Cattle Market Notes: Week Ending May 23, 2014

Cash Cattle:

Cash fed cattle were down about $2 this week. The five-area weighted average steer price for the week ended Friday was $144.69, down $2.26 from the previous Friday, and dressed steers averaged $232.26, down $1.08. Live trades in Texas were $143-$144 on Thursday, while in Kansas cattle sold at $144 on Friday. In both Nebraska, live and dressed sales were reported at $144-$145.50 and $230-$234, respectively. In the Western Cornbelt prices were a tick stronger were at $145-$146 and $230, respectively, for live and dresses.

Feeder steers in Mississippi auctions this week were once again mostly steady but remain at the record levels experienced the past few weeks. Feeder heifers were $1-$2 lower on the week. Lightweight steers were much stronger, up $2-$7, while  heifer calves were mostly even. Cull cows and bulls in Mississippi were mostly steady as well. In Oklahoma City, heavy feeder steers were $3-$6 higher, light feeder steers were steady to $3 higher. Feeder heifers were called steady to $2 higher in Oklahoma City, while steer calves were firm to $4 higher and heifer calves were steady to firm.

[ … For Livestock Prices and Production data and trends CLICK HERE … ]

Futures:

Live cattle futures surged higher on Monday in the wake of the Cattle on Feed report. This was followed by a mostly quiet market mid-week. As the week closed out, prices began to slide. News of cash markets being down about $2 was the primary reason for the decline. Boxed beef prices moved higher early in the week before leveling off, which provided support. Also of note, the ground beef recall is likely sticking in market participants minds but appear to be having a limited impact thus far indicating the supply side of the market is in the driver seat for the time being.

Corn futures ended the week lower as planting progress is finally taking shape. U.S. growers were 73% complete as of May 18, an increase of 14 percentage points. This compares to a 5-year average of 76%, so after a slow start we once again see just how quickly producers today can (literally) make up ground. Mississippi looks to be mostly finished at 97% complete. As a result, the market gained some confidence in the crop and removed a bit of the “weather premium”.

Beef:

Wholesale boxed beef prices were higher this week with both Choice and Select rising early in the week before leveling off around $231 and $220, respectfully, by the week’s end. Choice boxes averaged $230.48, up $5.14. Select boxes were $219.74, up $4.58.

Note: all cattle and beef prices are quoted in dollars per hundredweight and corn prices are quoted in dollars per bushel, unless stated otherwise.

Air quality scares Pascagoula residents

From the Sun Herald:

A neighborhood along Bayou Casotte, in the heart of the state’s most industrialized county, has been co-existing with industry for decades.

But in the last two years, things have changed.

A sticky dust blows in and there’s a strong acrid smell that lingers day and night. Residents with heart or immune problems are reporting breathing issues.

Neighbors say when they mow their lawns, the dust that’s kicked up burns eyes, noses and skin. There is silica, cadmium, aluminum and other metals in soil samples. Smells persist.

Unfortunately the article doesn’t suggest any ideas about why the problem has suddenly appeared, or become worse, in the past two years. This is a classic externality problem, where production by industry creates a negative effect (air pollution) on a third party (the nearby residents).

Apparently the nearby industries have met with neighborhood representatives and have undertaken some actions, but one woman says that no one is taking responsibility:

She said Mississippi Phosphates came to her house with an air monitor to tell her the problem wasn’t theirs.

VT Halter shipbuilding has met with her several times. It responded to a call on May 14 and determined a smell she reported was not coming from Halter.

All the industry say they’re meeting air-permit requirements.

 

So one problem is that the source of the pollution can’t be identified, at least not by residents, without additional help. This makes it harder for different parties (the residents) to unite their voices against the polluter because the specific polluter is unknown.
A second problem is that the industries are meeting their air-permit requirements so they have little incentive to cut emissions further because it is costly to do so.
The Coase Theorem states that, under certain conditions, parties (here, the residents and the industries) can get together and solve an externality problem without any government or policy intervention. But one of those conditions is that the people negatively affected by the externality can get together and bargain with the polluter. Because the polluter can’t be identified, and because there are many people negatively affected by the pollution (which makes coordination challenging), this condition is hard to meet in this case. Policy intervention may therefore indeed be the best course of action…although I’m not saying there is or isn’t a need for it in this case specifically.

 

Crop Market Update: May 20, 2014

U.S. producers are right on pace in getting their crops planted this spring, but emergence is still slightly behind average. U.S. producers currently have 73% of the U.S. crop currently planted compared to a 5-year average of 76%. Emergence of the U.S. corn crop is at 34%, behind the 5-year average of 42%. U.S. producers were able to get 14% of the corn crop planted last week and 30% of the crop in two weeks ago. Mississippi producers are nearly finished planting corn with 97% of the crop in compared to an average of 99%. 89% of Mississippi’s corn crop has emerged, behind the 5-year average of 97%. Despite a slow start, Mississippi’s corn crop has benefited from a wet spring with 66% of the crop falling into the good or excellent category. Corn prices have been trending down since the release of the May World Agricultural Supply and Demand Estimates, likely a result of another record crop expected this summer.

Soybean planting is well ahead of a year ago and right on pace with the 5-year average. 73% of the Mississippi soybean crop is in the ground compared to only 32% at this time a year ago and a 5-year average of 71%. Mississippi producers have seen 48% of the soybean crop emerge, a little behind the 5-year average of 58%. U.S. producers have 33% of the soybean crop planted, with 13% planted in the last week. Soybean planting progress is behind the 5-year average of 38%, but well ahead of last year’s pace. Short supplies have been supporting soybean markets this spring, despite falling corn prices and expectations of a record soybean harvest this fall.

U.S. wheat conditions continue to decline, with only 29% of the crop rated good or excellent while 41% is rated poor or very poor. The U.S. wheat crop is on pace with the 5-year average, with 58% of the crop headed out, although with such poor crop conditions, questions remain as to how much will be harvested in states such as Kansas (12% good or excellent), Oklahoma (5% good or excellent), or Texas (11% good or excellent). Each of these three states are also in the top ten nationally in wheat production. Mississippi is faring far better with 68% of the wheat crop rated good or excellent and 96% of the wheat in the state is headed out. Despite the negative outlook on U.S. wheat production, wheat prices have been trending lower over the last week. Much of this can be explained by a positive outlook on global wheat production that should offset lower U.S. production.

For more detail on crop futures and Mississippi local cash prices click here. Detailed information on crop progress and condition can be found here.

Cattle Market Notes: Week Ending May 16, 2014

Cash Cattle:

Fed cattle continue to experience limited cash trading volume. The five-area weighted average steer price for the week ended Friday was $146.95, down $3.07 from the previous Friday, and dressed steers averaged $234.06, down $1.99. Live trades in Texas were $144-$146 on Thursday, while in Kansas cattle sold at $145 on Friday. In both Nebraska and Iowa, live and dressed sales were reported at $147-$147.50 and $234-$235, respectively on Thursday.

Feeder steers were mostly steady and feeder heifers were $1-$2 lower in Mississippi markets this week. Lightweight steers were stronger and heifers were mostly even. Cull cows and bulls were mostly steady as well. Feeder steers and heifers were called $2-$4 higher in Oklahoma City, while steer calves were $2-$6 higher and heifer calves were steady to $3 higher, both in a light test.

[ … For Livestock Prices and Production data and trends CLICK HERE … ]

Futures:

Live cattle futures ended the week mostly steady with last Friday’s close. Feeder cattle futures were higher for all contract months largely due to declining corn prices. From an industry perspective there was limited market moving news. Boxed beef prices jumped early in the week but held steady (around $225 for Choice) the remainder of the week. Cattle harvest volume continues to decline, ending the week 1.5% lower than the previous week and 9.6% below one year ago levels. But, most of this is fairly well known. In terms of news that actually provided direction, equities attempted a rise mid-week with the S&P eclipsing yet another record but then fell back to the end the week. Mid-May consumer sentiment, a useful gauge of demand, was lower than April’s number and lower than expected at 81.8, but the housing market looks to be on the rise. After the markets closed on Friday USDA released their monthly Cattle on Feed report. The report showed fewer cattle placed (5% lower than last year at 1.636 million head), marketed (2% lower at 1.778) and on feed (1% lower at 10.648). For a detailed synopsis CLICK HERE.

Corn futures ended the week mildly lower. The week started lower, still reeling from the bearish global supply and demand report last week. A 30 percentage point increase in corn planting progress was also noted in the market (from 29% to 59% as of May 11). Plantings have no doubt been delayed again this year but significant progress can be made in today’s environment and we see that in effect this year. Corn exports were also a bit more disappointing than expected.

Beef:

Wholesale boxed beef prices were mixed this week with Choice still on the decline and Select moving higher. Both grades started the week lower but jumped higher on Tuesday and finished the week mostly steady. Choice boxes averaged $225.34, down $1.23. Select boxes were $215.16, up $1.76. This narrowed the Choice-Select spread to $10.18, an occurrence that typically happens later in May or early June.

Note: all cattle and beef prices are quoted in dollars per hundredweight and corn prices are quoted in dollars per bushel, unless stated otherwise.

May Cattle on Feed Report Recap

The United States Department of Agriculture’s National Agricultural Statistics Service (USDA, NASS) released their monthly Cattle on Feed report Friday afternoon (May 16). The report revealed that 10.648 million head of cattle were in U.S. feedlots with a capacity of 1,000 head or larger on May 1, 2014. Placements into feedlots during the month of April totaled 1.636 million head while marketings totaled 1.778 million head.

[ … For detailed numbers and charts CLICK HERE … ]

Placements totaled 1.636 million head, a decrease of 4.9% from April 2013 and a 1.0% decrease from the five-year average from 2009 to 2013. The average of analysts’ expectations called for a decrease of 3.2% from the April 2013 number and the range of expectations ran from a decrease of 10% to an increase of 0.5%. So, there have been two straight months with a drop in placements of cattle. Keep in mind expectations called for smaller placements in January and February but those were wrong as sellers (cow-calf folks and backgrounders) had the urge to send cattle into feedlots. While that urge may still exist, the cattle most likely do not. So, expect fewer placements in the coming months as well (unless cattle slip in from the north and south).

Placements were lower in every state excluding South Dakota and Washington. Extremely drought plagued California had 8.1% fewer placements and, in talking with feeders, more California cattle are landing in locations outside of the state. Despite the overall decline, lightweight placements (under 600 pounds) were 4.1% higher than last year. This is likely the result of higher prices providing an incentive to sell. Those cattle were too light to send to feed in earlier months and were sent as soon as possible.

Cattle marketed in April totaled 1.778 million head, down 2.0% versus last year and down 3.0% compared to the average from 2009 to 2013. Pre-report expectations called for marketings to come in at a 2.1% drop, so the reported value was very much in-line with the average of expectations.

As a result, total inventories on May 1 were 10.648 million head, down 1.0% from one year ago and down 1.9% from the five-year average. Pre-report expectations called for a decline of 0.8% and fairly tight range from -1.5% to 0.0%.

Fewer cattle were placed than expected (though still within the wide range of expectations). Marketings and May 1 inventories were nearly in-line with pre-report expectations. As a result the market will most likely view the report as neutral. Some pressure could be felt by more deferred live cattle contracts given the higher year-over-year increase in lightweight placements. Feeder futures should respond positively since it continues to support the overall lack of available feeder supplies.

A break down on the numbers can be found at this link: http://goo.gl/1M4YXv

Cattle Market Notes: Week Ending May 9, 2014

Cash Cattle:

Cash fed cattle continue to experience limited trading volume. The five-area weighted average steer price for the week ended Friday was $150.02, up $2.23 from the previous Friday, and dressed steers averaged $236.05, down $0.33. In Kansas, cattle sold at $146 live. In Nebraska, live and dressed were reported at $150 and $238, respectively.

Feeder steers were called $1-$4 higher in Oklahoma City on Monday and feeder heifers were $2-$5 higher. Calves in OKC were called firm. Feeder steers were $6-$8 higher while heifers were mostly even in Mississippi markets this week. Cull cows and bulls were steady to $4 higher.

[ … For Livestock Prices and Production data and trends CLICK HERE … ]

Futures:

Cattle futures ended the week mildly higher. It was a week of slow and steady progress for the most part. News of improved cash market action helped provide support, while boxed beef slid most of the week invoking concern. Corn took a dive on Friday helping end the week on a positive note for live and feeder cattle contracts. USDA released their monthly supply and demand estimates for many agricultural products on Friday (May 9). The report revealed an estimated 24.563 billion pounds of beef production for 2014, 4.5% lower than 2013. Revisions to 2014’s supply were in-line with events thus far in the year with upward adjustments to the first and second quarter supplies, totaling 43 million pounds, given the larger placements into feedlots, while second half of the year supplies were reduced 45 million pounds.

Corn futures ended the week higher as planting progress remains behind schedule. The supply and demand report for corn revealed increased demand for the crop in bins (old crop) thus shrinking corn inventories as we transition into new crop supplies. The report also was the first to project what the new crop might shape up to be. USDA is projecting 2014 corn production at 13.935 billion bushels. Despite the smaller carry-over from 2013’s crop, corn prices were lower on Friday as global corn inventories were raised 6.5%. For more detail on the report CLICK HERE.

Beef:

Wholesale boxed beef prices moved lower this week. Choice boxes averaged $226.57, down $5.30. Select boxes were $213.40, down $7.15.

Note: all cattle and beef prices are quoted in dollars per hundredweight and corn prices are quoted in dollars per bushel, unless stated otherwise.

Supply and Demand Report Recap for Cotton

USDA’s World Ag Outlook Board released their monthly World Agricultural Supply and Demand Estimates report on Friday (May 9). The May report is always the first of the year to provide forecasts of the new marketing year (July 1, 2014 through June 30, 2015 marketing year in this case for cotton). The crop currently being planted will largely fall into the new marketing year and therefore it offers the first outlook on production, imports, domestic consumption, exports, and the resulting carry-over into the next marketing year.

Now, understandably, little is known about the crop that is in the process of being planted. Acreage is from the March 31 Prospective Plantings report, but even those numbers might change. Yields are derived from historical trends. Consumption values (domestic use, imports, and exports) are based on typical movement with some level of subjectiveness based on current bookings. So, much is still up in the air with current crop.

With that said, the new cotton projections are calling for a 14.5 million bale production from U.S. growers. This is based on a national average yield of 824 pounds per acre and 8.45 million harvested acres (76% of all planted acres). Domestic cotton use is projected at 3.7 million bales (up 100,000 from the previous marketing year). Cotton exports are projected to be down 700,000 from the last marketing year at 9.7 million bales. Ending stocks would come in at 3.9 million bales based on these numbers, or 29% of total use.

The current marketing year (July 2013-June 2014) vales were altered just a bit. Acres harvested were lowered slightly from 7.66 million in April’s report to 7.54 million, while yield was raised from 806 to 821 pounds per acre. The most note bale change was a reduction in U.S. exports from 10.7 million bales estimated last month to 10.4 million in this report. Talk of China scaling back their imports along with a moderately higher dollar were the likely culprits of this change. This pushed 2013/14 ending stocks up to 2.8 million bales, compared to 2.5 last month, which is a 20% stocks-to-use ratio.

Globally, few changes were made. Ending stocks were raised slightly, from 96.75 in April to 97.91 this month. The reason was the higher U.S. ending stocks and 750,000 more stocks in China.This leaves China holding 61% of the 2013/14 marketing year inventories.

The projections for the global 2014/15 supply and demand shows 115.46 million bales of production compared to 117.13 million bales for 2013/14. The most notable change here is a pull back in Chinese production from 32 million bales last year to an expected 29.5 million in the upcoming marketing year. Total world use is forecast at 111.83 million bales versus 109.38 last year and total ending stocks are at 101.66 million bales compared to the 97.91 mentioned earlier. Market analysts were looking for global ending stocks to be 99.6 million bales, so the reported value was a bit higher.

Overall, the report was bearish for the cotton market. The higher U.S. and global ending stocks weighed on the market as everyone continues to try an figure out what to do with all these bales in inventory.

 

New Revenue Options in the 2014 Farm Bill

The Agricultural Act of 2014 introduces three county-triggered shallow loss programs – Supplemental Coverage Option (SCO), Stacked Income Protection Program (STAX) for cotton, and the county triggered version of Agricultural Risk Coverage (ARC).  All three programs have the potential to be used as a risk management substitute for individual coverage crop insurance.  However, it is important to note that aggregate county revenue is less variable than the average farm in that county.  This largely stems from less than perfect correlation of yields within the county.  The bottom line when one evaluates a county-triggered program versus and farm-triggered program, one needs to recognize (1) county-based programs will usually trigger less frequently and pay less indemnity than an identical layer of farm level coverage, and (2) county-based programs are not perfectly correlated with farm losses because farm and county yields do not rise and fall in perfect lockstep with each other.

The following chart focuses on the first issue – county revenue tends to be less variable than farm revenue for a commodity.  Computer simulations of farm and county revenue risk for hundreds of counties were conducted to determine the frequency that farm revenue and county revenue fall below 86% of expected revenue (the trigger point for ARC and SCO).  The results are averaged by each of five crops.  While there is variation within the data, county-triggered programs are about 10% less likely to trigger than a typical farm in the county, and all else equal, pay less than the same layer of crop insurance protection.  The exception to this will be when the farm is significantly less risky than the county average.  For example an irrigated farm in a mostly non-irrigated county.

Farm or County Revenue Less Than 86 Percent of Expected

May Supply and Demand Estimates Give First Look at 2014/15 Crops

Friday’s World Agricultural Supply and Demand Estimates (WASDE) reduced 2013/14 U.S. corn ending stocks to 1.146 billion bushels, much lower than the expected 1.314 billion bushels. Much of the decrease in old-crop ending stocks is a result of a boost in exports. New crop ending stocks are estimated to be 1.726 billion bushels, which comes in higher than average pre-report expectations of 1.672 billion bushels. Compared to the 2013/14 crop, domestic use for corn is expected to be 50 million bushels lower in 2014/15 with the reduction a result of decreased feed use. U.S. exports for the 2014/15 crop are expected to be about 200 million bushels lower, while production is expected to be about 10 million bushels higher than last year at 13.935 billion bushels. If realized, that would mark the second consecutive record corn crop. On the global corn market, ending stocks for the 2014/15 crop are estimated to be 181.73 million metric tons, an increase of 13.31 million metric tons from the 2013/14 crop. The U.S. is expected to again be the world’s largest corn producer with China coming in second, while Japan, Mexico, and the European Union will be the largest importers of corn.

Old crop U.S. soybean stocks were reduced another 5 million bushels from last month’s estimate to 130 million bushels, lower than trade expectations of 134 million bushels. Old crop soybean crush was revised up by 10 million bushes and exports were revised up by 20 million bushels, but those increases were partially offset by an upward revision in imports. New crop 2014/15 soybean ending stocks are expected to be more than double the old crop stocks at 330 million bushels. This comes in slightly higher than the trade expectations of 307 million bushels. Production will be 346 million bushels higher than a year ago at 3.635 billion bushels, which if realized would be a record crop. Soybean crush and exports are both expected to be higher than the old crop numbers. Global soybean ending stocks are also expected to be much higher in 2014/15 at 82.23 million metric tons compared to 66.98 in the 2013/14 crop year. The U.S. is again expected to be the global leader in soybean production with Brazil trailing by just under 8 million metric tons, although Brazil is expected to export slightly more soybeans than the U.S. China will be the world’s largest soybean importer, bringing in 72 million metric tons from other countries, which comprises nearly 2/3 of the world’s imported soybeans.

Old crop U.S. wheat ending stocks were unchanged from last month, although there was some adjustments to where the crop is being consumed. The new crop 2014/15 ending stocks are expected to be 43 million bushels lower than a year ago. Production is expected to be 167 million bushels lower than a year ago at 1.963 billion bushels. U.S. harvested acres for wheat are estimated to be 45.9 million acres, about 700,000 more than last year, but poor crop conditions have caused a reduction in yield estimates compared to a year ago. U.S. food use for wheat is expected to be 10 million bushels higher than a year ago, but there is expected to be 50 million fewer bushels used for feed. This is not surprising given that we are expecting a record corn crop that will likely make corn a more appealing feed grain than wheat. U.S. wheat exports are expected to be 235 million bushels lower than a year ago. Globally, 2014/15 wheat ending stocks are expected to be 890,000 metric tons higher than a year ago, despite a reduction of nearly 17 million metric tons in global production. Global feed use and exports are expected to be lower than a year ago, with countries from the former Soviet Union leading the way in exports, followed by the European Union, the U.S., and Canada. Countries in Northern Africa and the Middle East are expected to be the largest global importers of wheat.

The USDA estimates domestic harvested acres using planted acres from the March Prospective Plantings report and a 10-year average of the harvested-to-planted acres ratio. The yield estimates are projected using a weather adjusted trend model and assume normal growing conditions.

Crop Market Update: May 6, 2014

Planting progress remains behind schedule this year, but we are still well ahead of last year’s pace nationally. U.S. producers currently have 29% of the U.S. crop currently planted compared to a 5-year average of 42%. Emergence of the U.S. corn crop is also behind average with 7% emerged this year compared to a 5-year average of 13%. Mississippi is nearing completion of corn planting but is still behind normal with 88% planted compared to an average of 96%. 70% of Mississippi’s corn crop has emerged, behind the 5-year average of 90%. Traders will be watching Friday’s USDA supply and demand report closely, as it will be the first report to include estimates for the 2014-15 crop year. Early trade expectations have old-crop ending stocks being revised down slightly, while new crop ending stocks will likely be larger than this year’s crop.

Soybean planting is slowly progressing in Mississippi with 36% of the crop planted this week compared to a 5-year average of 50%. U.S. producers have 5% of the soybean crop planted, with much of that progress found in Southern States, and many of the Corn Belt states just beginning. Soybean planting progress is behind the 5-year average of 11%. Strong soybean exports along with extremely tight supplies have kept soybean markets bullish, despite expectations of a large harvest this fall. Soybean prices have been coming down since the middle of last week, but old-crop ending stocks are expected to be reduced from already low numbers in the USDA’s supply and demand reports due to come out this Friday.

Wheat prices are continuing to rally as the condition of the U.S. winter wheat crop continues to look bleak. Only 31% of the crop is rated good or excellent, down 2% from last week. Wheat is maturing more slowly than normal with 29% of the U.S. wheat crop has headed out compared to a 5-year average of 35%. Mississippi’s wheat crop is also maturing much slower than normal with 72% of the crop headed out compared to a 5-year average of 91%, but the crop is faring much better than the U.S. crop with 70% of Mississippi’s wheat rated good or excellent.

For more detail on crop futures and Mississippi local cash prices click here. Detailed information on crop progress can be found here.