Cattle Market Notes: Week Ending Nov 21, 2014

Cash Cattle:

Cash fed cattle prices were higher but cash transactions were very limited. The five-area live and dressed steer prices were $169 and $265, respectively, up $0.66 and $0.87. In Texas and Nebraska live cattle sold higher at $172 on a very light test.

Steers in Mississippi auctions were mixed, while heifers were steady to $10 higher. Cull cows and bulls were $1-$2 higher. In Oklahoma City feeder cattle were mostly $1-$4 higher, steer calves were were $5-$10 higher, and heifer calves were $3-$6 higher.

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

Futures:

Feeder futures finished the week mostly steady. Similarly, nearby live futures were mostly steady to slightly higher, while more deferred contract months surged on Friday leaving them about $2 higher on the week. Markets closed prior to the release of the November Cattle on Feed report. The report revealed more cattle in feedlots as of November 1. This was due to a roughly equal number of cattle placed into feedlots compared to last year, while the number of cattle marketed were lower versus last year (for more detail on the report CLICK HERE). Equity markets provided support during the week along with higher beef prices.

Corn futures were lower this week with a sharp drop Wednesday that was reversed on Thursday. This flop and then flip in the market was caused by a bearish expectation for the Thursday export report, which proved to be wrong as exports were much stronger than expected. Beyond this, a gradual decline on the other days were seen.

Beef:

Wholesale boxed beef prices increased this week as retailers are prepping for the Christmas holiday season. Choice boxes averaged $254.79, up $3.98. Select boxes ended the week at an average of $241.65, up $2.94.

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

November 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 (Nov 21). The report revealed that 10.633 million head of cattle were in U.S. feedlots with a capacity of 1,000 head or larger on November 1, 2014. Placements into feedlots during the month of October totaled 2.357 million head while marketings during the same month totaled 1.685 million head.

[ … For detailed numbers and charts CLICK HERE … ]

Placements totaled 2.357 million head, an decrease of 0.9% from October 2013 but a 2.0% decrease from the five-year average from 2009 to 2013. October often gets the largest number of cattle to be placed into feedlots. This year was no different but the number placed was larger than market analyst had anticipated, the average estimate called for a decrease of 4.2%.

Nationally, placements were 10.4% above year-ago levels for cattle 800 pounds and higher, but lower for all cattle under 800 pounds. Nebraska saw higher placements compared to year-ago levels, Texas placements were equal, and Kansas placements declined.

Cattle marketed in October totaled 1.685 million head, down 7.8% versus last year and down 5.8% compared to the average from 2009 to 2013. . Pre-report expectations called for marketings to come in at a 6.9% year-over-year drop. Marketings the last three months have largely been the same. This has left August and October marketings well below normal elevated levels that stem from the, respective, Labor Day and Thanksgiving/Christmas holidays that bring with them higher beef consumption.

The total number of cattle in feedlots with 1,000 head or larger capacity totaled 10.633 million head, up 0.5% versus November 2013 but 5.7% lower than the five-year average.  Market analyst expected a 0.4% year-over-year decline in cattle inventories.

This month’s report continues to exemplify the underlying market conditions. Prices continue to break records and this, no doubt, has increased the incentive for producers to send cattle into feedlots. Limited marketings are concerning, but keep in mind the light weight of cattle that flowed into feedlots from April through July (light compared to 2013 levels). This will create the need to keep those cattle on feed longer and therefore limit the availability of cattle in the interim. Expect all markets to be under pressure on Monday (Nov 24). The large gains by deferred live cattle contracts on Friday will likely be erased.

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

Cattle Market Notes: Week Ending Nov 14, 2014

Cash Cattle:

Cash fed cattle prices were mostly steady this week, with Friday’s reported transaction being $1-$4 higher though. The five-area live and dressed steer prices were $167.53 and $262, respectively, up $0.66 and $0.87. In Texas live cattle sold higher at $168-$169 on Friday, while sales were even higher in Kansas at $170-$171. Nebraska’s Friday sales were at $170-$172 for live and $264-$266 for dressed. Live and dressed cattle in the Western Cornbelt sold at $168-$169 and $264-$265, respectively.

Steers in Mississippi auctions were steady to $5 higher and heifers were mostly steady. Cull cows and bulls were $1-$2 higher. In Oklahoma City feeder cattle were steady to $2 higher and calves were were $5-$10 higher, with some 400-500 calves $15-$20 higher.

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

Futures:

Feeder futures finished the week mostly $3-$4 higher again this week, ending this week back at the record levels experienced in mid-October and bringing more deferred contracts to record levels. Similarly, live futures forged ahead to new contract highs. Traders were obviously impressed with the better than anticipated consumer confidence reading reported from the University of Michigan and Reuters, at 89.4 versus an expected 87.5, and much lower crude oil, which typical puts more dollars in the consumer’s pocket. This was highlighted in today’s higher retail sales from October, which when auto sales and gas expenditures were excluded registered +0.6%, a very impressive figure. In spite of this news, equity markets continued their schizophrenic ways with the Dow Jones Index ending the day down 0.10% and the S&P 500 index ending up 0.02%.

Corn futures ended the week higher largely due to a smaller forecasted crop from USDA on Monday (Nov 10) via their World Agricultural Supply and Demand Estimates report and their Crop Production report. The national corn yield is currently projected at 173.4 bushels per acre, down 0.8 bushels from their October reports, and 1.8 bushels lower than market analyst had expected. Small adjustments were made elsewhere, and the ending stocks were dropped 73 million bushels to 2.008 billion. For more on the report CLICK HERE.

Beef:

Wholesale boxed beef prices steadied this week following some up and down movement the past few weeks. Choice boxes averaged $250.81, up $0.46. Select boxes ended the week at an average of $238.71, up $0.44.

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

November Cotton Market Update

Monday’s Crop Production and World Agricultural Supply and Demand Estimates reports from USDA reversed last month’s changes and increased the expected size of the U.S. crop. Total U.S. production is forecasted at 16.4 million bales, up 140,000 from October. The national yield was raised to 797 pounds per acre, up from 790 last month, due to higher projected yields across Atlantic states and states in the southwest. Mississippi’s yield and production estimates were trimmed, though, to 1,143 pounds per acre yield (compared to 1,154 last month) and production of 1.0 million bales (1.001 million projected last month).

Cotton use was remained unchanged for the second month in a row, with total projected use at 13.80 million bales. Domestic demand remains at 3.80 million bales and exports are projected at 10.00 million. A stronger U.S. dollar did not deter USDA forecasters, which makes sense given the early stage of the current marketing year.

The higher production level added 200,000 bales to ending stocks, pushing the amount of cotton expected to be held in inventory at 5.10 million bales, or 37.0% of total use. Projected farm price continues to average 60 cents per pound, however, the price range was narrowed one cent per pound on each end.

Globally, few changes were made at the top line (all global supply and use), but offsetting changes for individual countries were made. The changes to U.S. supply and use are noted above. China’s production was lowered by 50,000 bales but their use was lowered by the same amount. Overall, total global ending stocks were raised marginally ro 107.36 million bales, compared to 107.11 projected last month. These stocks are 94.3% of total global use. China’s stocks account for 57.9% of global stocks.

Nearby December took the brunt of the report’s bearish news, ending the day down 1.53 cents per pound to 62.43. All 2015 contracts were down more than a penny a pound as well, with all of these down between 1.10 to 1.29 cents.

Mississippi corn, soybean yields revised up in latest USDA reports

Monday’s World Agricultural Supply and Demand Estimates (WASDE) made a few changes to the balance sheet for new crop U.S. corn, ultimately leaving ending stocks 73 million bushels lower than a month ago. Harvested acres were unchanged, but yields were revised down 0.8 bu/acre to 173.4. Yields were lower than expected with pre-report estimates projecting yields to be revised upward to 175.2 bu/acre. U.S. new crop corn production is lower but still at a record high of 14.407 billion bushels compared to expectations of 14.551 billion bushels. Corn use is revised upward for ethanol production and food, seed, and industrial use, with the biggest increase coming in ethanol use with a 25 million bushel increase in consumption. Exports remain unchanged from a month ago. Global ending stocks for the 2014/15 crop are increased by 0.92 million metric tons from last month, a result of decreased global consumption. Global production is revised down by 0.37 million metric tons with much of the decrease coming from lower U.S. production. Today’s Crop Production report has adjusted corn yields in several states. Mississippi is expected to top last year’s record yield at 186 bu/acre, 10 bu/acre higher than a year ago and 2 bu/acre higher than last month’s estimate. Two states of note had their yields reduced: Minnesota and Iowa. The decrease in yield in these two top-producing states is a major contributor to the overall U.S. yield reduction.

Soybeans saw upward revisions in yield and production compared to a month ago. Yields were revised up by 0.4 bu/acre and production was increased by 31 million bushels. Both the yield and production estimates were slightly lower than the average trade expectation, but were still well within the range of expectations. New crop ending stocks remain unchanged from last month at 450 million bushels with increased production being offset by an increase in exports and crush. Global soybean ending stocks are down slightly with increased production being offset with increased soybean use. Mississippi saw a slight bump in what will already be a record yield for soybeans this year, with current estimates coming in at 52 bu/acre, topping last month’s yield estimate by 1 bu/acre. Of the country’s largest soybean producers, Nebraska and Iowa both saw slight increases in soybean yields while the other top producing states saw yields remain steady.

The new crop 2014/15 wheat ending stocks were lowered by 10 million bushels from the October report as a result of lower production. Wheat yields were revised down by 0.1 bu/acre and harvested acres were revised down by 100,000 acres. All areas of the U.S. wheat balance sheet remained unchanged. Global wheat production was revised down by 1.26 million metric tons from last month and ending stocks were revised up by 0.31 million metric tons with the difference being made up with lower global consumption.

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

Cattle Market Notes: Week Ending Nov 07, 2014

Cash Cattle:

Cash fed cattle prices were mostly steady to mildly lower this week. The five-area live and dressed steer prices were $166.87 and $261.13, respectively, down $0.55 and up $2.17. In the Southern Plains live cattle sold $1 lower at $166-$167. Nebraska sales were limited at $167-$168 for live. Live and dressed cattle in the Western Cornbelt sold $1-$3 lower at $165-$167 and $262, respectively.

Steers in Mississippi auctions were mostly steady, with some $5-$10 higher, while heifers were steady to mostly $5 higher. Cull cows and bulls were $1-$2 higher. In Oklahoma City feeder cattle were $1-$4 higher and calves were were $4-$10 higher.

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

Futures:

Feeder futures finished the week mostly $3-$4 higher compared to the previous Friday’s close. Corn prices tumbled early in the week which provided support, while live cattle prices kept the underlying support in place the remainder of the week. Live cattle futures prices did not end in nearly as positive territory as feeder futures, up about $1-$2, but continue to be in the neighborhood of record levels and remain impressive. The U.S. dollar weakened just a bit this week providing support to commodity markets, especially those that rely on the export market.

Corn futures ended the week lower. Losses on Monday and Tuesday were not able to be overcome as prices moved higher the remainder of the week. Tuesday marked the largest drop as all commodities experienced a sell-off. A “dead cat bounce” come through on Wednesday as the market bounced back roughly 5 cents per bushel. Positioning ahead of Monday’s Crop Report and World Agricultural Supply and Demand Estimates reports from USDA left the market mildly higher on Thursday and Friday.

Beef:

Wholesale boxed beef prices moved higher as retailers and restaurants prepare for the holiday season ahead. Choice boxes averaged $250.35, down $1.44. Select boxes ended the week at an average of $238.27, down $0.31.

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

Farm Bill Learning Sessions Scheduled

Multiple workshops related to the 2014 farm bill have been scheduled for December. These workshops are targeted at our numerous crop producers and will provide detailed information on the new ‘covered commodity’ programs (ARC & PLC), new crop insurance products (SCO & STAX), the available decision aids, and what this all means for farm risk management. At the conclusion of this series, if more workshops are needed please let us know and we will schedule them in January 2015.
Please help us get the word out to as many impacted producers in the state.
For more information contact John Michael Riley, 662.325.7986, j.m.riley ‘at’ msstate.edu
Topics Covered:
Agricultural Risk Coverage (ARC)
Price Loss Coverage (PLC)
Supplemental Coverage Option (SCO)
Stacked Income Protection Plan (STAX)
Farm Risk Management
Decision Aids
Where/When:
December 3**, 9:00 AM – 12:00 PM :: Lincoln Civic Center, 1096 Belt Line Dr NE, Brookhaven, MS 39601
December 4, 9:00 AM – 12:00 PM :: The Extension Building, 394 Hwy 51 S, Batesville, MS 38606
December 10, 1:00 PM – 4:00 PM & 6:00 PM – 8:30 PM :: Yazoo County Extension Office, 212 E. Broadway, Yazoo City, MS 39194
December 11, 9:00 AM – 12:00 PM :: Costal Plains Research & Extension Center, 51 Coastal Plain Rd, Newton, MS 39345
December 17, 1:00 PM – 4:00 PM :: Lightered Knot Community Center, 401 E Pine Ave, Wiggins, MS 39577
December 18, 9:00 AM – 12:00 PM :: Pontotoc County Extension Office, 402 C.J. Hardin Jr. Drive, Pontotoc, MS 38863
December 19, 1:00 PM – 4:00 PM :: Bost Extension Building (MSU Campus), Bost Extension Dr, Mississippi State, MS 39762
**Keith will provide similar details at the 2014 Row Crops Shortcourse, which overlaps with this date.

Five questions to ask About a Farm Bill Decision Aid

We have been modeling crop insurance and farm policy for years.  Tremendous advances have been made in quantifying agricultural risk. As farmers face decisions regarding their participation in federal farm programs and crop insurance various decision aides have been developed to evaluate alternatives.  Based on our experience, here are five questions to ask anyone who tells you they have a decision aide for evaluating the ARC/PLC choice.

  • How does the decision aide account for uncertain prices and yields over the life of the bill?

Most spreadsheet aides are simply calculators, meaning they are ‘deterministic’ in that they calculate a payment based on the exact yields and prices provided. The problem, of course, is that one can’t possibly know with certainty what yields and prices will occur. How does the decision aid account for the likelihood of various prices and yields over the next 5 years when estimating payments?

  • If the decision aid accounts for risk, what risks are modeled?

There are five major unknown variables that must be accounted for in any  crop insurance, ARC, and/or PLC decision aide.  These are: three prices – cash prices, futures market prices, market year average prices, and two yields – farm and county yield.  Does the decision aid account for the likelihood of different outcomes for all of these unknown variables?

  • If the decision aide accounts for risk, then how is the correlation of random variables handled?

These five unknown variables are not necessarily independent, meaning there is a relationship (or correlation) between them.  In fact, there is good reason to believe that many of them are related.  For example, farm and county yield are most likely positively correlated.  In the Midwest, yield and price for corn likely have a negative relationship (as yield declines, corn price would increase).  Cash, futures, and MYA price are likely positively correlated.  Prices and yields across years are also often positively correlated (trends develop over time).  There are more relationships, for example: a farm considering individual ARC with three crops potentially needs to account for 120 correlations.  Modelling correlation is difficult, but very important and shouldn’t be avoided to accurately assess the farm program and crop insurance options.

  • Does the model ask you for a lot of farm yield data?

Nobel Prize winner Daniel Kahneman points out the problem of using only a few years of data to form expectations often provides faulty outcomes.  Our research suggests that evaluations of farm-level crop insurance and farm program outcomes with less than ten years of farm yield data will be highly inaccurate.

  • Does the decision aid help you understand risk protections as well as expected returns?

The new programs offered from the 2014 farm bill are intended to help farms reduce exposure to the risks of low price, low yield, or low revenue.  Simply reporting the ‘deterministic’ expected payments – payments that come from one price and one yield – from the programs ignores the question of whether the payments help mitigate risk exposure. In other words, how does the farm program and crop insurance decision fit into the entire operation’s business portfolio?

In summary, predicting the future is extremely difficult. However, methods to provide guidance with respect to the uncertainty and correlation amongst the multitude of possible outcomes do exist but are often difficult to apply. Some of these are built into the current offering of decision aids provided by Texas A&M and Illinois, but few are available in simple spreadsheets built by others. For example, the two spreadsheets we have provided (CLICK HERE) only give the base reallocation calculation and the calculation of how generic acres will be distributed based on a given number of planted acres, both of which are simple calculators. While these types of “decision aids” can be very useful, keep the questions we pose here in mind as you evaluate the results generated from them.

Cattle Market Notes: Week Ending Oct 31, 2014

Cash Cattle:

Cash fed cattle prices were steady to lower this week. The five-area live and dressed steer prices were $167.42 and $263.88, respectively, down $1.25 and up $0.07. In Kansas, live cattle traded about $2 lower at $168. All other markets did not register enough volume to call a trend.

Steers in Mississippi auctions were steady to $5 higher while heifers were steady. Cull cows and bulls were $1-$2 lower. In Oklahoma City steers under 800 pounds were steady to $2 lower, while those over 800 pounds were steady to $2 higher. Feeder heifers were steady to $5 lower. Calves in OKC were steady to $5 higher.

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

Futures:

Feeder futures finished steady to lower compared to last Friday’s close. Live cattle futures ended the week in similar fashion. Markets opened Monday on a positive note following last Friday’s Cattle on Feed report with outside markets providing support. While equities gained all week, economic data were mixed during the week. U.S. GDP grew 3.5% in the third quarter (beating expectations), however personal spending declined 0.2% in September. Exports helped push GDP higher, which bodes well for commodity markets, but the smaller spending points to concern for beef sales (the silver lining is that personal savings grew implying the decline was not due to tighter budgets). On the bright side, gas prices are dropping which could loosen wallets. (Note: new trading hours for CME Group livestock futures began this past Monday, with the changes essentially eliminating trading between 4 PM and 8 AM during weekdays.)

Corn futures ended the week higher.

Beef:

Wholesale boxed beef prices moved higher as retailers and restaurants prepare for the holiday season ahead. Choice boxes averaged $251.79, up $2.29. Select boxes ended the week at an average of $238.58, up $4.30.

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