yards and deferred live cattle
futures showing discounts.
Late last Friday
feedlot saleswere very positive with live sales mostly 3.00-4.00 higher
ranging from 135.00-138.00 as fed cattle supplies appear to be tightening.
With the severe winterweather in a great deal of cattle feeding country
this should shed some poundsoff fat cattle and will no doubt cut into slaughter
schedules this week. The New Year has started out with the month
of January being a profitable month for packers as boxed-beef values increased
sharply from December. January also saw good size slaughter levels
along with increased exports to start the year with feedlots staying mostly
have responded this week as anticipation of cut back in slaughter numbers
has helped to boost prices this week. Choice boxed-beef closed Friday
2.43 lower at 220.60 compared to last Friday’s close at 218.76. A
historic piece of Kentucky Agriculture was destroyed last Saturday as a
massive fire burned down the Blue Grass Stockyards in Lexington, KY.
The stockyards was a 70 year old historic member of the Lexington community
and a significant loss to the livestock industry in Kentucky will be sadly
missed. Cattle sales will be relocated to the company’s Mount Sterling
and Richmond sites. Auction volume included 56 percent weighing over
600 lbs and 41 percent heifers.
Robust Beef Expansion Will Slow
Chris Hurt - Agricultural
Economics Purdue University
Nothing like record
cattle prices and profitability to get an industry excited about expansion.
The latest USDA Cattle report shows a rapid expansion is underway with
cattle and calf numbers up three percent and beef cow numbers up four percent
in the past year.
Record high cattle
prices in the last-half of 2014 and first-half of 2015 raised excitement
among beef cow producers and they heard the market's expansion call. During
that 12-month period Nebraska finished steer prices averaged $162 per hundredweight.
Since May 2015, cattle prices have fallen sharply and averaged just $126
in the final quarter of 2015.
of the rapid expansion is shown in the three percent increase in the number
of beef heifers being retained to be added to the cow herd. In addition,
the number that is expected to calve in 2016 is up six percent.
The beef expansion
is widespread across the country as all regions increased their beef cow
numbers. However, leading the expansion has been the Central and Southern
Plains states with 60 percent of the nation's total expansion over the
past two years. Drought in those regions through 2013 had been an additional
reason for massive reductions of beef cow numbers. Some of the current
expansion in those regions, then, represents restocking as the grass returned.
The Southern Plains
is the nation's largest beef cow region and they have expanded by nine
percent over the past two years. Other important beef cow regions and their
magnitude of beef cow expansion over the past two years include: the Central
Plains up five percent; the Western Corn Belt up five percent; the Eastern
Corn Belt up five percent; the Southeast up one percent; and the Northern
Plains up one percent.
Feeder cattle supplies
will be rising as well. The number of steers and heifers weighing over
500 pounds that are not being retained for breeding purposes is up four
percent. This is a sizable increase in the feeder cattle supply that can
go into feedlots and therefore add to slaughter supplies in the last-half
of 2016 and 2017.
The industry is two
years into beef cow expansion so an interesting question is, "How long
will this expansion phase last?" Historically, beef cattle expansions lasted
five to six years. However, history is not likely to be a very good guide
on this cycle. The reasons are that the current expansion has already been
quick and of large magnitude. Secondly, the profit outlook for brood cow
operations is already providing much less incentive than a year ago.
Third, beef production
in the rest of the world is also expanding and other countries are able
to ship increasing supplies of beef to the U.S. and to our foreign buyers.
Finally, U.S. pork and poultry supplies are also expanding rapidly providing
heightened competition. My best guess is that U.S. cow numbers will continue
to rise for only one or two more years, making this a relatively short
expansion phase of three or four years.
Available beef supplies
in 2015 were higher than had been anticipated at the start of the year.
USDA inventory data one year ago indicated that the number of cattle available
for slaughter would be down about five percent. In reality, the amount
of beef available in the U.S. in 2015 was actually up one percent. How
did we go from five percent lower slaughter numbers to one percent more
beef? The answer is in higher weights and in higher beef imports. Each
added about three percentage points and thus the amount of beef available
was up one percent.
For 2016, beef production
is expected to rise by four percent. However, USDA analysts believe that
trade, particularly beef imports, will be down this year. That is possible
since beef prices will be lower and will provide less incentive for large
imports. A counter argument is that the exchange rate of the U.S. dollar
is currently stronger than for most of 2015. The dollar is particularly
strong versus Brazil who is the second largest world beef exporter. These
relationships at least suggest some uncertainty for U.S. beef trade in
The live cattle futures
market is not optimistic for finished cattle prices. An estimate of 2016
finished cattle prices derived from current futures suggest yearly averages
of around $125. This compares with actual prices of $126 for calendar 2013,
$155 in 2014, and $148 in 2015.
The annual 2016 pattern
of prices from these estimates for the four quarters of 2016 are $132,
$128, $117, and $120 in the final quarter. Live cattle futures have had
extreme volatility in the past two years, so their accuracy at predicting
forward prices should be suspect. However, live cattle futures are the
hedging mechanism for cattle feeders and must therefore be taken as the
current opportunity to forward contract finished cattle prices.
Steer calves weighing
500 to 550 pounds at Oklahoma City reached record high prices in May 2015
at $290 per hundredweight. By December, those prices had fallen to $194,
a level that provides only modest profits above total costs of production,
and therefore small incentives for continued brood cow expansion.
The current futures
market estimate of 2016 finished cattle prices might provide prices for
those Oklahoma City calves of $185 to $205. This would probably signal
small potential profits above all costs. Under this price situation the
industry would continue further beef cow expansion plans this year, with
the expansion phase more likely to begin leveling off in 2017.
|All Cattle &
Calves Inventory: January 1, 2016 vs. 2015
from USDA National Agricultural Statistical Service Data
|Beef Cows Inventory:
January 1, 2016 vs. 2015
from USDA National Agricultural Statistical Service Data
Inventory: January 1, 2016 vs. 2015
from USDA National Agricultural Statistical Service Data
3rd: El Niño to Subside
Art Douglas, professor
emeritus at Creighton University and the CattleFax weather analyst for
the last 40 years spoke during the CattleFax outlook session at the 2016
Cattle Industry Convention in San Diego. Douglas said the current
El Niño will mature and begin to wind down over the next three to
five months. In the interim, however, drought will continue to lessen its
grip on much of the U.S., especially California and the Southwest.
His forecast for
February calls for warmer temperatures across the northern tier of states
while the southern swath will be slightly cooler. He predicts above-normal
precipitation for California and the Southwest, perhaps in the later part
of the month. “It’s going to be wet in the Southwest and Southern Plains,”
he says, but drier for the Northern Rockies toward the Ohio Valley.
March, he says, could
bring storms from the West Coast to the Central Plains. “This indicates
we’re probably going to have a lot of blizzards. It will be cold, but it
won’t be minus 10, minus 20.” That dies down in April, but as we transition
into May it’s going to remain relatively moist in the West, he predicts.
“As we get into April,
we have very strong westerly winds across the Plains. We have very cool
conditions in the Southern Plains spreading into the Corn Belt, It’s likely
we’re going to see delayed planting because of this very cool April.”
“The summer forecast
indicates we’re going to have a pretty strong jet stream coming out of
the Pacific into the western U.S. It’s going to keep things cool and slightly
on the wet side. On the other hand, in the Southeast, we’re going to be
building a ridge of high pressure. That’s where we get super hot and dry
throughout the Southeast and spread north.”
June will bring more
rain along the West Coast, but the monsoons will be a disappointment in
the Southwest, leaving it dry. “Pretty heavy rains in the Ohio Valley but
dry in the Northern Plains.”
As June transitions
to July, the Northwest is very wet, but it dries out from Southern California
all the way to the Southeast. Then finally, as we get into August, dry
conditions return to the central U.S. “So this is the switch from El Niño
to La Niña.”
That poses, as we
move through the summer into August, possible problems for the corn crop,
he says. “We’re going to have a very hot August. We’re going to have to
worry about what this is going to do to the corn crop.”
2nd: Implications of the Annual Cattle Inventory Report
In reviewing the
annual Cattle inventory report released on January 29th by USDA’s National
Agricultural Statistics Service, the total U.S. inventory of all cattle
and calves (beef-type and dairy), both on farms/ranchers and in feedlots
as of January 1, 2016 totaled 92.0 million head. That was up 3% year-over-year.
Importantly, USDA lowered their prior estimates including dropping the
size of the 2014 calf crop. The U.S. cattle herd, beef cow count, and the
number of heifers being retained for breeding purposes all grew significantly.
One of the aspects
of the report is that it provides the best survey-based assessment of the
total number of cattle on-feed in the U.S. Remember, the monthly Cattle
on Feed report includes only feedlots that have 1000 head or more capacity.
The monthly report showed as of January 1, 2016 that there were 10.6 million
head in those surveyed feedlots, slightly fewer animals than a year ago
(down 0.5%). In contrast, the annual Cattle report gave a total feedlot
inventory of 13.2 million head, 1.2% above 2015’s. The implication is that
the smaller feedlots (those under 1000 head capacity and often referred
to as “farmer feeders”) after tending to become less-and-less interested
in feeding cattle during most recent years jumped back into the game during
2015. The proportion of animals in the larger feedlots actually was below
2015’s as of January 1st of this year, cattle on-feed in 1000 head and
larger capacity lots as of January 1, 2016 was 80.2% of all animals on-feed,
down about 1% from a year ago. Factors that likely contributed to renewed
interest by farmer feeders included lower corn prices and growing trend
in urban areas os sourcing locally raised food.
Based on recent cattle
industry reports from USDA-NASS, what does the balance of 2016 and 2017
seem to hold in terms of U.S. beef production? A larger calf crop was produced
in 2015 (up 780,000 head or 2.3% above 2014’s and the largest since 2011).
An even larger calf crop will be produced in 2016. Those numbers suggest
that steer and heifer slaughter numbers will clearly be posting year-over-year
increases, with the largest percentage increases during 2016 occurring
in the second half of the calendar year.
Besides steers and
heifers processed into beef, an important source U.S. beef tonnage comes
from cull cows slaughtered. The Livestock Marketing Information Center
(LMIC) forecasts year-over-year increases in U.S. Federally Inspected cow
slaughter in both 2016 and 2017. However, levels of cow slaughter are forecast
to remain below the drought-induced huge levels posted annually from 2007
into 2014. So, without another severe U.S. drought, the increase in beef
produced from steers and heifer slaughter is expected to be much larger
than beef from cows. For example, in 2016, steer and heifer slaughter could
increase 3% to 4% compared to 2015’s, while the number of cows processed
rises by 2% to 3%.
Given the biological
time lags between calf crops and increases in beef production, forecast
cow slaughter levels, and forecast dressed weights; U.S. beef production
in 2016 is estimated to be 2% to 4% above 2015’s. In 2017, output could
grow in the range of another 4% to 5% year-over-year. Still, LMIC expects
U.S. beef production in 2017 to be at to slightly below 2013’s. That is
1st: CME Says Cattle Market May Be ‘Broken’ as Volatility Soars
CME Group Inc., the
world’s largest futures market, moved to curb a recent jump in price volatility
in U.S. cattle futures while warning that the derivatives may be “broken”
because of changes in the livestock industry.
cattle futures will be added to a CME system that caps how many electronic
order updates traders can send in relation to the number of trades they
actually execute. CME Chairman Terry Duffy said he’d also push for shorter
hours and trading delays to help curb volatility.
Speaking Jan. 29
at a conference held by the National Cattlemen’s Beef Association in San
Diego, Duffy denied that high-frequency traders were to blame for the volatility.
While the NCBA wrote a letter to the CME last month linking high-frequency
trading to volatility, some of its members see another cause: the slumping
volume in the underlying cash market where cattle change hands directly
between owners and meatpackers.
“Futures, a derivative
thereof, need to have a viable cash market, so if it doesn’t, it might
be broken,” Duffy said in an interview.
The volatility has
meant cattle futures traded in Chicago have increasingly hit daily trade
limits for upward and downward prices moves. That’s spooked cattle owners
and deterred them from using the derivatives to protect against price swings,
the 28,000-member NCBA said in its Jan. 13 letter.
“You’re scared to
buy, you don’t want to sell, it paralyzes you," said Ed Greiman, the chair
of the NCBA’s marketing and international trade committee.
Volumes in the cash
market have been falling for decades as cattle owners increasingly agree
to sales contracts based on price formulas. These are often more efficient,
resulting in a $25-per-head value for sellers, according to Stephen Koontz,
an economist at Colorado State University. In some instances trade has
effectively dropped to zero in some southern states, he wrote in research
published last year.
When there’s a lack
of price indicators from negotiated cattle trades, futures prices can’t
be based on supply and demand fundamentals, Greiman said in an interview
last week. He said that may have added to the spike in recent volatility.
the influence of high-frequency traders, telling the conference that they
account for just 10 percent of cattle-futures trading, compared with about
half of all the derivatives volume on the CME. The bourse hasn’t gotten
complaints about volatility or high-frequency trading from other agricultural
commodity groups such as pork and grain producers, Duffy said in the interview.
Still, the bourse
is adding cattle, feed-cattle and lean-hog futures to its trader messaging
“I will be very aggressive
to drive home change for cattle futures,” Duffy said.
In an attempt to
expand cash-market trading, Greiman’s committee is working on developing
an online auction for feed yards and meatpacking companies. A mock-up auction
was conducted recently, Greiman said.
The NCBA is also
forming a working group that will include representatives from the CME
to drive more action and continue to address the volatility in futures,
Colin Woodall, vice president of government affairs for the NCBA, said
in an interview Friday.
“Our biggest concern
is that intraday volatility, when you see cattle contracts trade limit
up or down without any change in fundamentals to drive that,” he said.
“When the market goes limit either way, the market stops for that day,
and waiting to the next day can cost a lot of money.”
29th: January 1 Cattle Inventory Up 3 Percent
USDA - National
Agricultural Statistics Service (NASS)
All cattle and
calves in the United States as of January 1, 2016 totaled 92.0 million
head. This is 3 percent above the 89.1 million head on January 1, 2015.
Calf Crop Up 2 Percent
All cows and heifers
that have calved, at 39.6 million head, are 3 percent above the 38.6 million
head on January 1, 2015.
Beef cows, at 30.3 million
head, are up 4 percent from a year ago. Milk cows, at 9.32 million head,
are up slightly from the previous year.
All heifers 500 pounds
and over as of January 1, 2016 totaled 19.8 million head. This is 3 percent
above the 19.3 million head on January 1, 2015.
Beef replacement heifers,
at 6.29 million head, are up 3 percent from a year ago.
Milk replacement heifers,
at 4.82 million head, are up 2 percent from the previous year.
Other heifers, at 8.71
million head, are 3 percent above a year earlier.
All Calves under 500
pounds in the United States as of January 1, 2016 totaled 14.1 million
head. This is 4 percent above the 13.5 million head on January 1, 2015.
Steers weighing 500
pounds and over totaled 16.3 million head, up 4 percent from one year ago.
Bulls weighing 500 pounds
and over totaled 2.14 million head, up 2 percent from the previous year.
The 2015 calf crop in
the United States was estimated at 34.3 million head, up 2 percent from
last year's calf crop.
Calves born during the
first half of 2015 were estimated at 24.8 million head. This is up 2% from
the first half of 2014.
The calves born during
the second half of 2015 were estimated at 9.50 million head, 28% of the
total 2015 calf crop.
29th: Test Run of On-line Auction for Slaughter Cattle
A proposal for an
online auction that could shake up the U.S. pricing model for slaughter
cattle is set to make its public debut on Friday after a test run last
week, with the support of a unit of the world's largest meatpacker.
Producers have worried
for years that the country's existing method for pricing cattle headed
to slaughter can undervalue animals because it is based partly on a declining
market of cash sales that are concentrated in certain geographic areas.
A setback in prices
from record highs reached in 2014 has recently refocused attention on efforts
to improve the model, and a change could affect what consumers pay for
steaks and burgers.
Ed Greiman, chair
of the National Cattlemen's Beef Association's Cattle Marketing and International
Trade Committee, said he observed a trial run of an online auction that
included representatives of major meat packers.
Jordan Levi, managing
partner for Arcadia Asset Management in Oklahoma City, organized the auction
with the involvement of Mike Thoren, chief executive officer of JBS Five
Rivers, a feedyard owned by meatpacking company JBS SA, Greiman said.
Levi and Thoren could
not immediately be reached for comment. Greiman spoke to Reuters on the
sidelines of a cattlemen's association event.
Other auctions already
exist for cattle, but the online auction hopes to attract animals from
some of the nation's larger feedyards, Greiman said. No cattle changed
hands in the trial auction, and details of how an actual auction would
be run are still being developed, he said.
The cattlemen's association
will discuss the initiative on Friday at its annual meeting in California,
said Colin Woodall, senior vice president of government affairs. A study
on the drop-off of cash sales that the association commissioned from a
Colorado State University professor is due to be completed this spring.
Greiman and Woodall
said the decline of cash sales is back in focus because cattle prices have
Cash sales, in which
producers and packers negotiate for cattle a few weeks before they are
killed, have declined as producers have increasingly locked in prices months
in advance. Still, prices for the advance sales are usually determined
partly by average prices in the cash market.
Some producers said
the shrinking cash market contributed to unprecedented volatility in cattle
futures late last year because futures traders sometimes look to cash sales
for cues on prices.
Shootin' the Bull Weekly Analysis
|In my opinion, the
most important factor that developed this week has been the further stimulation
of economies. This time it was Japan implementing a negative interest
rate on deposits. This penalizes those that wish to keep money in
a bank. This issue caused our US bond market to soar to a new contract
high while pushing the US dollar up sharply as well. This will not
bode well for commodity exports out of the US.
The aspect of this
development towards cattle would be perceived as indirect. One, since
Japan is our largest Asian buyer of US beef, their economy needing further
stimulation does not lead me to anticipate an increase of consumption.
Second, in my opinion only, it is further evidence that stimulation does
not work as previous multiple applications have yet to render a growing
economy. So, as the US markets attempt to digest this abrupt move
by Japan, I would anticipate traders to continue to discount the stimulus
with confirmation coming from further increases in bond prices and lower
prices in equities.
I write this comment
without the prior knowledge of the inventory report. Therefore anything
said could be greatly exaggerated or negated. All in all, the cattle
market doesn't appear to be in bad shape. Although I do not anticipate
a trend to develop, I do anticipate the current price range to be traversed
a multitude of times. Each of these moves are anticipated to contract
until the formation of a triangle or persistent sideways move marks enough
time for the current fundamentals to change. I would anticipate another
2 to 3 months of trading sideways.
Feeder cattle are
not much different. I would anticipate outside market forces to exaggerate
any negative aspect and mitigate any potential positive aspect. On
their own accord, I anticipate feeders to continue to trade within the
already established range. Albeit wide, time is needed for decisions
to be made and cattle to be marketed. The equity lost and guts wrenched,
I just don't anticipate producers or purveyor's to be in a hurry to jump
in with both feet. Discounts on forward contracts are making wanting
to enter into them difficult and futures are not offering anything in the
way of help. Volatility of futures and excessively high premiums
for options are leaving producers with little means to protect price.
Therefore, less risk is anticipated to be assumed on the production side
as the risk is more difficult to manage.
Lastly, some appear
exceptionally anxious for a rally. Some cattlemen believe cattle
prices will begin a long term bull market now. I do not see this
as I continue to perceive the consumer has adjusted consumption comparable
to price. So, with contraction having taken place with the consumer
and packing sectors, feed yards consolidated, and expansion running at
full speed, it appears a pretty even supply/demand scenario. The
only thing I can see of benefit would be an increase in discretionary spending
or increase in disposable income. At this time, I do not see either
of those materializing.
Corn is a bright
spot in my analysis. The perception that an initial wave 1 is in
progress of unfolding leads me to watch for its termination and a buying
opportunity on a correction.
Swift is a commodity broker and consultant with Swift Trading Company
in Nashville, TN. Mr. Swift authors the daily commentaries "mid day cattle
comment" and "Shootin' the Bull" commentary found on his website @ www.shootinthebull.com
investment in futures contracts is speculative, involves a high degree
of risk and is suitable only for persons who can assume the risk of loss
in excess of their margin deposits. You should carefully consider
whether futures trading is appropriate for you in light of your investment
experience, trading objectives, financial resources and other relevant
circumstances. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE
Cattle on Feed Report
Cattle on Feed Down Slightly
Cattle and calves
on feed for the slaughter market in the
United States for feedlots with capacity of 1,000 or more headtotaled 10.6
million head on January 1, 2016. The inventory was slightly
below January 1, 2015. The inventory included
7.16 million steers and steer calves, up 3 percent from the previous year.
This group accounted for 68 percent of the total inventory. Heifers and
heifer calves accounted for 3.41 million head, down 7 percent from 2015.
January 1, 2016 heifers and heifer calves inventory is the lowest percent
of total January inventory since the series began in 1996.
Placements in feedlots
during December totaled 1.53 million head, 1
percent below 2014. Net placements were
1.45 million head. During December, placements of cattle and calves weighing
less than 600 pounds were 375,000 head, 600-699 pounds were 355,000 head,
700-799 pounds were 355,000 head, and 800 pounds and greater were 440,000
Marketings of fed
cattle during December totaled 1.67 million head, 1 percent above
78,000 head during December, 8 percent above 2014.
Feed Inventory in 1,000+ Capacity Feedlots as of January 1st
Millions of Head
Cattle Placed on Feed in 1,000+ Capacity Feedlots in December
Millions of Head
Cattle Marketed from 1,000+ Capacity Feedlots in December
Millions of Head
Feed by State as of January 1st
USDA Cold Storage Report
Total red meat supplies
in freezers were down 1 percent from the previous month but up 12 percent
from last year.
Total pounds of beef
in freezers were up 1 percent from the previous month and up 16 percent
from last year.
Frozen pork supplies
were down 3 percent from the previous month but up 8 percent from last
Stocks of pork bellies
were up 30 percent from last month and up 13 percent from last year.
Total frozen poultry
supplies on December 31, 2015 were down 1 percent from the previous
month but up 18 percent from a year ago.
Total stocks of chicken
were down 2 percent from the previous month but up 21 percent from last
Total pounds of turkey
in freezers were up 5 percent from last month and up 3 percent from December
22nd: Retail Beef, Pork, & Chicken Prices Decline
their December protein retail price report on January 20th. Retail beef,
pork, and chicken prices declined from November to December, with turkey
showing the only increase in retail prices month-to-month. All proteins,
except for turkey, were below their year ago retail prices in December
compared to 2014. For retail All Fresh beef prices this was the only time
they were below year ago values in 2015. Retail All Fresh beef prices came
in at $5.89 per pound, almost $0.10 below December 2014. Retail pork prices
sat at $3.85 per pound, down $0.15 compared to a year ago and retail chicken
(whole fresh) prices were $1.44 per pound in December which was $0.10 lower
than 2014’s. Turkey prices were $1.45 per pound, $0.12 higher than 2014’s.
As a reminder, retail prices do tend to be sticky, that is they do not
adjust very fast compared to live animal and wholesale prices. In the case
of beef though, it appears retailers are becoming convinced that relatively
lower live cattle and beef wholesale prices (compared to record highs of
2014 and first half of 2015) are here to stay at least for a while.
their monthly Livestock Slaughter report yesterday, with December data,
confirming information that was already in the market of increased beef
and pork production for the month. Pork production set a new record high
for the month, up 3% from 2014, with equal slaughter days in both December
of 2014 and 2015. Beef production was up 2% compared to December 2014.
This increased pork and beef production was realized at the retail level,
as the retail prices for December show. According to U.S. Department of
Commerce data for retail sales from foodservice, restaurants, and grocery
stores, consumers are responding to these lower prices as well. Foodservice
and restaurant retail sales in December surpassed expectation, climbing
7.5% from a year earlier and grocery store sales were up 2.1%. The food
sector as a whole increased sales 4.5% in December, which compares to a
3% gain in November and a 4.6% gain in October year-over-year. The health
and strength of the domestic economy plays a huge role in these sales,
and although our economy is feeling the fallout in oil prices and volatility
in the stock markets, for December at least consumers continued to spend
money and responded to lower priced proteins.
For 2015, foodservice
and restaurant sales were up 8.6% from a year earlier, the biggest annual
percentage gain since the current data series was created in 1992. The
next biggest increase was in 2012, when foodservice and restaurant sales
were up 7.5%. Grocery store sales were up 2.3% for the year, similar to
gains that have been sustained during the prior three years. With restaurant
sales being a very important aspect of beef demand, the increase in restaurant
sales highlights consumer’s continued willingness to spend money on higher
priced beef in 2015. The December increase in restaurant sales was likely
in part due to more specials or features at the restaurant level, on the
21st: Monthly Livestock Slaughter Report
meat production for the United States totaled 4.27 billion pounds in
December, up 3 percent from the
4.14 billion pounds
produced in December 2014.
Beef production, at
2.05 billion pounds, was 2 percent above the previous year. Cattle slaughter
totaled 2.45 million head, up slightly from December 2014. The average
live weight was up 25 pounds from the previous year, at1,388 pounds.
Veal production totaled
7.8 million pounds, 2 percent above December a year ago. Calf slaughter
totaled 45,200 head, up 5 percent from December 2014. The average live
weight was down 8 pounds from last year, at 295 pounds.
Pork production totaled
2.21 billion pounds, up 4 percent from the previous year. Hog slaughter
totaled 10.36 million head, up 5 percent from December 2014. The average
live weight was down 1 pound from the previous year, at 285 pounds.
January to December
2015 commercial red meat production was 48.4 billion pounds, up 2 percent
Lamb and mutton production,
at 13.2 million pounds, was down 1 percent from December 2014. Sheep slaughter
totaled 199,600 head, slightly above last year. The average live weight
was 132 pounds, down 2 pounds from December a year ago.
production was down 2 percent from last year, veal was down 12 percent,
pork was up 7 percent from
last year, and lamb
and mutton production was down 3 percent.
20th: Large Supply of Meat & Poultry
U.S. meat markets
have been dealing with large supplies. Beyond domestic production, the
U.S. supply available in the market includes the addition of imports, plus
frozen stocks, minus exports. So, there is a difference between the
U.S. production level and the domestically available tonnage (market supply).
International trade and frozen stocks numbers are not yet in for the fourth
quarter. Projections by the LMIC indicate that in large part livestock,
meat, and chicken prices in the fourth quarter of 2015 were pressured by
large supplies facing domestic customers.
For the fourth quarter
of 2015, domestically available beef was about 2.6% above 2104’s and nearly
equal to 2013’s. U.S. commercial production for the quarter is projected
to be up year-over-year by 1.5%, the additional 1.1% in available domestic
supply came from larger frozen stocks, smaller exports, and larger imports
compared to quantities of recent years.
In 2015’s fourth
quarter, the pork market supply situation was a bit different than beef’s.
LMIC projects a 5.0% year-over-year increase in available supply, while
the increase in production was 5.3%. In 2015’s fourth quarter, both
the level of supply and U.S. production were larger than any quarter in
history. To a small extent, net export tonnage (exports minus imports)
helped cap the pork supply facing the U.S. market, still, a 5.0% gain is
huge and resulted in large price declines.
With respect to broilers
(young chicken), the story is similar to beef and pork, but is even more
dramatic. In 2015, the available supply for U.S. consumers is projected
to be larger than any prior fourth quarter. Further, it was second
only to the all-time quarterly high set in the third quarter of 2015. The
year-over-year jump in available chicken was projected at 6.9%; however,
the increase in domestic production is projected at a much more modest
1.6%. The difference was caused by the collapse in U.S. chicken tonnage
Putting all red meat
and poultry together and doing the above calculations paints a big picture
of domestic supply. For the fourth quarter of this year, supply facing
the U.S. market is projected to be up about 4.4% year-over-year. Production
increased by only 2.0%.