Beef/Cattle
Cattle and Beef Sectors Mostly Take Recent Events In Stride
Drought effects continue to diminish in the United States except for some areas in the Southeast and Southwest. However, most of the northern half of Mexico remains under drought conditions, resulting in a 22-percent year-over-year increase in year-to-date (weekly AMS data through May 5) imports of Mexican feeder cattle into the United States. Corn planting and emergence in the United States is well ahead of last year and the 5-year averages. Similarly, 88 percent of winter wheat is in fair-to-excellent condition leading to a decline in wheat prices. With wheat prices below corn prices, feeding with wheat could alleviate some of the pressure of high corn prices on cattle-feeding profit margins.
Federally inspected (FI) slaughter of beef cows has declined steadily since last fall when beef cows represented as much as 60 percent of total (weekly) FI cow slaughter. The cow-calf sector is enjoying high prices for both cull cows and feeder cattle and, despite record-high input costs, is one of two sectors of the cattle/beef industry experiencing positive profit margins—the other being beef packers, since early this month. Feeder cattle prices have dipped from their 2012 record levels of February and March due to declines in stocker calf spring/summer grazing demand and increasing cattle-feeding losses, but they are expected to increase later this year and in 2013.
Cattle feeders continue to experience negative feeding margins due to higher costs of feeder cattle and feed. Feed-grain prices are expected to moderate slightly through the spring and summer of 2012, but feeder cattle and soybean meal prices are expected to increase during the same period. Without a significant improvement in fed cattle prices and lower feed and/or feeder cattle prices, feeding margins will not improve.
The situation does not appear likely to improve until later in 2012 or early 2013 when new-crop corn prices decline. Weaker corn prices are likely to be accompanied by relatively high protein-meal prices because of an apparent shift from soybean acreage to corn acreage, leading to the expectation of higher supplies of new-crop corn and associated price declines. Another factor offsetting lower new-crop corn prices is anticipated increases in feeder cattle prices over the remainder of 2012 and throughout 2013 in response to the tightest feeder cattle supplies in decades.
In hindsight, cattle and beef prices appear to have reached a seasonal spring high early this year, consistent with recent and anticipated weather patterns and their effects on weight gains by cattle in feedlots through the past mild winter. While seasonal price patterns would typically be lower during the summer, the highest prices for 2012 are anticipated to occur during the second half of the year. Based on normal seasonal price patterns, wholesale beef markets appear to have weathered the bovine spongiform encephalopathy (BSE) and lean finely textured beef (LFTB) storms of March and April 2012 without serious price damage. An exception is the market for 50-percent lean trim. Although short-term impacts are negative, the future outcome for LFTB and 50-percent lean beef trim demand and prices is uncertain and will depend on how consumers respond to LFTB. Prices for 90- percent lean beef have increased steadily since reaching a low in September 2011.
Otherwise, price impacts as a result of the April 23 BSE event have been limited primarily to most live and feeder cattle futures price contracts declining by their daily allowable limit on April 24, 2012, followed by a quick recovery. In the meantime, packer margins have improved to show positive returns for the first time since last September. Retail beef prices continue near their highest levels, averaging $5.05 per pound for Choice beef and a record $4.70 per pound for allfresh beef in April.
Beef/Cattle Trade
First-Quarter U.S. Beef Exports 12 Percent Lower
Beef exports in the first quarter of this year have been sluggish compared with a year ago, perhaps due to a slightly strengthening U.S. dollar through first-quarter 2012. U.S. beef exports were lower year-over-year to Japan (-4 percent), Mexico (- 11 percent), South Korea (-41 percent), and Hong Kong (-19 percent). Exports to Egypt and Vietnam were higher, year-over-year, by 31 and 37 percent, respectively. Total U.S. beef exports are expected to decrease in the third and fourth quarters of 2012 compared with year-earlier levels as less beef is available for export. U.S. beef production is expected to be 5 and 8 percent lower in the third and fourth quarters of 2012, and exports are expected to be 9 percent and 6 percent lower in those quarters. Beef export levels in 2013 are expected to be only slightly (1 percent) below forecast 2012 levels, at 2.65 billion pounds.
First-Quarter U.S. Beef Imports 27 Percent Higher
U.S. beef imports for 2012 are forecast over 18 percent higher, year-over-year, at 2.4 billion pounds. First-quarter imports were 26 percent higher compared with a year earlier Imports were 91 and 4 percent higher, year-over-year, from Australia and New Zealand and 13 and 40 percent higher from Canada and Mexico, respectively. U.S. beef imports for the second, third, and fourth quarters of 2012 are forecast to be 12, 16, and 22 percent higher year-over-year. Increased imports are expected from Oceania, as improved pasture conditions in Australia and New Zealand have boosted carcass weights and production in those countries. Strong U.S. demand for processing beef, amid tightening U.S. production, is expected to at least partly offset the higher Australian dollar and to support higher imports of beef to the United States. U.S. beef imports from North American trading partners Canada and Mexico are also expected to remain strong compared with year-earlier levels. Growth of 8 percent in the U.S. beef import market is forecast for 2013, totaling 2.6 billion pounds.
Higher Mexican Cattle Imports Offsetting Lower Imports from Canada
U.S. cattle imports through the first quarter are fractionally higher compared with the same period a year ago. Lower imports from Canada have been offset by higher imports from Mexico through the first quarter of 2012. Cattle imports from Mexico were 24 percent higher than in 2011 through March. The continued increase of cattle imported to the United States from Mexico stems from the severe drought conditions that were—and in some cases, still are—present in the southern tier of the United States throughout last year and which extended into northern Mexico.
Present export rates of cattle from Mexico may be; however, it remains to be seen whether, and to what extent, Mexican cattle exports to the United States may drop off as the year progresses. This may be largely dependent on weather patterns and if pasture conditions improve.
In the first quarter cattle imports from Canada were 5 percent below a year ago. According to AMS weekly reports, imports of slaughter steers/heifers and cows through April are 11 and 18 percent below year-earlier levels compared to the same time period last year. The lower import levels are likely due to Canadian producers being in the midst of herd rebuilding and retaining females for breeding. Imports of Canadian feeder cattle, however, are 69 percent higher than a year ago, due to a sluggish spring Canadian feeder cattle market and a stronger price incentives in the United States. Total U.S. cattle imports for 2012 are forecast at 2.075 million head and at 1.95 million head in 2013, or 6 percent lower year-over-year.
Dairy
Milk Production Continues Robust Expansion While Prices Soften; in 2013, a Modest Production Increase Could Help Support Prices
Corn prices are moderating for both the current crop year and for 2012/13. The corn price is projected to be $5.95 to $6.25 a bushel in 2011/12, a decline from April’s projected price and to slip to $4.20 to $5.00 a bushel next year. Higher corn plantings and higher expected yield could lead to a record-high corn supply in 2012/13 despite tight carryin stocks. The recent Crop Progress report showed a crop well ahead of average development for this time of year. While this is no guarantee of above-average yields, it minimizes the risk of yield loss due to late planting. Soybean meal prices continue to inch upward; this month’s forecast calls for soybean meal prices to average $360 a ton for the current crop year, up from April’s forecast. For 2012/13, prices are forecast at $335 to $360 a ton. The April Agricultural Prices reported the preliminary estimate of alfalfa hay prices at $207 per ton. Hay prices could move downward with the 2012/13 crop. The benchmark 16-percent protein dairy ration was calculated at $11.20 per cwt for January-March 2012. Given crop price forecasts, the ration value will likely head down later this year and could fall further in 2013. For dairy producers, the welcome relief from high feed prices will likely be countered by lower milk prices for the balance of 2012, with some recovery likely in 2013. On balance, the milk-feed price ratio is not expected to signal expansion until later in 2013.
The total number of milk cows for 2012 was raised slightly from April to 9.23 million head. The Milk Production report indicated higher than expected cow numbers and, despite weakening returns, producers were not reducing herds as quickly as expected. May is the first month for 2013 forecasts. The dairy herd in 2013 is expected to decline to 9.17 million head, reflecting 2012’s high feed prices and lower milk prices. Milk per cow for 2012 was boosted to 21,880 pounds from the April projection. Production per cow is forecast at 22,100 pounds for 2013. The rise in milk per cow this year is due to nearly ideal production conditions in much of the United States. Next year’s projected increase in production per cow reflects the moderating feed price outlook. Production for 2012 was raised this month to 201.9 billion pounds. The initial forecast for 2013 is for production to reach 202.6 billion pounds, based on higher output per cow.
Milk-equivalent imports on a fats basis are forecast at 3.3 billion pounds for both 2012 and 2013 and 5.4 and 5.2 billion pounds for 2012 and 2013 respectively on a skims-solids basis. Milk-equivalent exports on a fats basis are projected at 8.5 billion pounds in 2012, rising to 8.7 billion pounds next year. Exports on a skimsolids basis are estimated at 31.5 billion pounds this year and 32.4 billion pounds in 2013.
Higher than expected milk production and weaker-than-expected demand led to lowering of the 2012 prices for the major dairy products in May, except for whey. The cheese price was lowered to $1.555 to $1.605 per pound, butter was reduced to $1.425 to $1.505 per pound, and the nonfat dry milk price was revised to $1.235 to $1.275 per pound. The whey price was increased to 56.0 to 59.0 cents per pound as it appears demand is stronger than expected earlier. Next year’s milk production increase is modest, keeping with the herd-size declines, in response to 2012’s high feed prices and lower milk prices. Higher forecast exports and continued firm domestic demand should strengthen 2013 prices. The 2013 cheese price is forecast at $1.600 to $1.700 per pound, butter at $1.465 to $1.595 per pound and NDM at $1.320 to $1.390 per pound. Whey prices are forecast at 55.5 to 58.5 cents per pound, very near 2012 prices.
Milk prices for 2012 were revised downward based on lowered product prices. The Class III price is projected at $15.80 to $16.30 per cwt, the Class IV price was lowered to $14.50 to $15.10 per cwt and all milk is projected at $16.90 to $17.40 per cwt. In 2013, milk prices should recover. The Class III price is forecast at $16.20 to $17.20 per cwt, the Class IV price is forecast to rebound to $15.40 to $16.50 per cwt and the all milk price is expected to climb to $17.25 to $18.25 per cwt.