US Beef and Dairy Outlook Report - July 2009

By USDA, Economic Research Service - This article is an extract from the July 2009 issue of Livestock, Dairy and Poultry Outlook Report.
calendar icon 20 July 2009
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USDA Economic Research Service

Cattle: Increased dairy cow slaughter has offset declining beef cow slaughter since the last week of May 2009. Feedlot placements move in concert with fed cattle prices.

Beef/Cattle Trade: The United States is expected to import 13 per cent more beef in 2009, as imports from Australia are well above 2008 levels. U.S. beef exports have been hampered by reduced demand due to weak economies overseas and a stronger U.S. dollar making U.S. beef less competitive.

Dairy: Feed prices are expected to moderate slightly both this year and next. But milk supplies still lead demand, and exports are expected to be well behind the last two years. Consequently, prices will remain weak this year. A modest improvement in prices is expected in 2010 as the dairy herd decline helps to move supplies into line with demand.


Beef Supply Adjustments Underway

Beef cow slaughter has declined with improvements in pasture conditions due to spring rains. Dairy cow slaughter picked up as Cooperatives Working Together (CWT) cows began moving to market. The last of these cows were supposed to be slaughtered by the end of July 2009; on July 10, however, CWT announced a further round of buyouts. These bids are due by July 24. Cattle selected under this announcement would likely go to slaughter during the third quarter.

In a positive development for livestock feeders, corn and soybean prices declined in response to the National Agricultural Statistics Service (NASS) June Acreage report, in which the corn planted area was estimated at the second largest since 1946 and soybean area was the largest on record. This is expected to reduce feed cost pressure. Corn prices are forecast at $3.35-$4.15/bushel for 2009 and 2010 compared to $3.95-$4.15/bushel in 2008 and 2009. Soybean mean prices are forecast at $2.55-$3.15/ton for 2009 and 2010 compared to $3.20/ton in 2008 and 2009. Haying conditions appear relatively favorable across most of the United States, which should also benefit producers.

As reported in NASS’s Cattle on Feed report, placements of cattle in 1,000-headplus feedlots for May 2009 were slightly below industry analyst expectations. This may be indicative of adjustments still being made by cattle feeders to previously high feed and feeder cattle costs and low fed cattle prices due to beef supplies in excess of demand. The only weight group of cattle with larger year-over-year placements was the under-600-pound group. Texas led other States with such lightweight replacements, with a 62-per cent year-over-year increase. That increase may reflect responses to extremely dry pasture conditions in Texas, Louisiana, and Mississippi. The Cattle report to be released July 24 will provide breeding herd retention information and an indication of supplies of cattle outside feedlots.

According to the High Plains Cattle Feeding Simulator, feeding costs for cattle marketed from feedlots during June and July will be some of the lowest of the year. These cattle have some limited profit potential despite fed cattle prices also being at or near lows reached so far in 2009. Increased acreage expectations for the justplanted corn crop could further increase this profit potential, provided it is not bid away in higher feeder cattle prices.

Beef/Cattle Trade

Beef Imports 13-per cent Higher Than Last Year through May

The United States is expected to import 2.859 billion pounds of beef in 2009, nearly a 13-per cent increase from last year. The United States imported 238 million pounds of beef in May according to the latest official statistics, 3 per cent more than in May 2008. While the U.S. dollar has weakened since its apex in March, it still remains considerably stronger than the Canadian, Australian, and New Zealand dollars, the United States’ three largest sources of beef imports.

Higher U.S. beef imports continue to be driven by increased Australian beef. Despite the adverse effects of dry conditions on several months of herd rebuilding efforts in the southern regions, Australian cow herds are expected to continue to increase in the 2009-10 year, according to the Australian Bureau of Agriculture and Resource Economics (ABARE). ABARE also expects Australian exports to decline in the upcoming year, as a weaker economy in South Korea and the expectation of larger market shares of U.S. beef in both Japan and South Korea are likely to displace Australian product. Japan, the United States, and South Korea represent the three largest export markets for Australian beef. Without alternative markets and increased production expected, partially from a contracting Australian dairy industry, more Australian beef could come to the United States in the second half of 2009 and into 2010.

Cooperatives Working Together (CWT) announced that its latest herd retirement round removed 101,040 cows from the U.S. dairy herd. As these cows are slaughtered, they will increase the supply of processing meat and compete with imported beef for grinding. On July 10, CWT announced that they will be accepting bids for a second herd retirement program this year, with bids due by July 24. This should increase processing beef production later in the year as well. Cow slaughter in the 3rd and 4th quarter is already forecast to be above the same periods in 2008, not taking into account the recent CWT announcement. Unless other export markets emerge, such as Russia, Indonesia, Taiwan, or Canada, both foreign and domestic suppliers may feel downward pressure on prices for cows and boneless beef prices. Rising unemployment and lower wages, which decrease consumer expenditures in the United States, could also negatively impact prices, lowering demand for beef, and result in lower beef imports in outlying months.

Slow Economy in South Korea Affecting Sales of U.S. Beef

Since U.S. beef regained market access to South Korea in July 2008, U.S. beef exporters have faced challenging economic conditions that slowed growth of exports to that market. Since the global financial crisis and economic slowdown, many export-dependent South Korean firms have been affected by a fall in global demand for their products and a volatile Korean won. Consumer spending on imported beef from both the United States and Australia has fallen. U.S. beef has also had difficulties gaining a price edge over beef from New Zealand and Australia, a development that has kept gains in U.S. market share relatively modest.

The United States is expected to export a total of 1.744 billion pounds of beef in 2009, down nearly 8 per cent from last year. Through May, the United States had exported nearly 3 per cent more beef than in the same period last year. The 3rd quarter of 2009 is not expected to match the exceptionally high export total for the 3rd quarter of 2008. U.S. exports to Mexico, Canada, and Korea have fallen, yearover- year, but were higher in Japan through May. As with beef imports, exchange rates will impact the outlook for each country. Japan is the only country that has seen its currency appreciate against the U.S. dollar, which has led to higher imports of U.S. beef. The currencies of Canada, Mexico, and South Korea have all depreciated against the dollar, compounding effects of reduced demand for U.S. beef due to lower incomes and consumer expenditures. In 2010, U.S. beef exports are expected to increase 9 per cent as the global economy is expected to strengthen, increasing global demand for beef.


Further Reduction in Milk Supplies Needed Before Prices Will Rise

Feed prices appear to be moderating slightly from last year’s highs. Corn is forecast to average $3.95 - $4.15 per bushel in the 2008/09 crop year and $3.35 - $4.15 for the next crop year. Soybean meal prices will average slightly below the previous year in 2008/09 and are forecast lower in 2009/10. Feed prices, however, will remain above the 5-year average for both corn and soybeans. Forage prices will likely follow grain prices moderating into 2010. While welcome, lower feed prices alone will not restore producer profitability. Recession-reduced demand weakness will keep dairy product prices below year-earlier levels for the balance of 2009.

The result is continued pressure to remove cows from production. The Cooperatives Working Together (CWT) program is expected to remove about 101,000 cows from the herd by the end of July.1 The U.S dairy herd is expected to contract 1.5 per cent in 2009 from 2008 and another 2.6 per cent contraction is expected in 2010. Yet some of the decline in cow numbers is offset by continued gains in milk per cow. In 2009, milk per cow per day increased 1 per cent and is forecast to climb nearly 2 per cent in 2010. Milk production this year is projected at 187.6 billion pounds, unchanged from last month’s forecast and next year’s production is forecast at 186.4 billion pounds. This leisurely decline is encountering a recession-weakened domestic market.

Exports both this year and next, with the exception of whey, are likely to be well below the totals for the last two years, and are forecast at 3.8 billion pounds of milk equivalent, fat basis, in 2009 and 3.9 billion pounds in 2010. Whey exports, mostly to Mexico and China, have made the skims/solids exports numbers appear stronger. Those exports are forecast to total 19.9 billion pounds this year and 23.1 billion pounds next year.

Product prices will likely remain low in 2009. Cheese prices are projected to average $1.210 - $1.2402 per pound; butter prices are expected to average $1.175 - $1.235 per pound. The outlook for dry products is also for low prices for the year with nonfat dry milk (NDM) averaging 82.5 - 85.5 cents per pound and whey averaging 24 - 26 cents per pound. Prices are expected to recover in 2010 but not to their previous levels. Cheese prices are forecast to average $1.530 - $1.630 per pound in 2010. Butter prices are forecast to stage the strongest recovery and average $1.435 - $1.565 per pound for the year. NDM prices are expected to average $0.990 - $1.060 per pound for the year and whey 28 to 31 cents per pound next year.

The product price forecast presages weak milk prices this year and only modest improvements next year. Class III prices are forecast to average $10.45 - $10.75 per cwt in 2009 and $13.90 - $14.90 per cwt next year. The Class IV price is projected to average $9.95 - $10.35 per cwt in 2009 and $12.45 - $13.55 per cwt in 2010. The all milk price will likely average $11.85 - $12.15 this year, improving to $14.85 - $15.85 per cwt in 2010.

Further Reading

- You can view the full report by clicking here.

July 2009

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