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August 31st: USDA: Net Farm Income To HIt Lowest Since 2009
Mike McGinnis

Farm sector profitability is forecast to decline for the third straight year, according to the USDA’s latest forecast Tuesday.

Net cash farm income for 2016 is forecast at $94.1 billion, down 13.3% from the 2015 estimate. Net farm income is forecast to be $71.5 billion in 2016, down 11.5%. If realized, 2016 net farm income would be the lowest since 2009.

Cash receipts are forecast to fall $25.7 billion (6.8%) in 2016, led by an $18.7 billion (9.8%) drop in animal/animal product receipts and a $7.1 billion (3.7%) decline in crop receipts.

Nearly all major animal specialties — including dairy, meat animals, and poultry/eggs — are forecast to have lower receipts, as are feed crops and vegetables/melons, down $3.2 billion (5.5%) and $1.5 billion (7.5%), respectively.

While overall cash receipts are declining, receipts for several commodities are expected to increase by at least 1% above 2015 estimates, including cotton, up $0.6 billion (12.5%). Direct government farm program payments are projected to rise $2.7 billion (24.8%) to $13.5 billion in 2016, in part due to the expected price environment, according to the USDA’s Economic Research Service’s press release.

For the second year in a row, production expenses are down. Total production expenses are forecast down $10.1 billion (2.8%) over 2015, led by declines in farm-origin inputs (feed, livestock/poultry, seed) and fuel/oils.

ASSET VALUES

Farm asset values are forecast to decline by 2.2% in 2016, and farm debt is forecast to decrease by 0.8%. Farm sector equity, the net measure of assets and debt, is forecast down by $61.2 billion (2.4%) in 2016. The decline in assets reflects a 1.5% drop in the value of farm real estate, as well as declines in animal/animal product inventories, financial assets, and machinery/vehicles.

The decline in farm debt is driven by lower nonreal estate debt (down 4.6%), reflecting a change in farmers’ management decisions (such as reducing input expenditures) but also an increase in short-term commercial bank loan rates, which make debt more expensive.

MEDIAN INCOME

The median income of farm households increased steadily over 2010-14, reaching an estimated $81,637 in 2014. After dipping in 2015 to $76,538, median household income is forecast to fall slightly in 2016 to an expected $76,282. Median farm income earned by farm households is estimated to be -$765 in 2015 and forecast to be -$1,353 in 2016. Most farm households earn all of their income from off-farm sources—median off-farm income is forecast to increase 2.5%, from $67,500 in 2015 to $69,159 in 2016. (Because farm and off-farm income are not distributed identically for every farm, median total income will generally not equal the sum of median off-farm and median farm income.)

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August 30th: Commodity Market Comments
  • “Shootin’ The Bull” -- Christopher B. Swift.
  • ..
    Live Cattle: Traders continued the selling today, pushing all contract to a new contract low, except August.  This voids all aspects of an anticipated higher trade from the pervious Elliott Wave standpoint.  The acceleration of the decline from Thursday’s trade suggests a new round of selling, greater than just previous longs relinquishing positions.  The supply bears continue to have their way with the markets.  The most unfortunate of this is producers having to assume the risk of the basis along with risk of price. If you hedge, you are assuming the risk of the width of the basis, enabling yourself from any potential gains, and increasing the need for working capital.  If you do not hedge, price could fall to the level of the underlying futures contract or further.  You would still maintain the potential to profit were the market to trade higher and have the basis close and you not losing money on a futures contract, or option premium.  Long story short, there is not much one can do in this arena to mitigate risk.  The depreciating price, coupled with discounted futures, continually erodes margins, if they were even there to begin with.  This will reverse on either the recognition of increasing heifer placement or kill, or an increase in consumer discretionary spending.

    I can clearly see where I went wrong on my analysis now.  The coordinated effort by restaurants and grocers to promote beef was just enough to hold it steady through the summer.  Recently,  I have seen a multitude of new commercials for restaurant’s, that are focused on the upcoming football season.  This suggests wings, chicken fingers, nacho’s and potentially some burgers.  However, the majority will be Pub food and game day snacks. Previously, I had presumed that the demand would be stable, with the continual push by restaurants and grocers.  This week’s grocer flyer had only one beef item and that was a whole ribeye for $5.99 per pound. No hamburger meat or steaks ready to grill.  So, my error was that beef demand had returned to a higher level, when actually it appears that the demand was merely the promotions enticing some increased expenditure for the summer.

    Feeder Cattle: So, I have been validated that my thoughts are great for wanting to own the $18.00 plus basis is advantageous towards feed yards.  Most agreed, that even with perceived increasing inventory for this spring, that the discount was factored in.  The issue?  Money to defend a long position or pay the premium for a call option.  So much capital is having to go into physical production, and then being lost, it leaves little for marketing into the future.  Due to the gravity of the situation, as well as the length of time needed to reduce physical production, the price structure is not anticipated to improve any time soon.  Therefore, as the board is structured, one is urged to continue marketing on the front end if inventory needs marketing and buying the futures as inventory is needed to be replaced.

    Corn: Corn set new contract lows today.  In my opinion only, off all the subsidies the government offers on grains and grain production, nothing has been as damning for prices as has the low interest rate environment.  I understand that the government was not even close to thinking about what corn prices would do in a low interest rate environment.  However, the perception that acres were able to be increased, at the rate they did, would not have been possible were it not for the lower interest rates and desire to push money into the economy.  So, corn producers increased acres.  Now, the low interest is perceived as acting like a subsidy.  The ability to refinance or restructure a loan at an ever lower rate has allowed farmers to continue increasing production, or live without having to cut back on production.  All the years of commodity cycles I’ve read about or been involved in for 27 years, have been like this.  When supply was needed, producers increased.  When supply wasn’t, they cut back.  In today’s environment, there is no need to cut back yet.  Whether able to borrow against production, land, or equipment, farmers have been able to do so annually at a lower and lower rate.  Potentially in some cases, debt has risen sharply, but monthly payments the same.  Therefore, prolonging the inevitable. It is this inevitable that I thought would have started with this years production.  However, it was not as rates continued lower all the way to July 11th of this year.  When rates do increase, and I anticipate them already to be on the move, farmers next year will have an increased debt load, multi year decline in incomes and potentially faced with stiffer borrowing requirements.  Soon, as I did this past spring, I am going to want to own options on a multitude of different commodities.  A pinch of economic recovery would suggest to anticipate a quick turn in consumers discretionary spending, as well as a rise in rates that could begin to hamper current production.

    Wheat: Wheat made new contract lows again today.  Of interest in the wheat market is the spread between wheat and corn.  Historically, the low end of the spread between wheat and corn has been around a dollar premium to wheat.  When it falls under that, there used to be an old spread trade that would recommend buying wheat and selling corn.  The cereal spread from HUME was I believe where this came from.  While today’s price action of either does not appear to be enticing to buy, one may want to watch this spread to see if wheat gets cheap enough to compete with corn for feed.

    Crude: Crude was lower today.  If you want to really see low interest rates at work, think about the increase in infrastructure to produce energy.  Fracking is not cheap, or are the leases on land to frack.  Pipe lines, pumps, drills, trucks, storage and labor was all increased exponentially for over 3 years.  I do not know the percentage, but I will take a wild guess and say that more money to produce the infrastructure to produce energy was borrowed than invested out of ones pocket.  When rates begin to rise on 10 year loans, that are only 3 years into them, with crude and natural gas at multi year lows, it doesn’t take much to see what will happen here.  All of what I have stated about the interest rates are based upon this.  Were it not for the low interest rate environment, I do not perceive the infrastructure to produce would have accelerated at the pace it did.  Therefore, causing a significant boom in production and the end result being a bust in prices.  As some commodity production is in its 3rd year of lower prices, working capital is perceived strained. The next cycle would suggest that the low interest rate environment will end and it will take years to push production levels up in order to meet the demand.  In the interim, commodity prices have the potential to soar while the US grapples with rebuilding infrastructure.

    Bonds: Unity remains in the financial markets.  Bonds have pushed sharply higher, as well as the equity markets today.  The perceived coordinated efforts to keep financial markets at the current historic price levels is anticipated becoming a task.  The need for both risk and non-risk assets is incredible.  Is this what many are talking about, “no where to put your money”?  More often than not, investors tend to move into or out of risk.  Instances like today, they appear to be equally as quick to invest in one as the other.  Nonetheless, financial markets are perceived higher due to the manipulation of rates by the Federal Reserve.  This price rise of financial instruments, based upon the low interest rate environment is perceived causing significant distress in sectors of our economy.  Most importantly energy and agriculture.  Potentially one day when the government goes to buy a loaf of bread, they won’t have the gas to run the car, but may not need it as the bread may not be there.  Cycles are brutal, and this one appears man made. Therefore, anticipated to be worse than brutal.

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    Christopher B. 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

    An 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 RESULTS.

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    August 30th: Closing Futures Summary

    Live cattle futures soared in the last hour of trade, finishing $1.77 1/2 to $2.40 higher. The expiring August contract closed 75 cents higher. Futures were under pressure through the bulk of the trading day. Lower cash trade of $110 to $111 noted on Monday in Nebraska led to similar trade in Kansas and Texas today, pressuring futures most of the day. But massive short covering after prices plunged to new contract lows sent prices rocketing in the final hour of trade. 

    Corn futures closed 4 to 7 3/4 cents lower today, finishing at or near their lows of the day. The lead September contract led the decline ahead of its first notice day. Corn futures were under pressure today from a much stronger dollar and a downdraft in both wheat and soybean futures providing pressure. Technical selling added to the downdraft as prices took out recent lows. The December contract fell to its lowest level since September 2009. 

    September soybean futures ended low-range with losses of 17 3/4 cents ahead of its first notice day, while the rest of the market ended around 12 to 13 cents lower. Meal and soyoil were also under pressure today. Strength in the U.S. dollar index due to a better-than-expected consumer confidence reading for August weighed on soybean futures today, with added pressure coming from expectations for a record crop. Traders also made note of the start of harvest in the South, with harvest in Arkansas as of Sunday just 1% complete and 5% complete in Mississippi.

    Winter wheat futures ended the day mostly around 5 to 6 cents lower, with spring wheat marginally to 2 1/2 cents firmer. Winter wheat futures were pressured by spillover from sharp weakness in the corn and soybean markets as well as strength in the dollar index. But spring wheat futures were supported by news Japan will resume purchases of U.S. western white wheat, which were banned due to unapproved GMO wheat found in Washington state. The country has tendered for such wheat, with bidding closing Thursday. Japan also lifted restrictions on U.S. feed wheat.

    Lean hog futures favored a slightly firmer tone for much of the day, but gains were extended on late spillover from the cattle market. Hog futures settled 52 1/2 to 77 1/2 cents higher through the April contract. Futures were boosted by short-covering and a narrowing of the discount futures hold to the cash index. Aside from the corrective buying, however, support is limited as the cash hog market continues to soften seasonally. October hog futures ended at slightly more than a $4.50 discount to the cash index.

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    August 29th: No Relief in Sight
    Cassie Fish -- CassandraFish.com

    Fundamentally, there appear to be enough available market-ready fed cattle to supply current fed kills levels of 485-500k. Packers cannot easily kill more than that and end users can fill their needs easily with this supply.

    This translates to less competition between packers to purchase cattle each week and the march lower in cattle values continues. There were cattle in the Corn Belt that traded as low as $110.50 Friday and plenty of cattle that sold at $175 to deliver the week of Sep 12- both prices well below where the bulk of cattle traded last week. It is a dark time for cattle feeders selling negotiated and any cattle feeder unhedged.

    Counting on this historic basis to stay as it is has, has been the correct assumption and the way to stay alive. Hedged feeders are the easiest sellers each week, which helps pave the way lower. Last week’s 5-area average price made a new low of the year at $114.60, by 0.04. It appears this week cash prices will make a new low for the year, possibly taking a look at the 2012 low for the year $112.90. Past that, the 2011 cash low was $105.12 and the 2011 futures lows was $100.75.

    CME cattle futures continue to lead the way down, with all contract months but soon-to-expire Aug making new life-of-contract lows today. A grossly oversold market lends a slow erosion feel to the market’s decline. No one will step into buy it in quantity but selling a sleepily eroding oversold market can be a dangerous move.

    This week is shaping up to be another week when cash is weaker than futures.

    Boxes will lose a little this week but aren’t really a market factor since packer profit margins continue to expand, almost effortlessly.

    The trajectory of the current market decline is locked in and at least today, shows no sign of a shift as we turn the calendar into September, a month known more for being blah than for fabulous beef demand.

    Feeder cattle values are falling too, but some still believe $131 is long term support, rather than the $121 reached in 2011, with cheap corn making up the difference. But that longer the depreciation of ag commodities continues, the more vulnerability advances for the entire cattle industry.

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    August 26th: National Feeder & Stocker Cattle Summary
    USDA-MO Dept of Ag Market News

    RECEIPTS:    Auctions     Direct    Video/Internet     Total
    This Week     163,100     38,000        48,100           249,200 
    Last Week     151,900     40,200           800             192,900 
    Last Year       139,000     30,700       202,400          372,100 

    Feeder steers and heifers sold 4.00 to 6.00 lower.  Pressure increased all week as CME futures turn downward and continued this trend for most of the week. Feeder supply was moderate with a pretty wide variance of the spectrum available once again this week, both in quality and quantity.  With grain harvest just around the corner and the onset of the fall run, buyers were eager to get cattle bought at current values.  When it comes to the corn crop this year, it is not if the crop will be large, but rather how large it will be.  Many believe we will see higher yield estimates than what has been published.  Dried distiller grain values continue to decline resulting in feeders being reluctant to pay for soymeal and this could start impacting the soybean crush margins. 

    This week in the fed cattle arena the general attitude started less than optimistic as producers moved forward into the week with caution. The lower market surfaced on Wednesday with bids of $114-$115 and dressed bids from $182.00-$183.  Some who had hedged cattle found a bright spot in trading cattle against the October board to cash in on $5-$6 basis.  Many producers were doing their best to hold on as long as they could, thinking this was just early week “feeler bids”, however sales at $115.00 set the tone for the trade week.  With very little board support everyone realized that this was the market and if they waited they were going to be giving the packer more leverage later on.  For the week the Southern Plains traded at 115.00 while the Northern Plains saw live sales range from 114.00-115.50 and dressed sales ranging from 180.00-183.00. 

    As we move forward into the fall, producers are stressing the importance of staying current.  Packers have tremendous margins, and are operating with a comfortable amount of inventory available.  The last thing producers want to do is get backed into a corner with heavy weight, yield grade 4 and 5 cattle that could be detrimental to the already struggling slaughter cattle market.  The monthly Cattle on Feed report came out last Friday and was viewed as slightly bearish.  Placements and inventory were both marked at 2 percent above year ago levels.  Box beef cutouts have been fairly flat over the last few weeks with the Choice managing to stay just over the 200.00 mark.  Following Labor Day, which reflects the symbolic end to grilling season, generally is a point in which demand for beef starts declining as the year nears end.  There is also little doubt that feeder supplies coming to town, which will eventually end up on wheat pastures or in feedlots, are going to increase.  Auction volume this week included 57 percent weighing over 600 lbs and 38 percent heifers. 

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    August 26th: Shootin' the Bull Weekly Analysis
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    In my opinion, the feeder cattle market is structured to be exceptionally friendly towards feed yards to own inventory in the futures.  The over $19.00 wide basis via March, gives cattle feeders $19.00 to work with over the next 7 months.  If using options, the premium negates approximately $5.00 to $6.00 of the $19.00 width, still providing an applicable hedge.  Resistance to this has been great as feed yards, or any one for that matter, has little appetite for risk.  Strained working capital and potential constraints from lenders is perceived keeping producers from being able to take advantage of the current wide positive basis.  I perceive that only speculators have an interest in pressuring futures at this level.  From a business perspective, the price structure in the feeder market is believed to be very advantageous towards feed yards owning inventory $19.00 less in 7 months than today.  The same goes for packers.  If one needs inventory, they will pay up for it on spot.  If they want to buy inventory for less, they simply buy a futures contract. 

    Regardless of the perceived favorable price structure, the supply bears have yet to relinquish their positions or stance of how damning they view the supply issue.  With most fat cattle contract months now nearing contract low, it is difficult to assess anything technically.  Previous aspects for a rally are fading quickly with the nearing of contract low.  I stated the end of this week that I am tired of saying "I don't know" when asked my opinion.  The truth is, I don't.  More often than not, I have an opinion and can back that opinion up.  At this time though, there appears to be such confliction in fundamentals and technical issues that the market may not actually know itself which way it needs to move.  For now, the bears remain in control and will be testing the boundaries of basis with such discounts in the back months.

    So, long story short, there does not appear enough information available to create a next most probable move scenario.  Yes, I am fully aware of the analysts that continue to push the supply issue.  There is nothing that they are saying that appears to be incorrect. However, everyone knows this already.   We can see by the heifer kill that expansion remains in full force for the time being and they will continue with the supply increase for months to come.  What I keep believing is that demand will help offset the supply or eventually outstrip it.  My opinion only is that our current situation is not that we have too much beef, we don't have enough consumers choosing beef over competing proteins.  I may be speaking way out of my league, but what I notice the most in the protein arena is that the pork and poultry industries are doing a bang up job at converting and keeping consumers steering away from beef. 

    Potentially, the need to fix a futures market is not nearly as great as the need to fix the beef industry image.  Restaurant and grocers have been flat rolling out the advertisements and flyers for beef this summer.  The newest generation though that are coming of age to be "on their own" are choosing the lesser cost of proteins due to weaker wage earnings than the generations before them.  As us baby boomers age, we consume less and it does not appear that the majority of the next generations behind ours will be able to experience the same wealth standards as we did during our younger years.  The previous mind sets of increased wealth promotes better choices in diet, may be being diluted.  When the younger generations tend to have money, cell phones, cars, and entertainment tend to be more important than a steak over hamburger, chicken or pork.  I understand none of this will help make a buy or sell decision.  However, you can see some of the complexity I go through in attempting to decipher the next most probable move. 

    Corn traders got after it later this week when beans broke.  I perceive that as long as the low interest rate environment remains, it will continue to subsidize the weak earnings in commodity production.  This will keep commodity production high and prices low.  Forces of supply and demand have always worked to increase or decrease the infrastructure to produce.  Today, with the manipulation of low rates, many in commodity production have been able to continue to produce or borrow against production that would not have been able to at a higher rate of interest.

    Lastly, it took a while to complete the complex wave 2 correction in the bond market this week.  After Yellen's talking points were released Friday morning, all financial markets soared in what appeared to be a coordinated effort.  However, by days end, her statements have been viewed as saying nothing and markets do not like indecision.  All time denominations of note instruments and bonds are closing at new lows from historical high this week.  If you have not restructured as much debt as you can, I urge you to get to work on this now.

    Christopher B. 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

    An 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 RESULTS.

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    August 25th: USDA Livestock Slaughter Report

    Commercial red meat production for the United States totaled 3.87 billion pounds in July, down 4 percent from the 4.04 billion pounds produced in July 2015.

    • Beef production, at 2.02 billion pounds, was 1 percent below the previous year. Cattle slaughter totaled 2.48 million head, down 1 percent from July 2015. The average live weight was down 1 pound from the previous year, at 1,345 pounds.
    • Veal production totaled 5.6 million pounds, 19 percent below July a year ago. Calf slaughter totaled 37,700 head, up 3 percent from July 2015. The average live weight was down 65 pounds from last year, at 257 pounds.
    • Pork production totaled 1.82 billion pounds, down 8 percent from the previous year. Hog slaughter totaled 8.76 million head, down 7 percent from July 2015. The average live weight was down 2 pounds from the previous year, at 278 pounds.
    • Lamb and mutton production, at 11.4 million pounds, was down 12 percent from July 2015. Sheep slaughter totaled 170,100 head, 10 percent below last year. The average live weight was 134 pounds, down 4 pounds from July a year ago.
    January to July 2016 commercial red meat production was 28.3 billion pounds, up 2 percent from 2015. Accumulated beef production was up 4 percent from last year, veal was down 9 percent, pork was down slightly from last year, and lamb and mutton production was down 1 percent. 
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    August 25th: Cattle & Beef Under Pressure
    Daily Livestock Report

    Fed and feeder cattle futures have been moving lower in recent days and, in some cases, are approaching the contract lows. The October 2016 fed cattle futures contract closed yesterday afternoon at $108.9/cwt, down about 135 points for  the week but still some 300 points above  the contract low established  on  July 21. While there are probably some technical factors that have contributed to the slump in futures, fundamentally there are also some factors that, at least in the short term, have encouraged this round of selling. 

    Cutout values are slipping. This should not come as a surprise but it is impacting how traders view the market going into the fall and winter. It is not terribly unusual for beef prices to soften past Labor Day. Retailers are likely looking to fill the meat case with a more  balanced mix of protein after aggressively featuring steaks and ground beef over the summer. Spending on school supplies also tends to stretch consumer budgets in late August and September, which again does not  favor beef. One clear indication of this is what  is happening with the 50CL beef market. This item, which accounts for roughly 10% of the carcass, was trading around 90 cents per pound in late June and early July as retail promos focused on hamburgers and ground beef. Last night 50CL beef was quoted at around 49 cents per pound. The decline in the price of 50s alone has removed about  $4/cwt  from the value of the carcass, offsetting gains that packers have made in selling chucks and rounds. 

    Cold storage stocks are heavy. We touched on  this in our report two days ago, showing a counter seasonal increase in beef inventories. The biggest increase in beef stocks was in the Mid-Atlantic region. The increase in stocks is not due to packers putting more  beef in storage, rather it appears that end users took advantage of some low prices for fall items and build up their stocks on hand. Larger inventories of competing meats also were seen as negative for the beef complex. There will be plenty of pork and chicken  this fall. Pork supplies are particularly burdensome and hog slaughter now at 2.3 million head is seen as broadly negative for the entire meat complex. 

    Steer weights are moving higher. Again this is one of those items that should not really be a surprise but  for some reason resonates with market participants.  Steer weights over the summer were slightly under last year but they are moving up in step with the normal seasonal. There was some hope that the aggressive pace of marketings would push weights significantly under last year. However, it is important to keep in mind that as feedlots place cattle on feed at ever larger weights, those animals will also come out at heavier weights.

    Cattle slaughter this week is expected to be near 600k head, which is quite large for this time of year. Feedlots remain quite aggressive in marketing cattle, in part because the market is paying them to do that via the positive basis.  As a result cash prices have been slipping, from $118 last week to around $114 now. Fears of a  stronger dollar also continue to weigh on the market, especially as the FED is considering raising rates at a time when other countries  are lowering them. 

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    August 25th: BPI Drops Targets in "Pink Slime" Defamation Case Against ABC
    Reuters

    Meat processor Beef Products Inc has dropped more than half the defendants from a lawsuit over its allegations that TV network ABC and others defamed a meat filler critics have dubbed "pink slime."

    The company, known as BPI, removed ABC's news division, reporter David Kerley, two former U.S. Department of Agriculture scientists and a former BPI employee from the lawsuit, according to documents signed by a South Dakota Circuit Court judge on Wednesday.

    The ABC network, its former news anchor Diane Sawyer and reporter Jim Avila remain in the case.

    Family-owned BPI sued in 2012 over news reports about its "lean finely textured beef" product, a meat filler made from fatty trimmings sprayed with ammonia to kill bacteria.

    The lawsuit said they falsely told viewers the product was not safe, not healthy and not even meat, causing BPI to lose hundreds of millions of dollars in profits and roughly half its employees.

    A trial on the lawsuit is scheduled to begin in June 2017. Beef Products Inc is seeking $1.2 billion in damages.

    Representatives of Walt Disney Co, which owns ABC, could not immediately be reached for comment. Lawyers for ABC, Sawyer, Avila and Kerley also could not immediately be reached.

    ABC has previously said the lawsuit is without merit.

    BPI voluntarily dropped defendants from the lawsuit “in an effort to streamline and concentrate its case," Dan Webb, a Winston & Strawn law firm co-chairman representing the company, said in a statement.

    The statement called ABC, Sawyer and Avila "the primary targets of the litigation" and said dropping defendants was unrelated to the merits of the case. In particular, it said BPI dismissed ABC News because "ABC is the corporate entity that published the defamatory reports."

    BPI dropped litigation against Gerald Zirnstein, a former USDA microbiologist credited with using the term "pink slime" to describe the beef product. Former USDA employee Carl Custer and former BPI employee Kit Foshee also were dismissed from the lawsuit.

    All appeared or were quoted in ABC's reports.

    Bill Marler, a lawyer for Marler Clark who represented Zirnstein and Custer, said they were glad to be out of the lawsuit. "This whole case is an attack on the media's responsibility to have discussions about controversial topics," Marler said.

    Foshee's attorney, Steven Sanford of Cadwell Sanford Deibert & Garry, said the dismissal "should have happened a couple years ago."

    The case is Beef Products Inc et al v. American Broadcasting Cos et al, Circuit Court of South Dakota, Union County, No. 12-292.

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    August 25th: Livestock & Poultry to Absorb Increased Grain Supply
    CME Group

    This is the favorite time of year for grain analysts, taking long detours through corn and soybean fields, counting ears of corn and bean pods, examining how well they are filled, discussing drought impacts and, everyone’s favorite, issuing yield estimates. But even with all the arguing about final numbers, the broad consensus is that there will be mountains of corn looking for a home come fall and feed costs well below year ago levels. Exports will help clean up some of that, although the increase may not be as big as some expect. There is a lot of cheap grain in the world and the headwinds of a strong US dollar have yet to subside. Ethanol demand appears to have plateaued and is growing only as much as the increase in gasoline consumption can allow, i.e. not much. 

    Which leaves livestock and poultry production to absorb much of the increase in grain supplies. Now this can be done in two ways. You can have more animal units and you can feed those animal units to heavier weights so as to convert the feed into higher value protein. We talk daily in this report about the hog and cattle markets but the big “animal unit” sitting in the corner is chicken. The latest USDA data shows that while beef production next year is expected to increase by 838 million pounds and pork production will increase by 603 million pounds, chicken output growth at a modest  2.6% growth rate represents a +1 billion pound increase. All three proteins next year will increase a combined 2.5 billion pounds (and +7.5 billion pounds since 2014). 

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    "Click Hereto view a Slide Show of Drought Monitor maps for the last 12 weeks
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    August 25th: Beef to Lead US Animal Protein Production Growth

    Expect ups and downs for beef, pork and poultry industries over the next few years, but production growth will be led by beef, according to a new report from Rabobank.

    The leader in production growth over the next few years is likely to be beef. Starting in 2016, herd rebuilding finally started to drive increased beef production but will accelerate

    Heifer retention and cow herd expansion during the last few years will lead to a 4 per cent increase in beef production by 2017. With the favourable price environment, beef production growth is expected to continue through 2020 but at variable rates.

    Rabobank expects US beef trade opportunities for exports and imports to be mixed.

    • A flood of Australian beef trimmings entering the market have doubled in the last two years amid drought conditions in Australia.
    • With Australia reaching a trough in its cattle herd and its beginning efforts to restock, Australian beef exports will decline by double digits in the available lean beef supply in the US, as well as drive export opportunities, most notably to Southeast Asian markets.
    • Q1 2016 US beef exports to Vietnam, South Korea, Taiwan and Hong Kong are all up by double digits and expected to continue.
    • A new source of competition, for both international market share and domestic consumption, is South America - mainly Brazil and Argentina. Both are approved for US export but are held up by a lack of approved plants and available quota.
    • It's only a matter of time before South American beef finds its way onto the US market, becoming a serious competitor to domestic production.
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    August 23rd: Analysis of August Cold Storage Report
    CME Group

    Meat supplies in cold storage are large and gettng larger.  At the end of July the combined volume of beef, pork, chicken and turkey was 2.419 billion pounds, 2.8% higher than a year ago and 9.7% higher than the five year average. This is the largest supply of meat in cold storage since 2002. 

    Beef: The  total supply of beef in cold storage at  the end of  July was 469.3 million pounds, 2% higher than a year ago and 8.3% higher than the five year average. Beef inventories have increased in each of the past two months while normally we see inventories decline by an average of 3% at this time of year.  Looking at the breakout of beef inventories by region offers a somewhat confusing picture (map below shows only regions with significant changes from a year ago).  Inventories of boneless beef in  the Middle Atlantic  region, which includes East Coast port facilities, is up 26% from a year ago and accounts for a big part of the y/y increase in beef stocks. However, beef imports are down sharply so far this year. And the increase is not due to more beef going to export  because most US beef exports go out of West Coast as well as land border points with Canada and Mexico. The implication, in our view, is that the meat  belongs to processors and other end users that serve heavily populated areas along the East Coast. 

    Pork: We view  the latest numbers on pork inventories as somewhat bearish for the fall market, when supplies will continue to ratchet higher. Total pork in cold storage was 599.9 million pounds, 5.3% lower than the very burdensome levels a year ago but still  some  10.5%  higher  than  the  five  year average.  Inventories increased by 2.3% in July from the previous month when in the past five years we have seen an average 4% drawdown in stocks. Ham inventories were 188.6 million pounds, 8.2% lower than last year but 14% higher than the five year average. The seasonal increase in ham stocks was in line with the normal buildup for this time of year. Pork belly stocks remain large and this helps explain the weakness in the pork belly market in the last few weeks. Total pork belly  stocks at  the  end of  July were  50.7 million  pounds, 114.3%  higher than a  year ago and  45.6%  higher  than  the  five  year average.  Liquidating 25 million pounds of belly inventories at a time when slaughter is approaching 2.3 million head is a tall task.  Belly primal value has dropped from around $140/cwt in late July to around 87 cents last night.  Pork rib stocks are still quite heavy at 90 million pounds, +19.1% vs. last year and 53.8% higher than the 5 year average. 

    Chicken: Chicken  inventories  remain  burdensome and they are responsible for much of the increase of meat in cold storage. Total chicken inventories at the end of July were 819.1 million pounds, 6.9% higher than a year ago and 19.9% higher than the five year average. Inventories increased by 0.5% in July, in line with the average of the past five years. Breast meat inventories have declined compared to earlier in the year but at 167.7 million pounds they are still 20.5% higher than last year and 39.2% higher than the five year average. The inventory of chicken  wings  in  cold  storage  at  92.7  million pounds  is  58%  higher  than  last  year  and  36.4%  higher  than  the  five  year average.  Football season cannot come soon enough. 

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    August 23rd: Fall Feeder Cattle Market Prospects
    Derrell S. Peel, Oklahoma State University

    Changes in feeder cattle prices recently have potential impacts for cow-calf and stocker producers this fall.  Through July and August, prices for heavy feeder cattle have increased relative to lighter weight feeder cattle.  Several factors appear to be impacting feeder cattle price relationships.

    The August USDA Cattle on Feed report shows an August 1 on-feed inventory of 10.165 million head, 101.6 percent of last year.  July marketings were 99.3 percent of one year ago while placements were 101.6 percent of last year.  With two less business days this year compared to 2015, these numbers suggest a continued brisk pace of both placements and marketings.  The desire to increase feedlot turnover means that feedlots continue to demonstrate a preference for heavy feeder cattle.  Since placements began increasing in February, placements of feeders over 700 pounds have increased over 11 percent year over year while placements of cattle under 600 pounds are down nearly 6 percent compared to the same six months last year.

    All else being equal, feedlots would generally rather feed bigger, older feeder cattle.  Especially with continued heavy discounts on deferred live cattle futures, feedlots are less interested in buying lighter weight feeders and take the risk of owning them for a longer period of time.  This is true despite the fact that feedlot cost of gain is decreasing with abundant grain supplies and the prospects for record grain crops for the coming year.  Wheat prices and large supplies of relatively poor quality old crop wheat make wheat a ration alternative and the only reason it is not being used more is that corn is cheap and getting cheaper.

    Feedlots are constantly deciding whether to buy pounds by buying heavy feeder cattle or buying lighter weight feeders and putting the pounds on in the feedlot. Lower feedlot cost of gain means that feedlots can afford to pay more for lighter weight feeders.  However, a growing supply of feeder cattle means that feedlots don’t have to buy light weight placements as long as an ample supply of heavy feeder is available to meet their preferences.  This is a big part of the observed increase in heavy feeder cattle price relative to lightweight feeder cattle prices this summer.  For steers, this is revealed as smaller rollback in prices across weights ranging from about 500 to 750 pounds. The smaller rollback results in an increase in the value of gain for those middle weight ranges of feeder cattle.  In other words, the relatively smaller feedlot demand for lighter weight feeder cattle translates into a stocker/backgrounding signal to put that weight on in the country.  Generally good forage conditions means that, despite falling grain prices, it is more efficient to put extra weight on cattle in the country, especially in the face of growing cattle supplies.

    Current feeder cattle prices suggest a strong stocker signal and also a potential retained ownership signal for cow-calf producers -- at least through the stocker phase.  Retained ownership of stockers or retained calves into the feedlot may also have potential but is another matter and should be evaluated separately. Of course, producers must constantly monitor feeder cattle markets, not only price levels but price relationships by weight.  The current market indications can and will change at some point but there is little reason to expect significant change in current market signals for the foreseeable future.

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    August 22nd: All in How to Manage Margins
    Ag Center Cattle Report

    The concept is simple and the analysis is the same regardless of the sector of the beef industry. Beef producers are margin operators. Similar to other manufacturing businesses, you have inputs and outputs. You have fixed costs and variable costs. You have various risks associated with producing the beef but you can take protection against those risks either through hedging or the purchase of insurance. The objective, as with any business, is to margin a profit at the end of the day.

    Some people manage the margin from owning cattle with a "buy and hope" strategy. While this is disparaged by many, certainly including lenders, this is not a flawed strategy. The cattle industry is full of operators who do a very good job purchasing and caring for cattle, attentive to their nutritional and medical needs, and sell their animals a competitive prices. Many of these are sound operators and over extended periods of time, manage to outperform those who protect against every risk.

    Others attempt to cover every risk with a buffer to compensate them if markets or other events beyond their control impact their production cost. The fully protected mode has been under threat for the past couple of years. Cattle are purchased at market prices and all the inputs arranged under various negotiations but assuming a normal basis on the sell side, the margin comes up negative. The protected positions can operate with less capital but over time, there must come a profit.

    Those operating in the live animal sector of beef production and expressing frustration at the lack of margins are now watching the beef processors who seem to have mastered the process. The processors have a much shorter time frame and the inputs and outputs are known in a matter of days. The Buy and the Sell are compressed and the expenditures in-between are well known. Many of the processors are public companies and the results are on view for the world and recently they have been very positive.

    Currier Holman, the founder of IBP, was a great business guy. Not only did he innovate the fabrication of beef cuts but he initiated the movement of the beef plants away from the terminal markets and placed them where the cattle supplies were located. He and his partner Andy Anderson designed more efficient plants and they changed the industry. His philosophy of managing margins also was simple. He ran the chain as fast as possible and bought as many cattle as he possibly could squeeze through the processing plants and hoped he could make a profit. He knew his production cost were many dollars lower than the competition so in bad times, he lost less than the competition, and in good times made more. When his competitors pulled out of the cash markets because futures were down the limit, he kept buying [but of course, at lower prices].

    Today's beef processors have changed. Excess processing capacities were pared back during the past few years and short cattle supplies proved some plants were unneeded. Those plant closures have left the industry with less competition and the beef companies today hold the keys to the processing portals and carefully manage the slaughter levels to assure a margin. Any analysis of the returns of the beef dollar allocated to the live sector vs. the processing and retail sectors would confirm the fact of a decline in the live sectors share of the pie.

    Cattle feeders and stocker operators hope to incorporate the same control over margins in those sectors as we have seen in the processing industry. Increased cattle numbers should translate into more opportunities in the stocker and feeder sectors with the cow operators squeezed at the end of the line. Breeders have had a long period of high prices and generous margins. In the long run pushing all the price concessions back on the breeder will dry up the source of a vibrant industry. There must be a price point for breeders that allows a margin otherwise this will be a short lived cycle of herd rebuilding.

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    August 22nd: Corn Crop Condition

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    August 22nd: USDA Cold Storage Report
    • Total red meat supplies in freezers were up 3 percent from the previous month but down 2 percent from last year. 
      • Total pounds of beef in freezers were up 3 percent from the previous month and up 2 percent from last year. 
      • Frozen pork supplies were up 2 percent from the previous month but down 5 percent from last year. 
      • Stocks of pork bellies were down 20 percent from last month but up 114 percent from last year.
    • Total frozen poultry supplies on July 31, 2016 were up 2 percent from the previous month and up 7 percent from a year ago.
      • Total stocks of chicken were up 1 percent from the previous month and up 7 percent from last year. 
      • Total pounds of turkey in freezers were up 5 percent from last month and up 7 percent from July 31, 2015.
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    August 19th: Cattle on Feed Report
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    United States Cattle on Feed Up 1.17 Percent
    • Cattle and calves on feed for the slaughter market in the United States for feedlots with capacity of 1,000 or more head totaled 10.2 million head on August 1, 2016. The inventory was 1.17% above August 1, 2015.
    • Placements in feedlots during July totaled 1.57 million head, 1.62% above 2015. Net placements were 1.52 million head. During July, placements of cattle and calves weighing less than 600 pounds were 352,000 head, 600-699 pounds were 235,000 head, 700-799 pounds were 360,000 head, and 800 pounds and greater were 625,000 head.
    • Marketings of fed cattle during July totaled 1.71 million head, 0.70% below 2015. Marketings were the lowest for July since the series began in 1996.
    • Other disappearance totaled 50,000 head during July, 10.71% below 2015
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    Cattle on Feed Inventory in 1,000+ Capacity Feedlots as of August 1st
    Millions of Head
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    Number of Cattle Placed on Feed in 1,000+ Capacity Feedlots in July
    Millions of Head
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    Number of Cattle Marketed from 1,000+ Capacity Feedlots in July
    Millions of Head
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    Cattle on Feed by State as of August 1st
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     August 18th Seasonal Drought Outlook
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    August 17th: U.S. Live Animal Imports
    LMIC

    U.S. feeder cattle imports from Mexico were rather small in May and June of this year, compared to historical levels. For the first half of 2016, feeder cattle imports from Mexico were 16% below 2015’s (down 98,000 head). This could indicate herd rebuilding in Mexico and definitely reflects lower U.S. cattle prices.  Lower imports compared to a year ago are expected to continue for the balance of 2016.

    Cattle imports by the U.S. from Canada were down 10% (down 50,000 head) from January through June of this year, compared to 2015’s. The U.S. imports both feeder cattle and slaughter cattle from Canada, and the year-over-year decrease is fully attributed to fewer feeder cattle imports in the 440-700 pound category.  For the first half of the year, the U.S. actually imported 4% more feeder cattle over 700 pounds and 20% more slaughter cattle, compared to 2015’s levels. 

    Live hog imports from Canada are above year ago levels for the January to June time frame, up 1% (up 30,000 head). Within that timeframe, slaughter hog imports declined 13% year-over-year (down 75,000 head), but feeder pig imports were up 5% (increased from 2015’s by almost 105,000 head). The trend of year-over-year increases in U.S. feeder pig imports is expected to continue. 

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    July 20th: A Mid-Year Review of Production & Prices

    Looking back at the first six months of 2016 the one word summary for beef production is “growing” compared to a year ago, especially during May and June.  The first term that immediately comes to mind regarding cattle prices is “volatile”, especially in futures markets.  A close second price descriptor was “lower” year-over-year.

    For the first six months of 2016, U.S. beef production was 5.2% above 2015’s.  At 12.1 billion pounds, that was the largest tonnage for January-June since 2013’s.  Both cattle slaughter (up 4.3%) and dressed weights (rising 0.9%) posted year-over-year increases.  Most of the year-over-year gain in cattle slaughter came from steers and heifers (up 4.7%).  Cow slaughter also increased, rising about 3.5% compared to 2015’s; most which was in beef-type animals rather than dairy-type.

    Increased beef production, lackluster exports, and large processor margins have translated into lower cattle prices in 2016, as would be expected.  The USDA’s Agricultural Marketing Service Market News (AMS) negotiated 5-market average slaughter (fed) steer reported prices for the first six months of this year averaged just over $131.00 per cwt. compared to a shade above $160.00 last year, as drop of 18%.  Lower fed cattle prices combined cattle feeders adapting their feeder cattle price bids after record large losses in 2015 to pressure yearling and calf process.  AMS reported auction prices for 700-to 800-pound steers in the Southern Plains to plummet 30% year-over-year in the first half of 2016.  Southern Plains prices for 500-to 600-pound steers in January through June averaged 33% below 2015’s.

    Estimating per capita beef disappearance for the first half of 2016 is instructive, even if we need to use some estimates, most importantly beef imports and exports.  Here we will use the LMIC’s estimates.  On a per person basis, beef disappearance domestically in January-June 2016 was about one pound above a year earlier.  That’s not a huge increase, but the amount (27.6 pounds calculated on a retail weight equivalent basis) was the largest since 2013’s.  Of course, to increase disappearance domestically generally requires a lower price.  Also, given weak world economic conditions, trade barriers, etc., during the last two years the export tonnage that was achieved required lower prices.

    The LMIC forecasts U.S. commercial beef production in calendar year 2016 at about 24.7 billion pounds, up 4% to 5% year-over-year and the largest since 2013’s.  In 2016’s last 6 months, production is forecast to rise 3% to 4% year-over-year.  As the second half of 2016 progresses, year-over-year declines in cattle prices are forecast to moderate.  As the year wraps-up, the fed steer price could match or slightly exceed the depressed level of late 2015.  Yearling and calf prices are expected to remain below 2015’s through year-end.
     

    U.S. TOTAL RED MEAT AND POULTRY PRODUCTION

    For the first six months of 2016, domestic production of red meat and poultry was larger than posted in any prior year.  The prior record was set in 2008.  However, the rate of change year-over-year is the important market driver not the absolute level; the year-over-year increase for the first half of this calendar year was 2.9%.  For the 20 year period beginning in 1989 through 2008, record large U.S. total red meat and poultry production for the first six months of the year occurred 17 times.

    As usual in recent decades, U.S. chicken production had the largest production level; Ready to Cook (RTC) production for January-June of this year was nearly 20.3 billion pounds, 2.9% above the same timeframe in 2015.  Next was pork at 12.2 billion pounds (carcass weight), followed closely be beef at 12.1 billion pounds.  Note this is a record level of pork production in the U.S. for the January to June timeframe.  Importantly, the year-over-year gains in pork and beef tonnage were 0.9% and 5.2%, respectively.  U.S. turkey production was about 2.9 billion pounds and has been recovering from the Avian Influenza caused reductions last year and was 3.1% above 2015’s for the first six month of 2016.  At about 77 million pounds, commercial lamb production in January-June was essentially unchanged from a year ago, while veal dropped (down 6.9% year-over-year) to 37.4 million pounds.

    As we did in the prior article on beef, we now shift to calculating per person disappearance of red meat and poultry for the first six months of this year.  Using LMIC’s projections on imports and exports for June, estimated per person disappearance on a retail weight basis was 105.6 pounds. That was up 3 pounds from 2015’s and the largest since 2008 (108.2 pounds).  So, even though production was record-large, product available per person in the U.S. was not.  Note that people don’t actually eat nearly that much per person because of three major factors: 1) purchased weight (retail) includes bones; 2) use by family pets is included (purchased meat and poultry in pet foods/meals); and 3) waste (uneaten food).  Of course, the estimated retail weight disappearance also is a pre-cooked amount.

    Livestock Marketing Information Center

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    Projected Cow-Calf Returns to Decline

    Since the mid 1970’s, the Livestock Marketing Information Center (LMIC) has estimated annual cow-calf returns based on a typical commercial full-time operation.  Those estimates are for market analysis purposes and are not intended to represent an individual operation or resource base.  They are useful only in a broad context and of course LMIC makes those estimates because producer return is a key factor influencing national herd growth or contraction.  LMIC returns only include cash costs of production and pasture rent. That is, return to owner management, labor, etc., are not included.

    Over the last few months, cattle prices have been lower than expected; LMIC’s price forecasts for calves to be sold this fall have been reduced and are currently about 15% below 2015’s.  Year-over-year, the percentage decline in cull animal prices is even larger (dropping 25% to 30% from 2015’s).  Those lower prices to be received by cow-calf producers have caused 2016’s expected return over cash costs plus pasture rent to be revised lower, significantly.  Costs of production are projected to decline slightly compared to 2015’s due to lower feedstuff and fuel costs.  On a per cow basis the year-on-year drop in those items will be only about 3% or roughly $25.00 on a per cow basis.

    LMIC estimated return peaked in calendar year 2014, surging to just over $530.00 per cow.  In 2015, the return was just over $300.00.  That was the second highest ever calculated by the LMIC, unadjusted for inflation.  With the recent adjustment down in LMIC’s forecast cattle prices, the 2016 return was lowered to $133.00 per cow.  If realized that will be the lowest since 2013.  While that is still a positive return over cash costs of production (including pasture rent), for some relatively high-cost operations that return may not cover all economic costs.  A further decline is forecast for 2017. The rapid drop in cow-calf returns in 2016 and 2017 is likely cause for producers to ratchet-back beef cowherd expansion plans compared to those of recent years.

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    All Cattle & Calves Inventory: January 1, 2016 vs. 2015
    Compiled from USDA National Agricultural Statistical Service Data
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    Beef Cows Inventory: January 1, 2016 vs. 2015
    Compiled from USDA National Agricultural Statistical Service Data
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    Replacement Heifers Inventory: January 1, 2016 vs. 2015
    Compiled from USDA National Agricultural Statistical Service Data
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    January 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.

    • 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.
    Calf Crop Up 2 Percent
    • 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.
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    August 31st: USDA: Net Farm Income To HIt Lowest Since 2009
    Mike McGinnis

    Farm sector profitability is forecast to decline for the third straight year, according to the USDA’s latest forecast Tuesday.

    Net cash farm income for 2016 is forecast at $94.1 billion, down 13.3% from the 2015 estimate. Net farm income is forecast to be $71.5 billion in 2016, down 11.5%. If realized, 2016 net farm income would be the lowest since 2009.

    Cash receipts are forecast to fall $25.7 billion (6.8%) in 2016, led by an $18.7 billion (9.8%) drop in animal/animal product receipts and a $7.1 billion (3.7%) decline in crop receipts.

    Nearly all major animal specialties — including dairy, meat animals, and poultry/eggs — are forecast to have lower receipts, as are feed crops and vegetables/melons, down $3.2 billion (5.5%) and $1.5 billion (7.5%), respectively.

    While overall cash receipts are declining, receipts for several commodities are expected to increase by at least 1% above 2015 estimates, including cotton, up $0.6 billion (12.5%). Direct government farm program payments are projected to rise $2.7 billion (24.8%) to $13.5 billion in 2016, in part due to the expected price environment, according to the USDA’s Economic Research Service’s press release.

    For the second year in a row, production expenses are down. Total production expenses are forecast down $10.1 billion (2.8%) over 2015, led by declines in farm-origin inputs (feed, livestock/poultry, seed) and fuel/oils.

    ASSET VALUES

    Farm asset values are forecast to decline by 2.2% in 2016, and farm debt is forecast to decrease by 0.8%. Farm sector equity, the net measure of assets and debt, is forecast down by $61.2 billion (2.4%) in 2016. The decline in assets reflects a 1.5% drop in the value of farm real estate, as well as declines in animal/animal product inventories, financial assets, and machinery/vehicles.

    The decline in farm debt is driven by lower nonreal estate debt (down 4.6%), reflecting a change in farmers’ management decisions (such as reducing input expenditures) but also an increase in short-term commercial bank loan rates, which make debt more expensive.

    MEDIAN INCOME

    The median income of farm households increased steadily over 2010-14, reaching an estimated $81,637 in 2014. After dipping in 2015 to $76,538, median household income is forecast to fall slightly in 2016 to an expected $76,282. Median farm income earned by farm households is estimated to be -$765 in 2015 and forecast to be -$1,353 in 2016. Most farm households earn all of their income from off-farm sources—median off-farm income is forecast to increase 2.5%, from $67,500 in 2015 to $69,159 in 2016. (Because farm and off-farm income are not distributed identically for every farm, median total income will generally not equal the sum of median off-farm and median farm income.)

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