Cattle Market Notes: Week Ending Jul 25, 2014

Personal Remarks: I continue to struggle with how to digest the current cattle market environment. I know that at some point things will cool off and I wish I knew with certainty when that will come. I do know one thing, one day we all will look back at this period with great awe and say “WOW!” I am hopeful that those who are able, are taking advantage of the strength in prices to improve either farm balance sheets or farm infrastructure. I do believe (although, again, with cautious uncertainty) that this strength will continue into the next few months, thereby allowing the bulk of Mississippi’s producers who have cattle ready in the fall to capitalize on this as well. In the mean time, attempt to protect your marketing opportunities and prices when possible. If I can help with these decisions please do not hesitate to call or write (662.325.7986 or jmr26 “at” msstate.edu)

Cash Cattle:

Negotiated cash trade moved sharply higher this week. The five-area weighted average steer price for the week ended Friday was $162.86, up $6.84 from the previous Friday, and dressed steers averaged $256.33, up $9.76. A few live sales in Texas panhandle were at $162, while at $165 in Kansas. In Nebraska, live and dressed sales were reported at $163.50-$166 and $257, respectively. Sales in the Western Cornbelt were $160-$163 and $257, respectively for live and dressed.

Feeder steers rallied again this week in Mississippi auctions, improving about $10 for yearlings 700+ pounds. Steer calves under 700 pounds were steady to $10 lower. Feeder heifers saw similar strength, up $10-$20 for 600+ weight cattle. Heifer calves were mostly even. Cull cows and bulls were $3 lower to $1 higher. Feeder steers and heifers in Oklahoma City’s auction were steady to $3 higher, while calves were called steady to $3 lower.

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

Futures:

The remainder of the losses of two weeks ago were largely recovered this week, especially for the remaining 2014 contracts. The market is still uncertain of what direction the 2015 contracts need to be in, but those contracts still ended the week in positive territory. Cash fed cattle and beef prices provided the bulk of the support. Macro-economic data continue to be positive and, therefore, provide support on the demand side. This week’s Cold Storage report, showing the quantity of meat in freezers, revealed shrinking supplies of all major meats (beef, pork, and chicken) — (click HERE for some commentary on the report). However, signs indicate that the broiler industry has been ramping up production which may add pressure. The Cattle on Feed report indicated that light weight placements of cattle into feedlots were higher, but this was more than offset by smaller heavy weight placements. More detail on this report can be found HERE.

Corn prices continue to be under pressure. The condition of the crop looks good, borderline great (76% of the crop is rated Good or Excellent). Many corn market analysts expect yields to be north of 170 bushels per acre, which would likely push total production above 14 billion bushels.

Beef:

Wholesale boxed beef prices were higher. Choice boxes averaged $253.77, up $3.62. Select boxes ended the week at an average of $249.15, up $5.62. The strength was carried on the back of “low-value” cuts like round and chuck which improved on the week, while “high-value” cuts like ribeye and sirloin moved lower.

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

July 2014 Cattle on Feed Report

The United States Department of Agriculture’s National Agricultural Statistics Service (USDA, NASS) released their monthly Cattle on Feed report Friday afternoon (July 25). The report revealed that 10.127 million head of cattle were in U.S. feedlots with a capacity of 1,000 head or larger on July 1, 2014. Placements into feedlots during the month of June totaled 1.455 million head while marketings totaled 1.847 million head.

[ … For detailed numbers and charts CLICK HERE … ]

Placements totaled 1.455 million head, a decrease of 6.2% from June 2013 and a 8.2% decrease from the five-year average from 2009 to 2013. The average of analysts’ expectations called for a decrease of 4.4% from the June 2013 number and the range of expectations ran from a decrease of 8.1% to an increase of 3.5% (a rather wide 11.6% range!). So, for the first half of the year only January and February saw an increase in year-over-year placements, while all but January have had equal or below placements compared to the five-year average. Despite the market’s loud request for cattle (record level feeder calf prices) cattle did not show up and were lower than expected. This is a strong signal that the cattle supply has slowed to a mere trickle.

Only Iowa, Minnesota, Nebraska, and South Dakota experienced an increase in cattle placements last month. In Nebraska, where data are provided for placements by different weight groups, placements were steady or higher for all weight classes. Across the nation placements for cattle weighing 700 pounds or less were higher (up 19%, 40%, 15% and 19% respectively in Kansas, Nebraska, Texas, and collectively in the US). This is no surprise for two reasons. First, and obviously, the lower feed prices encouraged lightweight placements, but also heavy weight cattle were most likely very scarce as a result of the early year push into feedlots.

Cattle marketed in June totaled 1.847 million head, down 1.8% versus last year and down 6.9% compared to the average from 2009 to 2013. Pre-report expectations called for marketings to come in at a 1.9% drop, so the reported value was very much in-line with the average of expectations. This continues the trend of record low marketings being set in 2014. The current value is the smallest June marketings on record eclipsing the previous record set last year (1.88 million head), which eclipsed the previous record set the year earlier in 2012 (1.965 million head).

As a result, total inventories on July 1 were 10.127 million head, down 2.4% from one year ago and down 1.4% from the five-year average. Pre-report expectations called for a decline of 1.8% and fairly tight range from -2.8% to 0.8%, where the reported 2.4% decline is close to the low end of the range.

The July report also provides a breakdown of cattle on feed by gender. Steers on feed July 1 totaled 6.464 million head, a drop of 1.1% versus July 1, 2013. Heifers on feed totaled 3.603 million head, down 4.6% from last year. Finally, although small in overall quantity, the number of cows and bulls on feed totaled 60,000 head, down 2,000 from last year or a 3.2% drop. The drop in heifers compared to steers gives the impression of an effort to build the herd. This is similar to last quarter’s report where heifers on feed April 1, 2014 were 5.9% below the same period in 2013. So, it is possible that more heifers are being held off of feed with the intent of bringing them into the breeding herd.

The smaller than expected placements, which pulled the on feed number lower than anticipated, will provide a general sense of support to the market. However, the support will be segmented. Moving forward expect more cattle to be marketed in the coming month or two. The large volume of placements in January and February will soon be market ready (a few most likely have been sold). This will add a minimal amount of pressure in the near term although most of this has already been “priced into” the market (in other words, the marker has already taken this information into account). Also, the large volume of lightweight placements will surely pressure live cattle prices six to eight months out. On the other hand, the heavy pace of lightweight placements means fewer heavy placements will be available in the coming months which will provide support for feeder cattle prices. Longer-term, expect the red hot market to slow and then steady out as some level of herd rebuilding appears to be taking place.

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

Crop Market Update: July 23, 2014

Great crop conditions, more acres, and favorable weather forecasts have been pushing crop prices down for the last several weeks. U.S. corn conditions continue to look good with 76% of the crop rated in good or excellent condition compared to 63% a year ago. U.S. progress is ahead of a year ago but right on pace with the 5-year average with 56% of the corn crop currently silking. The corn crop in Mississippi is also looking very good with 72% rated in good or excellent condition, which is similar to where it was a year ago when we had record corn yields in the state. Mississippi’s corn crop is behind in its development compared to previous years with 72% in the dough stage and 36% denting compared to 5-year averages of 88% and 59%, respectively. Despite the slower than normal progress, the unseasonably cool temperatures over the last week will undoubtedly help the crop as it begins to mature.

The U.S. soybean crop progress continues to trend slightly ahead of average with 60% of the crop blooming and 19% of the crop setting pods. The soybean crop is also in much better condition than a year ago with 73% of the U.S. crop rated in good or excellent condition compared to 64% a year ago. Mississippi’s soybean crop is also in better condition than a year ago with 72% of the crop rated in good or excellent condition. Although the crop is in good condition, soybean progress in Mississippi is behind normal with 72% of the state’s soybeans blooming and 41% setting pods. This compared to an average of 89% of the crop blooming at this time of the year and 65% setting pods. The favorable crop conditions together with record soybean acres have created expectations of a record harvest this fall that has send soybean prices tumbling. September soybean futures have lost nearly $1.90 in the last month and although up on the day, are likely to continue trending lower leading into harvest.

Wheat harvest is in full swing in much of the U.S. with 75% of the crop now in the bins, which is right at the 5-year average. Wheat futures have continued to fall since peaking in early May, though some traders are wondering if wheat is nearing a bottom. Poor winter wheat conditions nationally have put a dent in the harvest size, but the spring wheat crop looks to shake the trend with 70% of the crop rated in good or excellent condition as 84% of the crop is currently heading out. The favorable conditions of the spring wheat crop could continue to limit upside potential for wheat markets.

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

Cattle Market Notes: Week Ending July 18, 2014

Cash Cattle:

Negotiated cash trade was mostly steady this week. The five-area weighted average steer price for the week ended Friday was $156.02, up $0.03 from the previous Friday, and dressed steers averaged $246.54, down $0.68. A few live sales in Texas panhandle were at $155 and at $155-$156 in Kansas. In Nebraska, live and dressed sales were reported at $156 and $246-$248, respectively, on Thursday. Sales in the Western Cornbelt were $155-$156 and $246-$247, respectively for live and dressed.

Feeder steers rallied this week in Mississippi auctions, improving about $10, while steer calves in ranged from declines of about $5 to gains of about $5. Heifer calves were mostly $7 lower and feeder heifers were steady to $7 higher. Cull cows and bulls were $1-$3 higher. Feeder steers in Oklahoma City’s auction were steady to $4 lower and heifers were called steady.

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

Futures:

Live cattle futures spent most of the week recovering a portion of last week’s drop. Feeder futures were mostly even with last Friday’s market close and spent the bulk of the week in a sideways pattern. Wednesday’s trading showed the most weakness for both live and feeder futures. Thursday’s broad market tumble left commodity markets largely unscathed. Cash markets were steady and boxed beef trickled lower throughout most of the week, so the uptick in futures implies last week’s dip was largely unwarranted. News that China will possibly lift their ban on Brazilian beef did little to the market today, but keep in mind U.S. does not export any beef to China.

Futures markets are more focused on the upcoming crop with the expiration of the July contract this week. Corn futures were mostly steady through the week with Wednesday and Thursday showing signs of life before settling mostly even to close the day. Ethanol production was reported higher on Wednesday providing support.

Beef:

Wholesale boxed beef prices were mixed this week, but mostly even with last week’s trade. Choice boxes averaged $250.15, down $0.39. Select boxes slipped all days excluding Thursday and ended with an average of $243.53, up $0.64.

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

Cattle Market Notes: Week Ending Jul 11, 2014

Cash Cattle:

After a spectacular run, cash fed cattle shifted lower this week. The five-area weighted average steer price for the week ended Friday was $155.99, down $1.61 from the previous Friday, and dressed steers averaged $247.22, down $2.26. Live cattle sold at $155-$156 in the Texas panhandle and at $156 in Kansas on Thursday. In Nebraska, live and dressed sales were reported at $155-$157 and $246-$249, respectively, on Thursday. Sales in the Western Cornbelt were $154-$157 and $245-$249, respectively for live and dressed.

Feeder steers and steer calves in Mississippi auctions this week were mostly steady; while heifer calves were mostly $6 higher and feeder heifers were about $3 higher. Cull cows and bulls were mostly steady. Feeder steers in Oklahoma City’s auction were steady to $4 higher and heifers were called steady. All calves were steady to firm.

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

Futures:

What goes up eventually comes down, even if it could (and should) move higher again. Such was the case this week in both live and feeder futures. Feeders took the brunt of the punch and went three straight days with limit down moves and now all fall delivery contract months are at/near the $210 mark while 2015 contracts are roughly $205. Cash cattle moved lower which added some pressure, but it appears the primary culprit is non-commercial traders (those with no actual cattle to protect) who decided the run was enough and took their toys and went home (i.e., exited their positions). This “long-liquidation” (when those who are long, or who had bought contracts, liquidate their positions) pressured the markets for the bulk of the week On Friday, USDA’s supply and demand report did little to help when they reported that beef supplies should be higher than the previous month’s estimate since the market has and will pull more head to market.

New crop corn futures were about 32 cents lower this week. Friday’s USDA supply/demand report indicated more corn is expected to be available at the end of the upcoming marketing year. This was mostly expected based on the previous week’s larger than expected Grain Stocks report. For more on the supply and demand report check out Dr. William’s write-up HERE.

Beef:

Wholesale boxed beef prices were higher again this week, continuing to set new record levels throughout the week. Choice boxes averaged $250.54, up $2.74. Select boxes edged higher throughout the week and ended with an average of $242.89, up $2.98.

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

Ending Stocks Revised Up for Most Major Crops in July Supply and Demand Estimates

Friday’s World Agricultural Supply and Demand Estimates (WASDE) left new crop U.S. corn ending stocks 75 million bushels higher than a month ago. U.S. new crop corn production is lower at 13.860 billion bushels as a result of fewer planted acres. The new production number would still mark the second largest corn crop in history. New crop ending stocks are estimated to be 1.801 billion bushels, while old crop ending stocks are estimated to be 1.246 billion bushels. Feed and residual use was revised down by 50 million bushels while the rest of the balance sheet remained unchanged. On the global corn market, ending stocks for the 2014/15 crop are estimated to be 5.4 million metric tons higher than a year ago with much of this increase is the result of higher stocks in the U.S. and Brazil.

Old crop U.S. soybean stocks were increased by 15 million bushels from last month’s estimate to 140 million bushels, higher than trade expectations of 128 million bushels. The major movement for soybeans came in the new crop 2014/15 soybean balance sheet, reflecting major changes in planted acres released a couple of weeks ago. Ending stocks are 90 million bushels higher than June estimates at 415 million bushels. That figure is nearly three times the size of the 2013/14 ending stocks number. Production was revised up by 165 million bushels to reflect the increase in planted acres, while yield remained unchanged from a month ago. Soybean disappearance was changed in a few categories to absorb some of the increase in production. Soybean crush was revised 40 million bushels higher and soybean exports were revised 50 million bushels higher as a result of continued strong demand for U.S. soybeans. Global soybean ending stocks were raised by 2.43 million metric tons from June’s estimates, with much of the increase coming from larger U.S. production.

The new crop 2014/15 wheat ending stocks were raised by 86 million bushels from the May report. The USDA revising wheat yields up by 0.8 bu/acre to 43.1 bu/acre and increased acreage by 300,000 acres. Production is 50 million bushels higher than last month’s estimates while exports and feed use are both lower.

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

A Look at U.S. Crop Insurance “Buy-Up” Participation

Crop insurance continues to gain importance which is reflected in the 2014 Farm Bill. Given the extreme weather events in the past few years, coupled with price uncertainty, U.S. producers are aware of the pitfalls of not having insurance. However, many options exist with respect to the level of coverage a producer can obtain. At the minimum a producer can purchase “CAT”, or catastrophic coverage, that will protect up to 50% of his crop if a loss occurs. In all areas of the U.S. producers can “buy-up” to higher levels of coverage with some locations having the option to insure up to 85% of their crop [1]. Coverage levels for crop insurance increase from the 50% level to the 85% level, in 5% increments. The maps below show the average level of coverage for each county in the U.S. where crop insurance purchase data are available.

A few patterns stick out. First, it is noticeable that with corn and soybean insurance producers in the Cornbelt (primarily Iowa, Illinois, and Indiana) buy-up to higher levels of coverage. This is not surprising since the uncertainty around yield is small relative to other regions, which implies the insurance product is typically less expensive (in other words, the premium is cheaper [2]). Also, with respect to revenue insurance products, given that the bulk of these two crops are produced in this region there is a ‘natural hedge’ relationship between yield and price. So, when yield is low prices are high and vice versa, which provides a smoother revenue outcome compared to other locations. As a result these premiums are typically less than in other regions.

Also, we notice that coverage levels are low (averaging from 50% to 70%) in the Mid-South, southern Georgia and South Carolina, and the southwestern U.S. This is most likely the result of the inverse that was noted above. In these instances yields are less certain and typically carry a higher premium which decreases the incentive to buy-up to higher premium levels. More specifically, across all crops, the counties in eastern Arkansas and Louisiana (with some spillover in to the boothill of Missouri) as well as the counties from southeast Alabama through southern South Carolina, the coverage level is consistently very low (50% to 65%).

… Click each map for a larger view …

2013 Soybean coverage levels  2013 Corn coverage levels2013 Cotton coverage levels2013 Wheat coverage levels2013 Rice coverage levels 2013 Sorghum coverage levels

[1] In relation to an automobile insurance policy, this would imply the producer’s crop insurance carries a 15% deductible whereby a $20,000 vehicle with a $1,000 deductible would equate to a 5% deductible.

[2] Again, using the automobile insurance example, the premium for a 40 year old female driver will be less than a 18 year old male driver since the younger male is typically more reckless behind the wheel and therefore poses a higher risk for the insurance company. Here the older female is the Cornbelt and the 18 year old is the southwestern U.S.

Analyzing Mississippi Soybean Producers’ Farm Bill Alternatives

With the recent passage of the 2014 Agricultural Act a number of new choices are available for producers, while many of the previous options are no longer available. The analysis here examines these choices for soybean production in Mississippi. The report can be viewed at this LINK (Adobe Reader required to view the report).

Cotton Acres Bloomed, Price Shriveled

This past Monday (June 30), USDA released their annual Acreage report. The report is preceded by the March Prospective Plantings report with the difference being a more solid, confirmed acreage number in the acreage report compared to an expected, planned number in the earlier Prospective Plantings report.

For cotton, total U.S. acres are called at 11.369 million. This is 268,000 more than was projected in March and 962,000 more than was planted in 2013. Mississippi cotton acres were called at 400,000, up 20,000 from the March estimate and 110,000 compared to last year. Across the U.S. all states with cotton acreage were higher than the expected number reported in March, excluding Arizona, Missouri, New Mexico, and Tennessee (down 5,000, 10,000, 5,000 and 30,000, respectively). Soybeans most likely replaced the acres in the Missouri and Tennessee, while drought conditions were the likely culprit in the southwestern states.

Using the most recent estimate of per acre yield, the extra 268,000 acres would lead to roughly 460,000 more bales from the U.S. As a result, the market was under pressure on Monday following the report and then slid lower for the remainder of the week. Thursday’s rice dipped about 5 cents per pound for the December futures contract compared to Friday’s close.

Cattle Market Notes (Abbreviated): Week Ending Jul 03, 2014

Given the holiday shortened week due to tomorrow’s July 4th holiday, I’ll be brief this week…

Cattle markets remain on fire. Cash markets are largely leading the charge. The five-area price is currently at $157.40 for live and $249.45 for dressed on Thursday, both up more than $6 compared to last Friday. Beef markets moved higher through the week as well. Choice and Select carcasses averaged $247.43 and $239.48, respectively up $3.04 and $1.65 for the five trading days through Thursday.

Cattle futures followed the same path. Gains in live cattle futures were higher for the nearest (August) contract, up $3.70 versus Friday, and narrowed as the expiration month moved out. Feeder futures blazed ahead, gaining just under $4 on the nearby August to just over $2 on the deferred May 2015 contract.

Corn futures took a hit Monday as the quarterly Grain Stocks report revealed more grain in elevators across the U.S. than expected at 3.85 million bushels, 132 million more than expected. Also, on Monday, the USDA Acreage report revealed 91.64 million acres of corn planted. The big news from the report was that soybean acres are at 84.84 million, 2.7 million acres more than the average pre-report estimate and 840,000 more than the highest guess. For more on these reports check out Dr. William’s commentary HERE.

I hope everyone has a wonderful Fourth of July holiday!