19 September 2009

9 minute read

Beef/Cattle Trade

Beef Imports Moderate as Australian Export Markets Incrementally Return

The United States has imported 1.697 billion pounds of beef through July, a 13 per cent increase year-to-date. Monthly import totals continue to be lower than the volumes imported earlier in the year. The United States is expected to import 2.815 billion pounds of beef in 2009, an 11-per cent increase from last year. In 2010, beef imports are expected to increase 6 per cent to 2.975 billion pounds.

Monthly imports from Australia have declined since the April total of 104 million pounds, which was a five year high for monthly imports from Australia. The US dollar has been steadily weakening since March, which has led to a greater share of Australian beef exports to Japan, South Korea, and other smaller markets in the ensuing months. US imports of Australian beef are currently more in line with historical averages for 2009, after 2008 volumes were considerably lower as emerging markets received a greater share of Australia’s exports.

Through July, the United States exported 1.021 billion pounds of beef, nearly unchanged from last year. The third quarter of 2008 had exceptionally high totals of beef exports, compared with totals over the past four years. As a result, cumulative export totals through the rest of the year should begin to lag behind last year. Beef exports are expected to fall 8 per cent in 2009, but are expected to increase nearly seven per cent in 2010.

US exports to Japan continue to grow compared with last year, by more than 12 per cent year-to-date. The Japanese yen has remained relatively weak against the dollar, making US product relatively cheaper in Japan and more competitive with Australian beef products.

Live Cattle Trade in Second Half of 2009 Will Depend on Weather

Through July, live cattle imports were 16 per cent lower than last year. The United States is expected to import 2 million head of cattle this year, more than a 12 per cent decrease from 2008. Weather could play a critical role for imports in the third and fourth quarters, as pasture conditions and forage supplies in the fall and early winter are important to feeder cattle coming off pasture in both Mexico and Canada. Generally, the fourth quarter of each year is when the most live cattle imports take place in the United States.

Mexican pasture has experienced drier conditions recently, after adequate precipitation in the spring and early summer. Mexico sends almost exclusively feeder cattle to the United States, to be fed in US feedlots and stocker yards. If there is little moisture in the late summer or early fall, Mexican cattle could be sent to the United States earlier in the fall. However, if rainfall allows for good pasture conditions, Mexican cattle could remain in Mexico longer. Good pasture conditions at the end of 2008 led to very low imports in the third and fourth quarters of last year, followed by a surge in early 2009. Imports of Mexican cattle have been about 22 per cent higher this year through July, compared with last year’s particularly low base.

Conversely, imports of live cattle from Canada have been lower than last year.

Through July, cattle imported from Canada are 32 per cent below 2008 quantities.

Last year, a combination of high feed prices and a strong Canadian dollar meant that US feeders were providing better returns for Canadian producers marketing feeder animals. However, the Canadian dollar weakened against the US dollar in late 2008 through March of this year, as a result of the financial crisis.

Additionally, decreased demand for beef has lowered fed cattle and feeder cattle prices in the United States. Although the Canadian dollar has strengthened considerably since March, lower demand for beef has not supported the same kind of returns as last year for Canadian feeder cattle.

Beef/Cattle

favourable Crop and Grazing Conditions Not Enough in Mediocre Markets

Current crop conditions are quite favourable, and, based on current production and price forecasts, the livestock feeding scenario for the next year is more favourable than in recent years. favourable weather has also allowed an extended grazing season for most areas. Despite the favourable crop outlook, current livestock price levels may keep positive profit margins elusive and will dampen any thoughts of inventory expansion for at least most of the next year.

Cow slaughter has picked up again, both seasonally and likely in response to the current round of Cooperatives Working Together (CWT) dairy herd retirements, but it remains below year-earlier levels. The current round of CWT dairy herd retirements are projected to be removed by early October 2009.

July 2009 placements of feeder cattle in feedlots of 1,000 head or more were 13 per cent higher than July 2008. However, this was likely partially due to some later than usual retention on widespread good pastures, given that placements for the second quarter of 2009 were the second lowest since second-quarter 1996. In addition, increased year-over-year placements of lighter weight categories of feeder cattle in 1,000-plus head Texas feedlots was likely in response to the ongoing drought in South Texas.

Breakeven costs at or near $89/cwt for cattle marketed during September are projected higher than the preceding months because of higher feeder cattle and feed prices last spring when cattle were placed. Looking ahead, fed cattle prices, currently in the low- to mid-$80 range, are likely to barely cover costs for feeder cattle placed on feed this month (September).

July average dressed weights were above year-earlier levels, averaging five pounds, and were also about seven pounds above the long-term trend for steers. Federally inspected steer and heifer dressed weights have continued to increase during the last few weeks, for several reasons. Dressed weights increase seasonally from a low in April/May because weather is generally more favourable for cattle feeding during spring and summer, which allows more feed to be utilized for growth rather than for body maintenance. In addition, a larger proportion of cattle placed in feedlots in late winter-early spring tend to be heavier, which generally results in heavier marketing/slaughter weights and, thus, heavier dressed weights.

This year, slaughter has been somewhat reduced during several of the past weeks because of packer margins, and this has resulted in at least some cattle remaining on feed longer than necessary, gaining excess weight, and also leading to larger carcasees. One sign is the increasing five day moving average dressing per centage accompanying the heavier five day moving average dressed weights, reported in recent weeks in the Agricultural Marketing Service’s Weekly National Carlot Meat Report.

Cutout values for Choice and Select beef remain just below the 5-year averages and well below year-earlier levels. Byproduct values, which are important for determining the net returns to meatpackers, have also increased in recent weeks and are now just above the five year average. Retail prices for Choice beef in August 2009, at $4.22 per pound, were one per cent above July’s $4.18 and almost seven per cent lower than August 2008’s record monthly price of $4.53. The All-fresh beef retail value in August 2009, $3.81 per pound, was almost one per cent above July’s $3.79 and seven per cent below August 2008’s $4.09.

Dairy

Milk Production Contracts Slowly as Rising Output per Cow Partly Offsets Herd Contraction; A Price Recovery is Forecast in 2010

The August Milk Production report showed US milk production estimates virtually unchanged from August a year ago, despite 145,000 fewer cows in the national herd. For the year to date, milk production has risen every month compared with the corresponding month a year ago, while the dairy herd has shown a decline for every month in 2009 since March. Continued low prices for milk and dairy products have not brought a decline in production, which would bring milk supplies into line with demand. Lower prices for feed ingredients, especially corn and alfalfa hay, have provided an incentive for producers to feed for milk production despite culling.

The calculated milk-feed price ratio has climbed from first-quarter lows near 1.5, but still has not exceeded 2.0 and is unlikely to reach 2.5 this year or next. A milkfeed price ratio near 2.5 or better is thought to signal expansion. Consequently, 2009 production is projected at 188.4 billion pounds, down less than one per cent from 2008. Production in 2010 is forecast to decline another one per cent from 2009 to 186.7 billion pounds as the herd size is expected to decline 2.8 per cent next year compared with this year.

Despite increased cheese exports to Mexico, the overall export picture is not optimistic. Dry milk exports have shown month-over-month increases since February lows but still lag year-ago levels. Export prospects in 2010 are not expected to improve much, rising to 3.8 billion pounds milk equivalent on a fats basis and 21.2 billion on a skims/solids basis.

Imports are expected to climb this year. Imports are projected to reach 4.2 billion pounds of milk equivalent on a fats basis and 3.8 billion pounds on a skims/solids basis. Imports are forecast to fall in 2010 compared with 2009, totaling 4.1 billion pounds on a fats basis, but to increase to 3.9 billion pounds on a skims/solids basis.

For the second quarter of 2009, commercial disappearance of cheese was ahead of the second quarter of 2008, while domestic commercial use of butter, nonfat dry milk (NDM) and whey trailed year-earlier levels. Stocks on a milk equivalent basis remain ample. For 2010, commercial disappearance on a fats basis will likely be virtually unchanged from 2009 totals. However, a decline in domestic commercial use from 201.9 to 200.1 billion pounds is expected on a skims/solids basis. Recovery in prices is unlikely until 2010 when the decline in milk production, forecast for both this year and next, impact the market. Even then, the price rebound will be mild. Cheese prices are expected to average $1.235-1.255 this year, unchanged from last month’s projection. Prices for butter, NDM, and whey are expected to be $1.165-$1.205 per pound, 85-87 cents per pound, and 23.5-25.5 cents per pound, respectively. For 2010, cheese prices are forecast at $1.510-$1.610 per pound, butter at $1.420-$1.550 per pound, NDM at 93.5 cents to $1.005 per pound, and whey at 28-31 cents per pound.

The relative strength of the cheese market compared with the butter/powder market is reflected in projected milk prices. Class III prices are expected to be $10.65-$10.85 per cwt this year and $13.75-$14.75 per cwt next year. The Class IV price, based on the butter/powder price is forecast at $10.10-$10.40 per cwt in 2009 and $11.95-$13.05 per cwt in 2010. The all milk price is projected at $12.05-12.25 per cwt for the current year and $14.55-$15.55 per cwt next year.

Further Reading

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