Analysis: Cattle

US Hay Production, Stocks, And Price

Feb 11, 4:53 pm | Corn, Feed, Cattle

US Hay Production Down in 2017 on Lower Yields: US hay production peaked in the late ’90s and has been in steady decline since, particularly in the Corn Belt. Midwest livestock herds have declined, and the profits of competing crops have easily bid away marginally productive acres. However, tighter budgets last year saw another increase in hay acres, especially across the Great Plains States. Yields also improved and production rose 9% in the Great Plains states. Elsewhere in the country, production was unchanged in the Southeast and declined in every other region. Producers in the Cornbelt bailed 2.7 Mil fewer tons (-11%), production in the S Plains fell 1.7 Mil tons (-11%), and there was 2.3 Mil tons (-9%) less bailed in the Western US States.  



Dec 1 Hay Stocks Just Above Record Lows:

Last week’s Annual Crop Production Summary report from NASS showed that the US produced 123.6 Mil tons of hay in 2018, a year over year decline of 4% – the 2nd consecutive annual decline.   

  Excluding the 2012 drought, it was the lowest hay production figure since 1976! Total hay acres on a national basis increased fractionally from 2017; however, yields fell 4% and pulled production down.

  Additionally, NASS reported 2018 Dec 1st all hay stocks were just above the 2012 low at 79 Mil tons. The red bars on the chart reflects Dec-May hay disappearance, which has been historically low since 2010. A year, Dec-May hay disappearance totaled 69 Mil tons. A similar usage rate this year would put May 1st hay stocks at a record low 10 Mil tons. Livestock feeders in the west, are reporting increased hay demand needs due to winter storms that started back in November, and have restricted winter pasturing.

US National Average Hay Price Above Corn: In early 2017 the US national average hay price was near even with the national average corn price (on a per ton basis). Hay prices began to rally in the summer of 2017 on a N Plains drought and traded well over the price of corn all year. Another hay rally got underway in the spring of 2018, with hay moving from a $23/ton premium to corn in March, to $34 in April as 1st cuttings were delayed due to a cool/wet spring. The hay premium hit $42/ton by September and has since held around $40 on a national basis. Alfalfa hay premiums have been even larger, reaching a high of $59/ton over corn. Regionally, price spreads have been even wider in the major cattle feeding states. New crop hay supplies and pasture availability are several months out, and we expect hay prices will continue to hold historical premiums to corn, at least until new crop supplies come available in May



US Red Meat Trade in November

Feb 7, 4:50 pm | Cattle, Hogs & Pork

ERS’s update for monthly meat exports on Thursday showed that the US exported 513.5 Mil Lbs of pork during November. The figure was down 4% from a year ago, and the first year over year decline in 2018. The November export total falls short of the last USDA forecast for the 4th quarter, and estimates for 2018 will be revised slightly lower on Friday. Exports to Japan and China were each 17 Mil Lbs lighter than last year, while trade to Mexico was off 21 Mil Lbs. Exports to the rest of the world declined by 16 Mil Lbs. Exports to S Korea marked the largest increase of 23 Mil Lbs, and year to date shipments to S Korea are up 39% year over year. Lower exports likely explains the November correction in both cutout and hog prices.   

The beef export pace was down 6 Mil Lbs from October, but relative to a year ago November exports were up 2% to mark a record large shipment rate for the month. Like in the pork trade, S Korea was the largest destination in November, and the year to date total is up 158 Mil Lbs (37%). S Korea has quickly become our most important red meat customer. Japan remains the single largest buyer of US beef, and their demand continues to expand. November shipments were nearly 5 Mil Lbs larger than last year and the cumulative total for the year is up 52 Mil Lbs. US beef exports through November marked an 11% increase over 2017 and were record large at 2.9 Bil Lbs. With beef production to expand in 2019, strong exports need to continue to maintain prices.

While both the pork and beef export rates held at or near record levels through 2018, the rate of red meat imports has been in decline. November beef imports of 217 Mil Lbs was the lowest in 11 months, while November pork imports were down 15% year over year. Jan-Nov imports were down 2% from 2017.

  Canada remains the largest importer of pork into the US, but the Jan-Nov total was down 14% year over year and the slowest since 1999. Poland has been the next largest seller, but large US supplies have cut Polish imports nearly in half in recent months.

  In beef, Jan-Nov imports are up slightly from last year, but increased exports have made the US a net exporter for the 5th consecutive month. This keeps the US on track to be a net beef exporter for the 1st year since 2013.

  The next several months will prove interesting for the meat markets. If China starts buying large quantities of US or other origin beef and pork, a strong livestock rally could unfold. If they do not, the US will be full of red meat.  


November Beef Production/Cow Kill

Dec 21, 3:56 pm | Cattle, Hogs & Pork

The Livestock Slaughter report on Thursday showed that US beef packers killed 2.799 Mil head of cattle during the month of November. It was a 1% increase over a year ago, the largest November kill rate since 2010. Compared to a year ago, the average cattle carcass weight was down 2 Lbs at 827 Lbs. However, November weights were also the heaviest of the year. The larger number of animals lifted total commercial beef production to a record large 2.314 Bil Lbs. Monthly production figures have hovered near record levels all year, and the November figure was the largest ever for that month. With two months of data for the 4th quarter, production is up 3% and record large while cumulative beef production for the year is the largest since 2002.

The total steer slaughter was up 4,000 head from last year, but more significantly the heifer slaughter rose by 19,000 head. Steer/heifer carcass weights were down 2 Lbs, but total fed beef production still increased by 1% on the larger kill total. Also of note was the cow slaughter rates, particularly the dairy cow kill. US dairymen culled 268,000 head of cows during the month, a 10% increase from last year and just 1,000 head short of the 2012 peak. Year to date, the dairy cow kill is up 6%, and the quarterly cull is 10% larger.

  The beef cow kill was down 3% year over year, 8% lighter than in October. The combined cow slaughter was 16,000 head more than a year ago and just over a third of the increase November beef production was due to increase cow slaughter rates. The larger kill rates continue to weigh on cull cow prices. Cows in the S Plains last week sold for $47 – $10 lower than a year ago, while fed cattle trade was steady with last year.  

The Hogs and Pigs report showed a December breeding herd inventory of 6.326 Mil head, down slightly from September, but like recent quarters. The chart reflects major changes that have occurred in the industry over the last 4 decades. In the late ’70s and early ’80s, the breeding herd ranged from 7 to as much as 10.4 Mil head in June ’79. Slowly the commercialization and shift to confinement growing systems have lessened the need for breeding animals. The commercialization of the industry and shift to confinement operations has allowed significantly better management, which along genetics and many other changes has steadily increased the pigs/litter rate.

  The Sep-Nov pig crop yield was at a record of 10.8 pigs. What is concerning for the longer-term price outlook is that both the breeding inventory & pig crop yield are moving higher. As mentioned previously, the last major round of liquidation started in early 2008 and did not end until early 2010. The current expansion phase is nearing 8 years, which is unprecedented. 

Red Meat Exports in October

Dec 7, 4:45 pm | Cattle, Hogs & Pork

The December International Trade report showed that US exporters shipped 502 Mil Lbs of pork during the month of October, the largest amount in 5 months and also the largest October export total on record. Total exports for the year now stand at 4.8 Bil Lbs or 5% more than a year ago, versus the latest USDA forecast that calls for a 6% annual increase. The 4th quarter forecast in November estimated a 7% year-over year increase in Oct-Dec pork exports, and the chart reflects November and December estimates that are needed to reach the USDA forecast. Both monthly figures would be record large by a wide margin if realized. Given the production increase, along with much stronger than expected prices, we expect large export figures will be confirmed. Looking ahead to the first quarter of 2019, the USDA estimates that both production and exports will increase 3% over 2018.  

Beef exports also increased on a seasonal basis in October, and were again well above a year ago on larger US supplies. Exports were counted at 272 Mil Lbs, a 5% increase over last year and the largest October beef export total on record. Total exports for the year now stand at 2.63 Bil Lbs, a 12% gain over last year and also the largest beef export rate on record. The USDA’s November estimates put annual beef exports at 112% of last year, with 4th quarter exports pegged at 104%. The chart shows monthly estimates for November and December that are needed to reach the USDA’s forecast. Outstanding export sales are record large, and we see no reason to disagree. It’s 2019, when both beef and pork production rates push to new all time highs, that increasing export demand will become more critical to avoid sharply lower livestock prices.   

The USDA will update quarterly and annual beef S&D estimates next week, but changes to both production and price in the December WASDE report are typically minimal. The November per capita beef disappearance estimate for the 1st quarter was at 14.1 Lbs, up slightly from a year ago, but still the largest since 2011. Assuming the USDA’s forecast, the price model in the chart projects an average 1st quarter steer price of $118, while the USDA’s own forecast is at $118-126 ($121 mid). CME cattle futures end this week with modest gains and are valuing fed cattle at a quarerly average of $126. Funds are still bullish livestock but as the 1st quarter nears, we continue to advise hedgers to sell in to strong 1st quarter rallies as the CME is now fully valued. Fundamentally, the upside appears limited.

North American Livestock Trade

Nov 16, 4:49 pm | Cattle, Hogs & Pork

With a larger US cow herd and inventory of feeder cattle, feeder cattle prices have generally been mixed versus 2017 throughout the year. The feeder cattle index average nearly $15 higher through the 1st quarter but were then mixed through the 2nd and 3rd quarters. Outside of the spring break, the index has generally held above $140 for much of the year. These prices, along with a strong US Dollar have led to better feeder cattle imports this year. Versus a year ago, the Dollar is trading 8% higher against the Mexican Peso and 4% higher against the Canadian Dollar.

  Through the end of October, the US had imported 955,000 head of Mexican feeder cattle (+8%), while imports from Canada were at a 3 year high of 170,000 head. The combined total of 1.13 Mil head was a 13% increase over a year ago and the largest feeder cattle import total in 3 years. 

While the US has increased its imports of feeder cattle, the latest International Trade report showed that the US has also remained a net beef importer from both Mexico and Canada. Net Canadian trade steadily improved from 2005 to 2013, but the trend turned down in 2014, and has since weakened. Year to date, US beef imports from Canada are up 7% year over year, and the largest since 2010. At the same time, exports have slipped 1%, and the US has imported 369 Mil Lbs more beef from Canada than were exported.

  The US/Mexico beef trade shifted from net exports to net imports, starting in 2015. Through October, the US had exported 335 Mil Lbs of beef to Mexico, and imported 380 Mil Lbs, for a slightly negative beef trade balance.

  Combined net trade for the year shows that the US has been a net importer of 415 Mil Lbs of beef from our North American neighbors.  

US imports of Canadian feeder pig and market hogs for slaughter have not changed significantly over the last several years, but each have been significantly lower than a decade ago. Year to date, feeder pig imports total 3.6 Mil head and are down 6% year over year. Imports of barrows and gilts for slaughter have been minimal since 2008. The current year total of 274,000 head is down 25% from last year, and the lowest figure since the USDA began reporting the data in 2000. The market hog import total is less than 1 day’s slaughter, while the feeder pig import figure equates to just over 1 week’s slaughter. The US repealed its country of origin labeling requirements in late 2015, however, Canadian pig imports have yet to increase significantly. But in another year of record large US inventories, the last thing the US pork/pig markets need is more imports.

US Red Meat Exports in September

Nov 5, 2:52 pm | Cattle, Hogs & Pork

The USDA’s ERS released their carcass weight equivalent meat export figures on Monday, based on last week’s International Trade report. The ERS data showed that the US exported 259 Mil Lbs of beef during the month of September. A 7% increase over last year, and the largest September export figure on record. The Sep figure put 3rd quarter exports at 826 Mil Lbs or an 11% year over year increase, and also the largest 3rd quarter beef export total recorded. Japan remains the single largest destination for US beef exports at 248 Mil Lbs through the quarter, while S Korea marked the largest growth and accounted for 71% of the 3rd quarter increase. Exports to Canada were down slightly from a year ago, while exports to Mexico were at a 7 year high. Combined exports to destinations other than the top 5, rose for the 5th consecutive year and reached a 6 year high.

  The October WASDE estimated annual exports would increase 11%, and the current pace is on track to reach that forecast. We doubt they make any significant changes to the forecast in the final WASDE reports of 2018.  

  Pork exports remained seasonally slow through the month of September and were down 1% from August. But at 432 Mil Lbs, it was the largest September export figure in 6 years, while the quarterly export total of 1.295 Bil Lbs was 5% over last year and the largest on record. The chart shows that Mexico was still by far the largest destination of US pork exports, though shipments this year fell short of last year’s record. Export to other major destinations were generally firm, with S Korea showing the best year over year increase. Despite tariffs, US pork continued to move to China, which was likely due to previous sales that became to costly to cancel. However, much of the growth in US pork exports through the quarter came from demand outside of the top traditional buyers. Exports to countries such as Colombia and Honduras rose by 12 and 16 Mil Lbs over last year, while exports to Australia were up more than 9 Mil Lbs.

  The USDA will update red meat and poultry supply and use estimates on Thursday. Historically, 1st quarter pork production estimate have changed very little between October and November, as the October estimates have already been adjusted to reflect the results of the September Hogs and Pigs report. The October WASDE estimated 1st quarter pork production at 104% of 2018, at 6.895 Bil Lbs. Domestic per capita disappearance was estimated to increase 2%, and was at a 15 year high of 12.8 Lbs. Based on the increase in supply, the price model in the chart suggests an average 1st quarter lean hog price of $55. The USDA’s own live forecast of $38-40 implies an average lean value of $55, while the CME this week is offering producers the chance to sell an average of $66 – nearly equal to a year ago. Our view for the hog market stays bearish on strong rallies, as the CME has priced in significant premiums.

1st Quarter Cattle Price Outlook

Oct 25, 2:29 pm | Cattle

Cattle prices rallied in early September and have since held in a broad range, with Feb cattle caught between $120-124. The trade is still waiting on the 4th quarter cash rally, but so far the market has been caught between record large cattle supplies and strong US beef demand. In the last several years, cash highs have been formed in the 1st quarter when fed supplies have been the tightest. The latest USDA forecast calls for a 1st quarter average steer prices in a range of $117-125, with a midpoint of $121. In the last 2 years, the October WASDE mid has been too low by $10-11, and the CME is reflecting a similar bias for this year.  The CME this week is offering cattle feeders the chance to hedge their 1st quarter marketings for an average of $126, or $5 better than the USDA’s price forecast.  

Historically, the midpoint of the October price forecast has been within $5 of the actual quarterly average 59% of the time, and on average across all $30 years, the forecast has been within $6. However, there is a bias for the October estimate to be too low. In the last 30 years, the October WASDE has underestimated the 1st quarter average steer price in 20 years (67%) by an average of $5.59, and over estimated price in 10 years (33%) by an average of $5.12. In 2014 there was not an October estimate due to the US Government shutdown, but the Sep estimate that year was $19 too low ($127 estimate vs $146 actual). Assuming the October estimate would not have changed much, this would have been the largest under estimate. The largest over estimate was in 2009 when the forecast mid was $16 too high.

While the USDA has a strong tendency to underestimate 1st quarter cattle prices in October, the fundamental outlook suggests that both the CME and the USDA are too high! Per capita beef disappearance for the 1st quarter is estimated at 14.3 Lbs, a 3% increase over 2018 and the most since 2010. The price model in the chart forecasts a quarterly average price of $112 – $9 under the USDA midpoint and $14 under the CME implied price. Our view is not as bearish as the price model, but we also warn against staying overly bullish cattle futures on rallies. The CME implied price of $126 is exactly unchanged from last year’s quarterly average – with beef production forecast to be record large. Our view remains to be sellers on strong  rallies, as we see prices as slightly over valued.

October 1 Cattle on Feed

Oct 19, 4:26 pm | Cattle

  The October Cattle on Feed report is viewed as bullish relative to expectations. The September placement rate fell well short of both last year and the avg trade estimate. This also put October 1 cattle feed supplies short of expectations, but still above a year ago. The chart shows that the on-feed total of 11.4 Mil head was at 105% of last year and just barely above the previous record that was set back in 2006.


The big surprise in the report was the September placement rate. The average trade estimate had called for a placement rate of 100% of a year ago, while actual placements were at 95%. This marks the first month since April, that placements have been below a year ago. Compared to a year ago in the major cattle feeding states, placements in KS were up 2%, feedlots in NE placed 9% fewer than last year, while TX feeder put 10% fewer head into the feedyard. Other notable changes were in IA where placements were down 15%, while the SD placement rate was up 23%.

  The marketing rate at 96% of a year ago and was at the low end of expectations, but it was the placement total that had the largest impact on the cattle supply figure. The chart shows that feedlots placed 275,000 head more than were marketed versus net inflow of 309,000 head last year.      

The October Cattle on Feed report was also a quarterly report, which included data for cattle on feed by class. The data again confirmed that the cow/calf industry is not expanding. NASS reported that there were 4.307 million heifers on feed, an 11% increase over last year the 11th consecutive quarter that heifers on feed were greater than a year ago, and the largest October figure since 2001. Not only were heifers larger than a year ago, but also made up a larger percentage of the total cattle on feed. The turn in the cattle cycle is now nearly 3 years old, putting more inventory into the feedlot.

  Cash cattle trade has been stuck around $111 for the last 6 weeks, but the CoF report is expected to have the CME sharply higher on Monday. Cash trade is expected to follow.

Red Meat Trade in August

Oct 9, 3:51 pm | Cattle, Hogs & Pork

The International Trade Report was released last Friday, and ERS’s carcass weight equivalent calculations for red meat exports were delayed by Monday’s holiday. However, the data showed that the US exported exported 287 Mil Lbs of beef during the month of August, a 9% increase over last year and the largest 1 month beef export rate on record! August exports were above a year ago to most major destinations, with the largest increase realized to S Korea. Exports to Taiwan and Japan were also above a year ago, while the only declines were noted to Hong Kong and Canada. Year to date, the US exported just over 2 Bil Lbs of beef – which has largely been a function increased US supply. But the larger export rates along with a growing US economy have held US beef and cattle prices above a year ago.

Pork exports increased modestly in August and the monthly export total of 438 Mil Lbs was the largest August export total ever recorded. Versus a year ago, the largest increase was again in shipments to S Korea which were up 7.2 Mil Lbs (30%). While trade to S Korea showed the largest growth, total exports of 31 Mil Lbs were still just a fraction of exports of 141 Mil Lbs to Mexico and 107 Mil Lbs to Japan. Despite China’s tariffs on US pork, exports of 16 Mil Lbs were reported for August, and the year to date total of 247 Mil Lbs is 93% of last year’s figure.  Year to date the US has exported 3.9 Bil Lbs of pork – a record figure that is equal to 23% of production versus 22% a year ago. Cumulative exports for the year are record large and at 106% of 2017, but right on track to reach the USDA’s annual forecast of 5.99 Bil Lbs.

Combined red meat imports during the month of August were down 7% from a year ago at 355 Mil Lbs, but not enough to offset rising production rates of pork and beef during the month. Compared to a year ago the US imported nearly 18 Mil Lbs less pork, while beef imports were close to 10 Mil Lbs lighter.  Beef imports from Australia rose to a 10 month high of 67 Mil Lbs, and increased Australian imports are expected in the coming month. A historic drought has devastated pastures and sharply reduced feed grain/hay supplies, and livestock herd liquidation has been ongoing. In pork, more than half of US imports arrives from Canada, which is not likely to change, especially with the latest trade agreement. But the depressed US summer pork market did slow imports from all major countries in August. Canadian imports were down 27% year over year, and fell by 26% from the next largest country of Poland. Relative to the total supply, pork imports are small. But the US market does not need any more pork!

Sep 1 Cattle on Feed

Sep 21, 3:38 pm | Cattle

The September Cattle on Feed Report will likely be viewed as bearish for CME futures at the start of trading next week. The August feedlot placement rate was slightly above expectations and Sep 1 cattle on feed supplies were also above the average pre-report estimate. The report also confirmed that feedlot inventories at the start of the month increased for the 4th consecutive year and were also the largest on record.   

The August feedlot placement rate of 2.07 million head was at 107% of last year versus expectations of 105%, or about a 38,000 head difference. Versus 2017, the largest increase in Aug placements was in the states of CO and TX, where feedlots placed 30,000 head more than a year ago. The largest Aug placement rates were in KS (520,000 head) and in NE (480,000 head). The NE total matched 2010 for the largest total since 2000. Seasonally, placement rates tend to increase through September and then peak in October.

Feedlots reported to NASS that they marketed 1.98 million head of cattle in August, which was fractionally over a year ago. The feedlot marketing rate also aligned with the total steer/heifer slaughter reported on Thursday at 2.342 million head, with both figures unchanged from a year ago.

  Despite the larger August beef production total, both wholesale and retail beef prices during the month averaged more than $1/cwt higher than in 2017, and while prices have eased in recent weeks, the choice cutout is still close to $15 higher than a year ago. This has limited selling in the cattle market in the last several weeks, but the on-feed report is expected to have the market under pressure on Monday. Initial support for Dec cattle is at the old highs near $116 and then the 50-day moving avg near $114. Our view of using strong rallies to $120 or better for sales, remains.