US Beef and Dairy Outlook Report - March 2008

By U.S.D.A, Economic Research Service - This article is an extract from the March 2008: Livestock, Dairy and Poultry Outlook Report.
calendar icon 20 March 2008
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USDA Economic Research Service

Summary

Beef/Cattle: Dry conditions are spreading from Canada and Mexico into the Plains States, resulting in more cows sent to slaughter. Prices are holding steady in the cattle and beef sectors, despite competition with abundant supplies of all meats.

Beef Trade: Beef exports increased 25 percent in 2007; however, expectations for 2008 are for a more modest expansion. Annual beef imports declined for the third straight year, as heavy cow slaughter and a weak dollar continue into early 2008. Cattle imports are expected to increase 4 percent in 2008, primarily due to increases in imports of Canadian cattle.

Dairy: Milk yield will grow more slowly in 2008 as a near-term response to high feed prices. Milk production will continue upward through most of 2008, lowering prices. Exports will continue to figure prominently in dairy product price formation. Prices will be lower than in 2007, but not as low as they would be without exports.

Beef/Cattle

Cattle-Beef Sector Faces Dry Conditions and Large Supplies of All Meats

Although the January 1, 2008 cow inventory is lower than last year, first-quarter 2008 cow slaughter could exceed that in first-quarter 2007, which was 15 percent above first-quarter 2006. The commercial slaughter levels are relatively high, in part, because producers in Alabama, North Carolina, and Tennessee continue to face dry conditions and high feed costs. Dry conditions are also being seen southward from Canada through the northern Plains States and northward from Mexico through New Mexico and Texas, and are possibly contributing to the increased numbers of cows in the slaughter mix. Some cows are also being imported from Canada into the United States, adding to total U.S. commercial cow slaughter.

First-quarter steer and heifer slaughter is also adding up to be more than that for the same period last year, based on weekly AMS reports. The percentage of carcasses grading Choice and better often reach seasonal highs during the winter (January and February), and are often accompanied by seasonally low prices. Based on weekly AMS data, the share of cattle grading Choice and better is hovering around 60 percent for February 2008. The high proportion of cattle grading above Choice, the very narrow spread between Choice and Select cutout values—currently in the $2- $4 range—and relatively large cattle-on-feed inventories and slaughter, suggest more-than-adequate supplies of fed cattle for the near term. Combined with the industry view that excess slaughter capacity exists and the record supplies of alternative meats, prices would be expected to fall. However, fed cattle prices and wholesale cutout values were strong during mid-first-quarter 2008. Increasing exports and the low value of the dollar in international exchange may account for some of the anomaly. Average monthly retail prices also showed some strength in February 2008 over January, increasing 2 percent, from $4.10 per pound to $4.19.

Beef Trade

Beef Exports Increase 25 Percent in 2007

Total U.S. beef exports in 2007 were 1.431 billion pounds, a 25-percent increase from the previous year, as U.S. beef continues to recapture global markets lost as a result of BSE in 2003. Exports to every major trading partner expanded except one: Mexico. Although in the final months of the year, and heading into 2008, there were signs of decreased rates of export growth. January 2008 exports were 35- percent above last year’s monthly total. However, this primarily reflects low exports in the first quarter of 2007. The potential for export growth in 2008 may be limited under current market conditions, particularly in the latter portion of the year.

The summer months were the strongest point for U.S. beef exports in 2007, demonstrated by strong growth in the third quarter. This was in part due to more beef sent to Japan and Korea, the two largest pre-BSE customers. Shipments to Japan accelerated in the middle of the year, followed by more modest growth in the fourth quarter. Exports to Korea were disrupted by several cases of banned bone material found in shipments, which led to restrictions and closure of the Korean market to U.S. exporters. However, in the periods when trade did take place, it resumed rapidly and had a significant impact on export totals.

Although exports declined to Mexico, the largest customer for U.S. beef, U.S. exports were boosted north of the border by Canadian consumers in 2007. Exports to Canada were well above both 2006 and pre-BSE levels. Taiwan remained a strong Asian market for the U.S. beef, and Vietnam and Hong Kong also emerged as growing markets.

Trade figures for the final 2 months of 2007 indicate that U.S. beef export growth may expand more slowly going into 2008. November and December exports both increased only 15 percent from the previous year, despite the weak dollar--which makes U.S. beef more competitive on the world market. Concerns over a global economic slowdown could be affecting the demand for the high-value beef cuts U.S. meat producers generally export. For 2008, U.S. beef exports are forecast to be 1.54 billion pounds. While still above last year’s total, at 8 percent, it would be the smallest expansion since 2003.

Beef Imports Fall for Third Straight Year

U.S. beef imports totaled 3.052 billion pounds in 2007. This was a 1-percent decrease from 2006, marking the third consecutive year of decreased imports. Following strong year-over-year imports in the second and third quarters, fourth quarter imports fell dramatically. As a result, annual 2007 imports were just below those for 2006.

Large domestic supplies and the weakness of the U.S. dollar were the most prominent reasons for the import decline. High cow slaughter in the fourth quarter led to large supplies of domestic processing meat that reduced the need for imported processing beef. Concurrently, the U.S. dollar weakened globally. In particular it weakened against the Canadian, Australian, New Zealand, and Uruguayan currencies, the top four foreign suppliers of beef to the United States—making their products relatively more expensive in the United States.

Lower demand for foreign beef and higher prices led to fourth-quarter beef imports which—at 624 million pounds—were 13 percent below the fourth quarter in 2006.

The United States is projected to import 3.07 billion pounds of beef in 2008. Domestic supplies of processing beef will remain high because of heavy cow slaughter expected for the first quarter of the year. The dollar is also not expected to appreciate considerably in the near future. Many of the same conditions that existed in the final quarter of 2007 have carried over to the beginning of 2008.

Live Cattle Trade Up in 2007

Imports of live cattle by the United States in 2007 increased by 9 percent, with 2.495 million head crossing the borders. Mexican cattle entering the United States declined, as favorable weather for most of the year allowed for good grazing conditions in Mexico. Since 1970, only in 1996 and in 2002 did more Canadian cattle enter the United States than during last year. While cattle imported for immediate slaughter did increase from the prior year, they only accounted for 60 percent of the total cattle imports, compared with 68 percent in 2006. High feed costs, tight labor supplies in the Canadian meat packing industry, and a strong Canadian dollar that discouraged Canadian beef exports, led to an increase in feeder cattle entering the United States. New regulations were implemented last year allowing age-verified cattle over 30 months of age, born after March 1, 1999, to enter the United States from Canada; the rule was implemented in mid-November, and the impacts will likely be more noticeable this year.

This year, 2.6 million head of cattle are expected to enter the United States, a 4- percent increase from last year. In weekly USDA/AMS reports, feeder cattle from Canada remain high relative to their weekly histories. So far this year, slaughter cows and bulls have accounted for approximately 10 percent of the weekly imported cattle from Canada. If this trend continues, the new regulations put in place at the end of 2007 could have a fairly modest impact on this year’s import levels. The outlook for Mexico is very much weather-dependent. Mexican producers may continue to build their herd and develop their domestic industry. However, if the current dry weather continues in Mexico, grazing conditions could force more Mexican cattle to come north.

Cattle exports from the United States in 2007 totaled 64,509 head, almost a 30- percent increase from 2006. Exports to both Mexico and Canada were above 2006 totals. Due to Mexico’s relaxation of the ban against importation of dairy heifers under 24 months of age in October 2007, dairy cattle exported to Mexico in the fourth quarter were at levels not seen since before the first case of BSE in the United States. Weekly USDA/AMS reports show exports will continue to be high for Mexico. Sixty-thousand head of cattle are projected to be exported in 2008.

Dairy

Soaring Feed Costs Beginning to Curtail Expansion of Milk Production in 2008

Milk production is forecast to rise 2.7 percent in 2008 over 2007, reaching 190.7 billion pounds. The increase comes as cow numbers are forecast to rise about 1 percent in 2008. Feed prices continue to rise above year-earlier levels, and are expected to do so for the remainder of 2008. However, those producers who have expansion plans underway will continue to implement them. According to the Livestock Slaughter report, January dairy cow slaughter was very near last year’s level. Many farmers in the upper Midwest produce much of their feed on farm and are somewhat insulated from rising feed prices. The impetus for expansion continues in the West because of the lengthy process of obtaining permits. Once current expansion is complete, the process may slow because permits are becoming difficult to obtain, especially in California. Milk production per cow is projected to rise by less than 1 percent on a daily basis, well below the trend of the previous 2 years. Reduced feeding intensity is the short-term response to higher feed prices. Milk-feed ratios are expected to be weaker during 2008. Lower returns in mid-2008 may point toward contraction in the herd by late 2008.

Commercial use of dairy products is expected to increase by better than 3 percent in 2008 compared with 2007, well above the trend of recent years. However, higher production coupled with concerns about the overall economy will likely pressure product prices during the year. Cheese prices have likely crested for 2008 and are expected to decline slightly through the second half of 2008 to average $1.745 to $1.805 per pound. Although butter use may be helped by exports, larger supplies and potential weakness in the restaurant sector may exert pressure on prices. Butter prices are expected to average $1.225 to $1.315 per pound in 2008.

Although pressured by early-year supplies, nonfat dry milk (NDM) prices should climb in the second half of 2008 as tighter supplies encounter robust export demand and stable domestic demand. NDM prices are forecast to average $1.350 to $1.400 a pound in 2008. In 2008, whey prices are not expected to recover much. Lower prices may prompt some demand but supplies are sufficient. Prices will likely average 26.5 to 29.5 cents a pound this year.

Lower product prices will result in lower milk prices in 2008. The Class IV price is forecast at $14.95 to $15.65 per cwt, substantially below 2007’s average of $18.36 per cwt. The Class III price is expected to decline to $16.15 to $16.75 per cwt, down from 2007’s $18.04 per cwt average. The all milk price is forecast to average $17.30 to $17.90 per cwt, a drop from $19.13 in 2007.

Further Reading

More information - You can view the full report by clicking here.


March 2008

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