September 1st Cattle on Feed Report Recap

The latest USDA Cattle on Feed report released Friday showed larger supplies of cattle placed into feedlots than most analysts expected prior to the report. The report showed a three percent increase in the number of cattle placed into feedlots during the month of August as compared to the same period last year. Average expectations prior to the report were that placements would be slightly lower than last year. This is a bearish report that is likely to put downward pressure on the markets on Monday.

The larger placement numbers combined with a generally anticipated six percent year-over-year increase in marketings leave the total number of cattle on feed at four percent larger than on September 1, 2016. As shown in the chart, total cattle on feed have been larger than 2016 months for all of 2017. This gap has only widened in recent months. August is usually near the lowest inventory month of the year. The total cattle on feed number is expected to increase over the next few months due mostly to seasonal factors. However, the impact of larger calf supplies will likely be obvious as well.

It is important to note that the pre-report expectations were not driven by estimates of declined placements. Rather, the number of cattle placed into feedlots a year ago was relatively large. Thus, a typical August in the larger supplies of 2017 was expected to be on par with the large 2016 number. The fact that placements were 3 percent above the large September 1, 2016 number sets the stage for an interesting Fall. A few potential reasons for the increased placements include the drought in the Northern Plains, profitable closeouts on fed cattle sold from January through July, and potentially more heifers placed than a year ago.

Looking ahead, with the larger U.S. calf crop to be weaned this fall and more heifers placed on-feed than a year earlier, year-over-year increases in animals placed on-feed should be anticipated in most months during the balance of this calendar year and throughout 2018.

Feeder Steer Price Behavior

Continuing on with the discussion of seasonal cycles in Mississippi Cattle Prices, this week we are looking at a primary source of revenue for many operations: feeder steers. Feeder steer prices in Mississippi are dependent upon prices around the country. Feedlot demand for steers and stocker demand for steers are both important drivers of the feeder markets. Also important is the timing of when most cattle are weaned and hit the market – usually during the fall months.  If these factors cause prices to behave similarly throughout each year, a seasonal price index can be used to estimate the impact that the time of year can have on cattle prices.

To examine this, we can calculate a seasonal price index using data from 2011 to 2017. A price index represents how much monthly average prices differ from annual average prices. This is calculated by dividing each month’s average price by the average annual price. Next, the monthly average across the years of data is calculated to obtain an average price index. The price index calculated in this article has a base value of 1. This implies that if a given months price index is 1, the average price in that month is equal to the average annual price. If a monthly index value is 1.05, then the average price in that month is five percent higher than the annual average.

 

As shown in the graph, feeder steer prices over the past 7 years in Mississippi have followed a seasonal pattern of higher prices in the early Spring months and lower prices in the early Fall. The chart also shows the range of prices using an upper and lower standard deviation (+/- one S.D.). This range provides a confidence interval (68 percent) for expected prices. Price index values can be used to forecast expected prices by using the current month’s prices. For instance, the average price for 500-600 pound feeder steers in Mississippi during August was $138.88 per cwt. We can multiply this by the ratio of the December price index (1.031) and the August price index (0.987) to obtain a forecasted price of $145.07 per cwt for December 2017. If you would like more information on the price index values for various months, just email me and I will be happy to help.

This article was co-authored by Robert Thompson, Graduate Research Assistant in Agricultural Economics at MSU.

Cull Cow Price Behavior

Cull cow prices are an important factor for many operations in the Southeast. Most operations wean calves in the fall months, and that is also when they select cows for culling and begin to sell them. As we approach the Fall, seasonal price behavior generally pushes cull prices lower. On average, cull cow prices in October through December each year are about 15 percent lower than during the summer months.

Cull prices in Mississippi are dependent upon prices around the country. Mississippi producers operate primarily cow-calf operations. The prices received for their cull stock are influenced by demand for cattle and beef (mostly lean trimmings) throughout the beef supply chain. If these factors cause prices to behave similarly throughout each year, a seasonal price index can be used to estimate the impact that the time of year can have on cattle prices.

To examine this, we can calculate a seasonal price index. A price index represents how much monthly average prices differ from annual average prices. This is calculated by dividing each month’s average price by the average annual price. Next, the monthly average across the years of data is calculated to obtain an average price index. The price index calculated in this article has a base value of 1. This implies that if a given months price index is 1, the average price in that month is equal to the average annual price. If a monthly index value is 1.05, then the average price in that month is five percent higher than the annual average.

As shown in the graph, cull cow prices in Mississippi follow a seasonal pattern of higher prices in the Spring and Summer months and lower prices in the Fall and Winter. The chart also shows the range of prices using an upper and lower standard deviation (+/- one S.D.). This range provides a confidence interval (68 percent) for expected prices. Price index values can be used to forecast expected prices by using the current month’s prices. For instance, the average price for boning utility cull cows in Mississippi during August was $67.63 per cwt. We can multiply this by the ratio of the December price index (0.908) and the August price index (1.042) to obtain a forecasted price of $58.93 per cwt for December 2017. Utilizing these methods can aid in planning and management decisions for any month in the year.

This article was co-authored by Robert Thompson, Graduate Research Assistant in Agricultural Economics at MSU.

Total Meat Supply and Disappearance

This week’s article comes from a recent publication by the Livestock Marketing Information Center (LMIC). Total U.S. red meat and poultry production are often cited as “record high,” which is correct this year and last, and LMIC forecasts that situation to persist through 2019. However, production numbers need to be in context, which is often not done. First, looking at the timeframe from 1960 through 2016 (56 years), 40 of those years set new all-time highs in U.S. red meat and poultry production. That is 71% of the year’s set new highs; records are the typical situation, not abnormal.

The LMIC projects that among the U.S. red meats (beef, pork, lamb, and veal), only commercial production of pork will set a new all-time high this year (25.7 billion pounds on a carcass weight basis). Beef output in 2017 is expected to be about 26.2 billion pounds; that would be the largest for any year since 2010. U.S production of lamb in 2017 is forecast to erode to 143 million pounds, a new low. Commercial veal production is projected to be just over 79 million pounds, larger than 2016’s but the second lowest since the data have been compiled (1960).  Overall, U.S. production of red meats will set a new high this year (about 52.1 billion pounds carcass weight), but the breakdown is important.

In the U.S. poultry complex (chicken and turkey), led by chicken, 2017’s total output is projected to set a new all-time high (Federally Inspected output of 47.4 billion pounds). Turkey tonnage is expected to be slightly below a year ago.

Further insight is provided by calculating disappearance (sometimes called consumption) on a per person basis. Besides accounting for population growth, that calculation entails subtracting exported tonnage, adding imports, and adjusting for any year-over-year change in stocks (frozen product). Usually, disappearance is discussed as a retail weight (weight estimated at the meat counter in the grocery store). Retail weight per capita disappearance of total red meat and poultry in 2017 is projected to be the largest since 2008, not record large. LMIC projects this year’s U.S. per person beef disappearance will be the largest since 2012. For pork, due mostly to large export tonnage, per person disappearance in 2017 is expected to come in at slightly below 2016’s. Combined chicken and turkey disappearance (retail weight) in 2017 is likely to be slightly below a year ago (note that 2016 was record high).

Drilling down into the production numbers shows large supplies of most meats and poultry, but not unheard of levels. Looking at the retail weight per person story is important. It gives insight, among other things, to how exports have impacted domestic use.