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July 3rd: The Total Meat Supply Situation

The cash prices for fed cattle last week crossed the graph line with last year and fell below last year's prices for the first time this year. Last year, the last week of June found fed prices near $155 vs. this year's $148. Some traders and cattle owners are looking at the fed supplies this year, indicated by a steer and heifer slaughter that is 50,000 head per week under last year, and wondering how we can be selling cattle lower than prior year.

In rounded numbers the answer is fairly straight forward. The average daily slaughter of cattle has declined 6% from last year. The slaughter weights are heavier than last year and there are more steers in the mix due to holding back heifers for rebuilding. These two factors helps to reduce the tonnage loss to approximately 2.5%. In the meantime, hog slaughter is up 6% over prior year and chicken production is up 4% over last year. Food service and grocery stores are making money selling plentiful pork and chicken.

Supporting the large supplies of total meat has been beef imports that are dramatically higher than last year assisted by a strong dollar. All of the countries sending beef to the U.S. have ramped up business and volumes are running 25-50% over last year. The imported beef has struck a blow to the grind market that led the summer rally in cattle prices last summer. Also aiding in the decline of fed prices this year has been the drop credits. Hide prices are 25% under last year and all drop credits are taking $50/head from the packer's bottom line.

The analysis early this year that caused the first large decline in cattle futures cited large competing meat supplies, large imports and heavy weights as ammunition for a fed market in steep decline. Since those early forecasts, futures prices for summer and fall have stayed in a fairly tight trading range hovering around $150 while fed prices have fallen from $170 to $148. But where do we go from here.

Last year cattle prices for fed cattle continued to rise into the fourth of July and beyond taking prices into the $160s. This year packers have pared the June daily slaughter level to the lowest in modern history in an attempt to regain some bargaining leverage over cattle owners who have been able to hold on to those high prices in spite of box prices that seem to decline with every slaughter week that exceeds 550,000 cattle. More cattle will be available in July but the pipeline of beef is short bought and retailers have the ability to push move beef if the economic incentives are there.

Ag Center Cattle Report

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July 2nd: Closing Futures Summary

The cattle market was mixed Thursday after trading considerable higher Wednesday, marking a week of wide price swings. While the lower demand theme has persisted over the last several days, traders have apparently seen the light in the tunnel as Wednesday, prices worked their way toward the quarterly high of 153.53 reached on June 10th. Yesterday, nearby futures broke out above the 40-day moving average of 150.72 to hit 151.08 only one day after hitting the quarterly low of 148.08. August cattle futures gained .15 cents to 151.22 cents/pound Thursday, while December futures fell .02 cents to 154.72. Meanwhile, August feeder cattle futures sank 1.05 cents to 218.93 cents/pound, and November feeders lost .77 cents to 213.45..

The grain markets are mixed at the close Thursday, ahead of the 4th of July holiday weekend. The agricultural markets will be closed on Friday July 3rd. Weekly export sales came in at 594,300 tonnes for old crop, at the high end of the expected range, and 238,900 tonnes for new crop, about the middle of the expected range. Corn futures closed stronger after an eventful week capping off a quarter where nearby corn hit a high of $4.15 on Tuesday and a low of $3.48 on June 15th. Volatility has remained a constant as supply and demand factors are ever changing. The US Dollar Index is down .25 to 96.66. July corn futures gained 6 cents to $4.1975/bushel at the close Thursday , while December rose 5.25 cents to $4.37..

The oilseed market ended mixed Thursday after fireworks earlier this week. The soy complex appeared to wind down activity after substantial gains on the stocks report and ahead of the long holiday weekend. Weekly export sales for soybeans were weaker than expected, reporting -10,300 tonnes for old crop and 127,500 tonnes for new crop. The trade was expecting 100,000 tonnes for old crop and 150,000-350,000 tonnes for new crop. Weather, crop conditions, re-survey results from AR, KS, MO, and harvested acres numbers will all be key going forward. July soybeans lifted 1.25 cents to $10.4525/bushel Thursday, while July soyoil gained .35 cents to 33.36 cents/pound, and July meal lost $2.4 to $357.4/ton..

Wheat futures traded lower Thursday and have somewhat stabilized after heavy losses yesterday in late response to Tuesday’s bearish government numbers. The news that Canadian wheat acres are expected to rise 1.3% combined with larger than expected stocks and acreage could keep pressure on wheat in the near term. Weather in the Midwest, disease in winter wheat, and dryness in the EU will continue to be watched. July CBOT wheat futures slid 1.75 cents to $5.8575/bushel Thursday, while July KC wheat lost 3 cents to $5.73/bushel, and July MWE lowered 7.75 cents to $5.9975..

Lean hogs traded higher Thursday seeming to reverse and downward trend that started in early May after the quarterly high of 85.20 cents/pound. Just days before our national holiday, nearby futures continued higher today perhaps on feed cost implications brought on by the rise in corn and beans. The deferred months also continued higher presumably on the tightening of the farrowing sow, implied by the recent USDA report. August hog futures gained 1.52 cents to 76.37 cents/pound Thursday, while December advanced .30 cents to 63.80..

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July 2nd: NOAA Precipitation & Temperature Probabilities

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"Click Here" to view a Slide Show of Drought Monitor maps for the last 12 weeks
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June 30th: USDA Takes First Step to Import Fresh Beef from Brazil & Argentina

The U.S. Department of Agriculture's Animal and Plant Health Inspection Service (APHIS) is amending its regulations to allow fresh beef into the United States from Brazil and Argentina under specific conditions that mitigate risk of foot-and-mouth disease (FMD), the agency said on Monday.

"This is the first step of a process for these regions to gain access to the U.S. market for beef," said APHIS.

Brazil and Argentina also need to meet food safety standards before being able to export any beef to the United States.

APHIS risk assessments indicate that fresh (chilled or frozen) beef can be safely imported, provided certain conditions are met to ensure beef exported to the United States will not harbor the FMD virus.

USDA will assess their equivalence with U.S. standards through a review of their regulatory programs as well as an in-country audit of their food safety systems. These rules take effect 60 days after publication in the Federal Register.

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June 29th: Agricultural Prices for May
  • May Farm Prices Received Index Up 3.9 percent
    • The May Prices Received Index (Agricultural Production), at 107, increased 3.9 percent from April. At 90, the Crop Production Index advanced 1.1 percent. The Livestock Production Index increased 5.2 percent to 122. Producers received higher prices for eggs, hogs, and broilers. Lower prices were realized for cattle, corn, and tomatoes. 
    • In addition to prices, the indexes are impacted by the five-year average monthly mix of commodities producers market. Increased monthly movement of cattle, hay, sweet corn, and broilers offset the decreased marketing of soybeans, calves, hogs, and apples. 
    • The Prices Received Index is down 7.0 percent from the previous year. The Food Commodities Index, at 115, is up3.6 percent from the previous month but is 8.0 percent lower than May 2014.
  • May Prices Paid Index Down 0.9 Percent
    • The May Index of Prices Paid for Commodities and Services, Interest, Taxes, and Farm Wage Rates (PPITW), at 109, is down 0.9 percent from April and 3.5 percent below May 2014. 
    • Lower prices in May for complete feeds, concentrates, LP gas, and supplements more than offset higher prices for nitrogen, diesel, gasoline, and mixed fertilizer.
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June 26th: National Feeder & Stocker Cattle Summary
USDA-MO Dept of Ag Market News

RECEIPTS: Auctions   Direct  Video/Internet   Total
This Week     130,100     65,500        59,200          254,800 
Last Week     118,900     54,800         3,000           176,700 
Last Year       151,000     52,900        76,400          280,300

Compared to last week, yearling feeder cattle sold mostly steady with spots 2.00 higher to 2.00 lower.  Steer and heifer calves traded steady to 5.00 lower throughout auctions in the Midwest and the Southeast.  Demand still remains very good for calves and yearlings as there were several special sales this week as on Wednesday in Bassett, NE held a special fall-born calf sale selling 4500 head of top quality calves with some of the bell ringers; near 400 head of steer calves weighing 550-600 lbs averaging 578 lbs selling with a weighted average price of 306.68 and near 800 head of their bigger brothers weighing 650-700 lbs averaging 662 lbs with a weighted average price of 274.07.  The Northern Livestock Video’s Early Summer Special featured over 40,000 head of some of the fanciest cattle that walk the outdoors on Monday and Tuesday. 

Many high-country ranchers are adding value by preserving their cattle’s all-natural or NHTC status with near 1300 head of value added steer calves weighing between 500-550 lbs averaging 519 lbs sold with a weighted average price of 307.03 for November delivery.  In addition, three loads of value added current delivery steers averaging 825 lbs sold for 243.00.  It was also noted that Montana and Wyoming ranchers are aggressively rebuilding their herds with only 26 percent of sales being heifers.  Strings of yearlings will soon be moving off double-stocked pastures in the major grazing regions and the dog days of summer will soon be upon us right as consumer beef demand usually suffers its post July 4th hangover. 

Last Friday’s Cattle on Feed report was viewed as neutral to slightly bullish as placements were down near 10 percent compared to year ago levels.  Feedlots in most cases continue to face stiff competition from farmer/feeders with plenty of corn on hand, backgrounders and grass operations.  On Monday USDA released its Cold Storage Report with total red meat supplies in freezers down 5 percent from last month but up 19 percent from last year.  Inventories of boneless and bone-in beef in freezers were down 3 percent from last month but 24 percent higher than year ago levels as larger supplies of imported beef are bolstering inventories.  Cut-out values continue to move higher this week heading into the 4th of July Holiday, but Choice cut-out closed 2.03 lower at 253.12 on Friday compared to last Friday’s close at 251.32. 

CME cattle futures took a turn for the worse on Wednesday then started frantically bailing water on Thursday with limit to near limit losses on feeder cattle contracts.  Continued rain throughout the Corn Belt is raising concerns over corn crop conditions that may take away from production with USDA’s crop report due out next week.  Rising corn prices are also pressuring the feeder cattle contracts.  Corn prices this week caught some tailwinds from strong gains in soybean and wheat markets.  Corn and soybean conditions declined this week in USDA’s weekly crop report with corn conditions declining from 73 percent good to excellent to 71 percent.  Soybeans declined from 67 percent good to excellent to 65 percent with 90 percent of the soybean crop planting completed.  Winter wheat is 19 percent harvested with winter wheat conditions declining from 43 percent good to excellent to 41 percent.  Auction volume was 52 percent over 600 lbs and 38 percent heifers. 

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June 26th: Shootin' the Bull Weekly Analysis
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In my opinion, no more of a demonstrative statement could have been made than on Thursday about the price of feeder cattle.  Some one, entity or entities, placed a large enough order to send the front 5 contract months straight down $3.00 in approximately 10 seconds.  Feeders were already down $1.50 when this materialized.  In order to do this, orders would have been perceived all set at the same time with just one push of a button to initiate the order.  It was literally two flashes on my screen and change for the day went from down $1.50 to down $4.50 as quick as I could blink.  They moved 973 contracts in the August contract in the one minute bar of the collapse.  That was over 25% of the total volume traded the day before and over 7% of Thursday's total volume in the August contract. Thursday's volume was big and there was a drop in open interest, but not much. 

This leads me to perceive that longs may be going to try to battle their way out of this or it caught so many off guard, they chose to sit still.  I perceive Friday's change in open interest to be of more interest since Thursday caught many by surprise. Losses calculated via the cattle crush swelled on Thursday as the index closed up over $3.00, corn higher and fats lower.  This is on top of what is perceived to be 6 months of losses for cattle feeders. Things are unraveling fast in the cattle markets.  Stocker and back grounding operations are urged to get as many cattle hedged as possible.  What has been perceived as a major B wave correction of the initial move down from historical high is anticipated to be complete at the June 10th high per respective contract month.  This leads me to anticipate the formation of a major C wave decline.  The C wave decline will be anticipated to unfold in a 5 wave pattern.  Downside projections for respective contract months is width of the price decline from historic high to the February low minus the of the year made June 10th.  For the October contract, that would be $183.35. 

Feed yards have no incentive at all to bid up for inventory this fall that is anticipated to be significant in numbers and weight.  What you are seeing in the higher price today is a few individuals that want or have to own cattle and those with the cattle are making them pay.  Why would any one want to buy feeder cattle at this price?  Some may have to due to contractual agreements.  Recall that vertical integration is perceived well entrenched in the industry. With contractual agreements, it doesn't matter what the price is, a default on the contract could have serious repercussions other than just losing money. 

How did such a dramatic change happen in just a few days?  In my opinion, it was Monday's cold storage report.  Inventories of boneless and bone-in beef in cold storage at the end of May were 468.5 million pounds, 24.1% higher than a year ago and 8% higher than the five year average. This leads me to perceive that the kill manipulation is only a part of the problem. While the year over year increase could be argued about, due to such large draws from last year, but inventory increases over the 5 year average suggests those years included large increases into cold storage due to the cow kill during the drought years of '11 & '12.  Upon realization that beef, at below last years production, with lower kills slated, demand being touted from every roof top and the best one still yet, "there just ain't no more cattle out there", was being shoveled into the freezers took the wind out of any bullish scenario that could be thought up. 

The manipulation of kills by the packer is perceived doing significant damage to demand.  Manipulation tends to weaken things.  Clearly it is perceived to have weakened fat cattle prices and is anticipated to weaken demand from the consumer.  The run up to new historical highs for boxes was pushed right into the consumers lap and they are perceived moving towards alternative proteins.  So, with this continuing, I can only see the situation worsening due to the attempt to keep box prices higher when alternative protein prices are plummeting.  It doesn't take long to figure out where the consumers money will go. 

Lastly, corn has finally begun to move higher.  It has only done so as I relinquished by bullish stance earlier this week.  After the two day's higher early in the week, I went flat on my analysis of corn.  I became no longer bullish, but could not get bearish.  So, corn fooled me.  The breaking of all down trend lines and the impending planted acres report due Tuesday of next week leads me to be cautious about being short, but I don't want to be a buyer at this level. 

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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June 25th: May Livestock Slaughter
  • Commercial red meat production for the United States totaled 3.81 billion pounds in May, down 4 percent from the3.95 billion pounds produced in May 2014.
    • Beef production, at 1.92 billion pounds, was 7 percent below the previous year. Cattle slaughter totaled 2.38 million head, down 10 percent from May 2014. The average live weight was up 33 pounds from the previous year, at 1,332 pounds.
    • Veal production totaled 6.6 million pounds, 16 percent below May a year ago. Calf slaughter totaled 33,200 head, down 29 percent from May 2014. The average live weight was up 50 pounds from last year, at 335 pounds.
  • Pork production totaled 1.86 billion pounds, up slightly from the previous year. Hog slaughter totaled 8.75 million head, up 1 percent from May 2014. The average live weight was down 3 pounds from the previous year, at 284 pounds.
  • Lamb and mutton production, at 11.9 million pounds, was down 14 percent from May 2014. Sheep slaughter totaled 168,500 head, 13 percent below last year. The average live weight was 141 pounds, down 2 pounds from May a year ago.
  • January to May 2015 commercial red meat production was 19.7 billion pounds, up slightly from 2014. Accumulated beef production was down 5 percent from last year, veal was down 22 percent, pork was up 6 percent from last year, and lamb and mutton production was down 5 percent. 
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June 25th: Canadian Weekly Cattle Report

Feeder prices lower

  • After nine weeks of fed prices of more than $200 per hundredweight, the Canfax steer average last week fell to $199.41, down $2.82, and heifers averaged $197.20, down $3.14.
  • Sensing the peak was over, feedlots rushed to sell and the volume was one of the largest since the fall of 2013.
  • The Canadian market fell on lacklustre beef demand, faltering U.S. fed cash prices and weaker cattle futures.
  • Most of the dressed sales were down $5-$7 per cwt.
  • Packers now appear to have a comfortable supply until the end of July.
  • The Alberta cash-to-futures basis strengthened to +$12.97, which kept American buyers out of the Canadian cash market.
  • In the United States, light trade developed late in the week with cash cattle in the Plains moving at US$150 per cwt., down $2 to $5 from the previous week.
  • The U.S. cattle on feed report June 19 was considered bullish for the fall as fewer cattle than expected went into feedlots in May.
  • Weekly western Canadian fed slaughter to June 13 rose one percent to 32,414 head. To date, western slaughter is down eight percent.
  • Weekly fed exports to June 6 rose to 2,231 head. To date, exports are down 49 percent.
  • Fed prices typically ease in the second half of June and then hold steady through July.
  • The trend is expected to hold this year, and summer lows are expected in the low to mid $190s.
Cow prices fall
  • More cows are going to auction because of dry pastures, but packers have been slow to allocate more hours to the D grade slaughter.
  • Western Canadian cow slaughter two weeks ago was about 3,500 head, the second lowest weekly slaughter this year.
  • D2, D2 cows ranged $130-$150 per cwt. to average $139.10, down $3.40. D3 cows ranged $116-$130 to average $124.75.
  • Rail grade cows ranged $263-$268.
  • Alberta cows remain at a premium to U.S. utility cow prices.
Feeders lower
  • Stronger barley prices, close to $5 a bushel delivered in southern Alberta, saw the feeder market trade steady to lower.
  • In a normal year, most of the heavier feeders hitting the market at this time would be dry lot backgrounder cattle, but the dry weather and poor pastureland have prevented that this year.
  • Quite a few 30-60 day grass cattle that traditionally would be marketed in the late summer or early fall are being sold to feedlots.
  • Heifers account for most of the cattle at auction, making up as much as 70-80 percent of the total offering in some cases.
  • Open and exposed replacement heifers have been on offer because of moisture concerns.
  • Some top sort heifers are entering feedyards. There is also interest from producers looking to add to their own cow herd or speculating on the fall bred market.
  • Competition from eastern buyers has also been noted on western Canadian replacement heifers and cow-calf pairs.
  • Forward contracted steers and heifers for August-September delivery saw prices $2-$5 lower.
  • Feed barley bids are now 15 percent higher than the same time last year, while eastern Canadian corn is down one percent and Omaha corn is 20 percent lower. Western Canadian feeders will be at a “cost of gain” disadvantage.
Holiday beef demand
  • Reduced slaughter in the United States and demand for Father’s Day and the July holidays supported beef prices. U.S. slaughter in the first three weeks of June was down 11 percent from the same time last year.
  • U.S. Choice cutout last week was US$283.50 per cwt., up $3.64, and Select was $244.73, up $4.07.
  • However, beef is expected to weaken once the July holiday demand is met. Packer operating margins are also being hit by lower hide prices.
  • Weekly Canadian boxed beef prices to June 12 were AAA C$319.90, up $4.07, and AA $305.56, up 40 cents.
This cattle market information is from the weekly report from CanFax, a division of the Canadian Cattlemen’s Association.
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June 22nd: USDA Cold Storage Report
  • Total red meat supplies in freezers were down 5 percent from the previous month but up 19 percent from last year. 
    • Total pounds of beef in freezers were down 3 percent from the previous month but up 24 percent from last year. 
    • Frozen pork supplies were down 7 percent from the previous month but up 14 percent from last year. 
    • Stocks of pork bellies were down 8 percent from last month and down 25 percent from last year.
  • Total frozen poultry supplies on May 31st were up 2 percent from the previous month and up 14 percent from a year ago. 
    • Total stocks of chicken were down 4 percent from the previous month but up 21 percent from last year. 
    • Total pounds of turkey in freezers were up 11 percent from last month and up 4 percent from May 31, 2014.
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June 19th: June Cattle on Feed Report

United States Cattle on Feed Up 1 Percent

  • Cattle and calves on feed for slaughter market in the United States for feedlots with capacity of 1,000 or more headtotaled 10.6 million head on June 1, 2015. The inventory was 1 percent above June 1, 2014.
  • Placements in feedlots during May totaled 1.71 million, 10 percent below 2014. Net placements were 1.63 million head. During May, placements of cattle and calves weighing less than 600 pounds were 355,000, 600-699 pounds were 260,000, 700-799 pounds were 389,000, and 800 pounds and greater were 710,000.
  • Marketings of fed cattle during May totaled 1.71 million, 8 percent below 2014. May marketings are the lowest for May since the series began in 1996.
  • Other disappearance totaled 82,000 during May, 19 percent below 2014.

Cattle on Feed Inventory in 1,000+ Capacity Feedlots as of June 1st
Millions of Head
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Number of Cattle Placed on Feed in 1,000+ Capacity Feedlots in May
Millions of Head
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Number of Cattle Marketed from 1,000+ Capacity Feedlots in May
Millions of Head
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Cattle on Feed by State as of June 1st
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June 18th: In the Cattle Markets: A Return to Normalcy

At the height of the financial crisis most analysts were discussing the validity of a “new normal”.  At the time, equity markets -- as well as many other markets -- were definitely out of kilter and the common rules of thumb and typical patterns no longer existed, thus the reason for these discussions.  Today, market norms are still not exactly what they used to be, but it is safe to say that more normal patterns have returned.  The exception today is the agricultural marketing world. 

Grain markets remain in an awkward state given that nearby old crop prices are below harvest contract prices (typically stored grain is priced higher). Granted, July 2015 corn futures contract prices, for example, stayed above December 2014 corn futures prices through the life of the December 2014 contract life.  However, the July 2015 contract price has consistently been below upcoming harvest contract months.  Similar relative prices have been noticed in soybean markets.  Therefore, the only incentive to empty the bins is to make room for the next crop.  The reasons for this largely center on the estimates from USDA that show large quantities of grain in storage and market dynamics in the Southern Hemisphere.

Beef cattle futures and cash prices are also out of line with their “norms”.  As prices heated up in the second half of 2014, seasonality went out the window.  Since that time, prices have steadied quite a bit, but are still not showing their typical price patterns that have, historically, been in place. This has led many to ask: “When will seasonality return to cattle markets?”

This is a tough call because the events of the past 12-18 months of the current cattle market is still not at all a common occurrence.  Heifer retention has been ramped up since at least mid-2014 which has limited the available feeder volume.  Herd rebuilding will likely continue for the short term, especially given the recent rains in much needed areas where pasture capacity is available.  Second, the high market price levels has led to earlier marketings of calves and feeders, which will limit off-farm supplies moving forward.  Finally, feedlot capacities, while shrunken over the past number of years, still indicate available space. 

A return to “normal” seasonal patterns does not appear to be on the horizon for calves or feeders through the remainder of 2015 as a result of these reasons.  A look at fed cattle prices since the start of 2015 indicates tendencies of moving in this direction, but a consistent pattern has not fully developed.  Carcass and beef primal prices have been moving in more typical fashion.  However, over the past two weeks high valued middle cuts (rib and loin primals) have weakened quite a bit and this has filtered through upstream markets.  It would be foolish to think these unusual moves will not linger as buyers and sellers continue to adjust to the “new normal” in cattle market prices!

John Michael Riley, Department of Agricultural Economics, Oklahoma State University

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 May 21st Seasonal Drought Outlook
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June 17: Slaughter Cattle... Are Captive Supplies a Problem?

Captive supplies, defined as formulas and forward contracts, for packers are not new. But the percentage of the total keeps growing. Nationally, thus far in 2015 ending in May, only 21.1% cattle procured were purchased in a negotiated transaction. In 2014, it was 23.1%, 2012 26%, 2011 32.6% and 2010 37.4%. A decade ago it was 52.1%. It may be understandable why packers and some cattle feeders have entered into formula arrangements. And use of forward contracts has grown consistently for the last 10 years, peaking this year so far at 20%.

What is not understood is how much the lack of price discovery through competitive negotiation is impacting revenues for cattle feeders. This topic has been long debated with some saying captives have no detrimental impact on cash cattle prices. Though June isn’t over yet, it is highly likely that the percentage of captives making up a historically low June fed cattle kill will be a record high. That is certainly something to ponder.

The Beef

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June 12: Where Are the Cattle?

Fed slaughter has not exceeded 2014 levels once in 2015. There have been 10 weeks when the fed kill has gotten within 5% or less of a year ago, the longest stretch being in late January and February lasting 5 weeks and coinciding with the USDA choice boxed beef cutout low for 2015 made February 13 at $237.68. Fed cattle prices bottomed 2 weeks later at $158.

Packers tried ramping up the fed kill again relative to a year ago in mid-May and managed to push it up for 3 weeks, getting within 16,000 head Memorial Day week. Again, boxed beef values sagged on the increased production, this time bottoming at $244.11 on June 8. Dismayed by the unprecedented contraction of margins in June, packers have taken drastic measures, slashing kills to levels 10% or greater of a year ago -- 40-50K head per week. These cuts are in their second week and are expected to continue next week, making June 2015 an outlier. Instead of seeing the largest fed kill of the year, it will possibly go down in history as being one of the smallest June monthly kills. But it enabled the packer to break cash prices.

Fed cattle haven’t been easy to buy in 2015 and packers have kept busy tying up cattle- forward contracting, basis trading, tops trading -- anything to not be shut out. Cattle feeders, nervous because of high breakevens, record capital requirements and bearish analytical rhetoric linked to weight data and extrapolations of such linked to currentness, have not been bullish. Huge futures discounts for months padded short hedging accounts, making up for some of the challenges.

Friday afternoon, cash cattle traded lower on limited volume and futures ignored the news and this week rallied to the highest levels seen since the first week of January, narrowing the basis big time. Yesterday, about 5k cattle traded in Kansas at mostly $155, though a few at $154.50 and only one packer was active, the remainder bidding $154. There are rumors of lower cash trades at this writing. This time futures interpreted the news as bearish and have sold off sharply this morning with spot Jun LC relinquishing all of its gains for the week while Aug LC with an outside week, barely clings to its weekly gains. Though it’s taken drastic kill cuts to make it happen, the packer appears to have won this round.

It remains to be seen what the impact of taking an estimated 160,000 head of fed kill away from end users in June will be. Some are bearish beef demand. No doubt the millions of pounds of beef flooding in from Australia and New Zealand are keeping the grinding complex supplied and some prices muted at a time when the middle meats are correcting.

But the real question here is where are the cattle? Carcass weights counter-seasonally declined in May. Kill cuts, at least at this point, have not backed up cattle. Never before has the industry had a less clear handle on actual fed supplies as traditional assumptions have proven inaccurate.

So are their enough fed cattle available this summer for packers to keep the pressure on? Now that the basis has narrowed it will likely take cash to continue to break to keep the board headed lower, even with an ugly technical weekly close today. 

The Beef

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April 24th: 90 Day Precipitation & Temperature Probabilities
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March 17th - Annual Sales Data for Cattle Farms & Ranches

The USDA’s National Agricultural Statistics Service has compiled data from the 2012 Census of Agriculture Farm Typology report profiling family farms/ranches in the United States.  For farms/ranches raising cattle or calves, the report lists a total of 740,978 operations...

  • Of those, 202,047 are listed as retirement farms, where the operators report they are retired, although they continue to farm on a small scale. 
  • On 266,250 cattle operations, NASS reports the operator has an off-farm occupation. 
  • Of the cattle farms where the operator’s primary occupation is farming, 
    • 130,774 are listed as having annual sales less than $150,000
    • 47,648 have sales of $150,000 to $349,999
    • 51,301 have sales from $350,000 to $999,999
    • 20,142 have sales from $1 million to $4,999,999
    • 2,609 have sales of more than $5 million
  • Non-family farms account for the remaining 20,207 cattle operations.
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February 27th - Comparison by State of Heifers Retained for Replacements
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January 1, 2015 Inventory vs. 2014 Inventory... Compiled from USDA National Agricultural Statistical Service Data
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Rank
State
2015
2014
% Change
2015 as
% of Total
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1
Texas
710,000
660,000
7.58%
12.29%
2
Montana
425,000
430,000
-1.16%
7.36%
3
Oklahoma
405,000
325,000
24.62%
7.01%
4
Nebraska
390,000
400,000
-2.50%
6.75%
5
South Dakota
380,000
340,000
11.76%
6.58%
6
Missouri
310,000
305,000
1.64%
5.37%
7
Kansas
260,000
240,000
8.33%
4.50%
8
Wyoming
183,000
175,000
4.57%
3.17%
9
Iowa
170,000
160,000
6.25%
2.94%
10
North Dakota
164,000
170,000
-3.53%
2.84%
11
Colorado
160,000
150,000
6.67%
2.77%
12
Arkansas
141,000
137,000
2.92%
2.44%
13/14
Kentucky
135,000
150,000
-10.00%
2.34%
13/14
Tennessee
135,000
130,000
3.85%
2.34%
15
Florida
125,000
115,000
8.70%
2.16%
16
California
120,000
110,000
9.09%
2.08%
17/18
Idaho
110,000
110,000
0.00%
1.90%
17/18
Oregon
110,000
105,000
4.76%
1.90%
19
Alabama
110,000
110,000
0.00%
1.90%
20
Virginia
105,000
115,000
-8.70%
1.82%
21
Mississippi
95,000
91,000
4.40%
1.64%
22
Minnesota
85,000
80,000
6.25%
1.47%
23
Georgia
83,000
82,000
1.22%
1.44%
24
New Mexico
80,000
70,000
14.29%
1.38%
25
Utah
 78,000
70,000
11.43%
 1.35%
26
Wisconsin
75,000
70,000
7.14%
1.30%
27
Louisiana
73,000
84,000
-13.10%
1.26%
28
North Carolina
69,000
72,000
-4.17%
1.19%
29
Illinois
64,000
63,000
1.59%
1.11%
30
Washington
51,000
50,000
2.00%
0.88%
31/32
Ohio
50,000
55,000
-9.09%
0.87%
31/32
Pennsylvania
50,000
50,000
0.00%
0.87%
33
Indiana
45,000
39,000
15.38%
0.78%
34
New York
40,000
45,000
-11.11%
0.69%
35
Nevada
37,000
36,000
2.78%
0.64%
36
Arizona
34,000
30,000
13.33%
0.59%
37
West Virginia
32,000
35,000
-8.57%
0.55%
38
South Carolina
30,000
30,000
0.00%
0.52%
39
Michigan
23,000
29,000
-20.69%
0.40%
40
Hawaii
11,000
9,000
22.22%
0.19%
41
Maryland
8,000
9,500
-15.79%
0.14%
42/43
Vermont
4,000
4,500
-11.11%
0.07%
42/43
Maine
4,000
3,000
33.33%
0.07%
44/45
Connecticut
2,000
1,500
33.33%
0.03%
44/45
Massachusetts
2,000
2,000
0.00%
0.03%
46
New Jersey
1,300
1,000
30.00%
0.02%
47
New Hampshire
1,000
1,000
0.00%
0.02%
48
Alaska
900
800
12.50%
0.02%
49
Delaware
700
500
40.00%
0.01%
50
Rhode Island
500
500
0.00%
0.01%






-
Total
5,777,400
5,551,300
+4.07%
 100.00%
.

February 27th - Beef Cows: State Rankings & Change
.
.January 1, 2015 Inventory vs. 2014 Inventory... Compiled from USDA National Agricultural Statistical Service Data
.
. Rank
. State
2015
2014
. % Change
2015 as
% of Total
 
 
 
 
1
Texas
4,180,000
3,910,000
6.91%
14.08%
2
Oklahoma
1,900,000
1,795,000
5.85%
6.40%
3
Missouri
1,881,000
1,820,000
3.35%
6.33%
4
Nebraska
1,786,000
1,807,000
-1.16%
6.01%
5
South Dakota
1,632,000
1,635,000
-0.18%
5.50%
6
Montana
1,506,000
1,476,000
2.03%
5.07%
7
Kansas
1,477,000
1,414,000
4.46%
4.97%
8
Kentucky
1,007,000
992,000
1.51%
3.39%
9
Iowa
920,000
895,000
2.79%
3.10%
10
Florida
916,000
907,000
0.99%
3.08%
11
North Dakota
904,000
923,000
-2.06%
3.04%
12
Tennessee
883,000
864,000
2.20%
2.97%
13
Arkansas
863,000
862,000
0.12%
2.91%
14
Colorado
745,000
710,000
4.93%
2.51%
15
Wyoming
694,000
694,000
0.00%
2.34%
16
Alabama
672,000
681,000
-1.32%
2.26%
17
Virginia
637,000
637,000
0.00%
2.15%
18
California
600,000
600,000
0.00%
2.02%
19
Oregon
525,000
516,000
1.74%
1.77%
20
Georgia
489,000
500,000
-2.20%
1.65%
21
Idaho
481,000
465,000
3.44%
1.62%
22
Mississippi
468,000
477,000
-1.89%
1.58%
23
Louisiana
466,000
450,000
3.56%
1.57%
24
New Mexico
407,000
407,000
0.00%
1.37%
25
Illinois
376,000
355,000
5.92%
1.27%
26
North Carolina
363,000
355,000
2.25%
1.22%
27
Minnesota
350,000
340,000
2.94%
1.18%
28
Utah
324,000
340,000
-4.71%
1.09%
29
Ohio
282,000
293,000
-3.75%
0.95%
30
Wisconsin
275,000
250,000
10.00%
 0.93%
31
Nevada
217,000
231,000
-6.06%
 0.73%
32
Indiana
199,000
187,000
6.42%
 0.67%
33
Washington
198,000
214,000
-7.48%
 0.67%
34
West Virginia
185,000
191,000
-3.14%
 0.62%
35
Arizona
175,000
178,000
-1.69%
 0.59%
36
South Carolina
170,000
169,000
0.59%
 0.57%
37
Pennsylvania
150,000
160,000
-6.25%
 0.51%
38
New York
115,000
105,000
9.52%
0.39%
39
Michigan
112,000
119,000
-5.88%
 0.38%
40
Hawaii
69,800
71,800
-2.79%
0.24%
41
Maryland
41,000
38,000
7.89%
 0.14%
42
Vermont
12,000
12,000
0.00%
 0.040%
43
Maine
11,000
11,000
0.00%
0.037%
44
New Jersey
7,500
7,000
7.14%
0.025%
45
Massachusetts
5,500
6,000
-8.33%
0.019%
46
Connecticut
5,000
4,000
25.00%
0.017%
47
Alaska
4,300
4,300
0.00%
0.014%
48
New Hampshire
3,000
3,000
0.00%
 0.010%
49
Delaware
2,500
2,800
-10.71%
 0.008%
50
Rhode Island
1,500
1,500
0.00%
0.005%






-
Total
29,693,100
29,085,400
+2.09%
100.00%
.

February 27th - All Cattle & Calves: State Rankings & Change
..
January 1, 2015 Inventory vs. 2014 Inventory... Compiled from USDA National Agricultural Statistical Service Data
.
Rank
State
2015
2014
% Change
2015 as
% of Total
.      
 
1
Texas
11,800,000
11,100,000
6.31%
13.14%
2
Nebraska
6,300,000
6,250,000
0.80%
7.02%
3
Kansas
6,000,000
5,800,000
3.45%
6.68%
4
California
5,150,000
5,250,000
-1.90%
-5.73%
5
Oklahoma
4,600,000
4,300,000
6.98%
5.12%
6
Missouri
4,000,000
3,850,000
3.90%
4.45%
7
Iowa
3,900,000
3,800,000
2.63%
4.34%
8
South Dakota
3,700,000
3,700,000
0.00%
4.12%
9
Wisconsin
3,500,000
3,400,000
2.94%
3.90%
10
Colorado
2,600,000
2,550,000
1.96%
2.90%
11
Montana
2,500,000
2,550,000
-1.96%
2.78%
12
Minnesota
2,330,000
2,300,000
1.30%
2.59%
13
Idaho
2,300,000
2,240,000
2.68%
2.56%
14
Kentucky
2,060,000
2,110,000
-2.37%
2.29%
15
Tennessee
1,730,000
1,760,000
-1.70%
1.93%
16
Florida
1,700,000
1,670,000
1.80%
1.89%
17
North Dakota
1,650,000
1,750,000
-5.71%
1.84%
18
Arkansas
1,640,000
1,650,000
-0.61%
1.83%
19
Pennsylvania
1,530,000
1,610,000
-4.97%
1.70%
20
Virginia
1,470,000
1,510,000
-2.65%
1.64%
21
New York
1,450,000
1,450,000
0.00%
1.61%
22
New Mexico
1,340,000
1,310,000
2.29%
1.49%
23
Oregon
1,300,000
1,280,000
1.56%
1.45%
24
Wyoming
1,300,000
1,270,000
2.36%
1.45%
25
Ohio
 1,250,000
1,250,000
0.00%
 1.39%
26
Alabama
1,220,000
1,270,000
-3.94%
1.36%
27
Washington
1,150,000
1,110,000
3.60%
1.28%
28/29
Illinois
1,140,000
1,130,000
0.88%
1.27%
28/29
Michigan
1,140,000
1,130,000
0.88%
1.27%
30
Georgia
1,040,000
1,040,000
0.00%
1.16%
31
Mississippi
910,000
930,000
-2.15%
1.01%
32
Arizona
880,000
920,000
-4.35%
0.98%
33
Indiana
870,000
860,000
1.16%
0.97%
34
North Carolina
800,000
810,000
-1.23%
0.89%
35
Louisiana
790,000
790,000
0.00%
0.88%
36
Utah
780,000
810,000
-3.70%
0.87%
37
Nevada
435,000
460,000
-5.43%
0.48%
38
West Virginia
370,000
385,000
-3.90%
0.41%
39
South Carolina
335,000
335,000
0.00%
0.37%
40
Vermont
260,000
260,000
0.00%
0.29%
41
Maryland
185,000
182,000
1.65%
0.21%
42
Hawaii
135,000
133,000
1.50%
0.15%
43
Maine
85,000
85,000
0.00%
0.095%
44
Connecticut
47,000
47,000
0.00%
0.052%
45
Massachusetts
38,000
39,000
-2.56%
0.042%
46
New Hampshire
30,000
32,000
-6.25%
0.033%
47
New Jersey
28,000
27,000
3.70%
0.031%
48
Delaware
17,000
16,000
6.25%
0.019%
49
Alaska
10,000
10,000
0.00%
0.011%
50
Rhode Island
5,000
5,000
0.00%
0.006%






-
Total
89,800,000
88,526,000
+1.44%
 100.00%
.

January 19th - Mixed Cattle Outlook for 2015

Tight margins and lower grain prices are encouraging cattle feeders to feed to heavier weights, helping offset lower numbers of cattle available for feeding and slaughter, according to the latest Livestock, Dairy and Poultry Outlook report from the USDA. At the same time, improved forage conditions appear to be encouraging ranchers to retain more heifers for breeding, which could further reduce supplies of feeder cattle in the near term.

Milk prices, meanwhile, are dropping, which could result in a pickup in culling of dairy cows. The average all-milk price for 2014 was a record high of $23.97 per hundredweight, up 19.6 percent from the 2013 price of $20.05 per hundredweight. But for 2015, USDA now projects an average all-milk price of  $17.75 to $18.55 per hundredweight, down from last month's forecast of $18.45 to $19.25.

Pork will become more competitively priced as the U.S. industry rebounds from the effects of Porcine Epidemic Diarrhea. USDA reports producers have increased breeding inventory increases express strong farrowing intentions, suggesting higher pork production and lower hog prices in 2015. Hog prices are expected to average $60 to $65 per hundredweight this year, almost 18 percent below prices in 2014.

Other key points in the report include:

  • Drought continues in the Southern Plains and Southwestern United States, although its intensity has abated somewhat. The U.S. Drought Monitor, released December 30, 2014, showed an improved situation for cattle country compared with last month.
  • Despite continuing drought, the limited precipitation has allowed wheat pasture to remain in relatively good condition, providing some opportunity for weight gains in feeder cattle being pastured on Southern Plains wheat.
  • Placements in 1,000-plus-head feedlots during November dropped 4 percent below 2013. November placements were the lowest and marketings were the second lowest for the month since the series began in 1996.
  • Any significant retention of heifers for rebuilding the cow herd would offset increases in beef production due to heavier slaughter weights. However, cow-calf operators face significant incentives to sell heifers as feeder cattle sooner rather than waiting for income from their calves at least two years later.
  • Commercial red meat production for the United States in November 2014 was down 9 percent compared with November 2013. Further, Livestock Slaughter showed a 10-percent drop in commercial beef production through the month of November 2014 compared with this time last year.
  • Average live weights of commercial cattle continue higher than last November, up by 24 pounds. Since September 2014, 5-Area Fed Steer live weights have consistently exceeded 1,420 pounds.
  • November 2014’s All-fresh beef retail value was $5.98 per pound, up nearly a dollar from a year earlier. Estimated average monthly Choice retail beef prices for January 2014 through November 2014 were $5.97 per pound, 13 percent above the same-period average of $5.28 for 2013.
  • For 2015, average annual retail beef prices are expected to be slightly higher than they were in 2014. Recent drops in gas prices have given some indication of additional spending power at the grocery store. Larger supplies of pork and poultry may limit beef price increases this year.
.

May 21st - As Fundamental Change Moves an Industry

It doesn't feel any different as you walk around but beneath the surface some large and monumental plates are shifting and the foundations of an industry are undergoing change. The day to day business continues and we wake every morning to new bids and offers, new grain prices, the drought, and other continuing influences but there are some big picture developments that are occurring while we move day to day.

  • Climate: There are major changes occurring in the climate. Extreme weather patterns are more severe and long lasting. Drought in some areas continues. Flooding in other regions is causing its own problems. We can debate whether it is man made or not, but large and serious weather patterns are at work and no one impacted more than agriculture.
  • Geography: Nebraska took over Texas's spot as top feeding state. The image below clearly demonstrates the loss of feeding capacities in Texas and increases else where. Processing plants follow the feeding locations for cattle and the southern plains has lost processing capacity to the northern plains -- but both have suffered plant closings and slow downs as the herd grows smaller.
  • Basis: Cattle and grain are moving towards cash markets trading basis the futures. Cattle cash trading has ceased to be reported in Texas and lightly reported elsewhere. Poor grain basis pricing, south of Amarillo, is pressuring south plains feedyards in competitiveness.
  • Sustainability: This is a term used by everyone and understood by no one. Beef retailers are being pressured to act on assuring the industry is observing best management practices to deliver a sustainable agriculture.
  • Mandatory ID: Whether it is a trading scandal involving phantom cattle or a disease threat that can't be traced, animal ID won't go away. International trade and exports will demand it or penalize our products without it.
Downsizing is no fun and lots of money has been lost in processing and feedings. Downsizing is always painful but it also can build a better and stronger industry through change.


The Cattle Report

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July 2nd: N
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