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USDA Livestock, Dairy and Poultry Outlook

15 February 2012

USDA Livestock, Dairy and Poultry Outlook - February 2012USDA Livestock, Dairy and Poultry Outlook - February 2012

Increased replacement-heifer inventories may not be sufficient for cow herd expansion in the face of the large numbers of cows being slaughtered. La Niña remains in place and could adversely affect any expansion plans.
Livestock, Dairy and Poultry Outlook

Beef/Cattle Summary

Beef/Cattle: Increased replacement-heifer inventories may not be sufficient for cow herd expansion in the face of the large numbers of cows being slaughtered. La Niña remains in place and could adversely affect any expansion plans. Continued negative profit margins for cattle feeders and meat packers, along with consumer resistance to higher retail prices, would also put an upper boundary on expansionary enthusiasm. Positive factors are record feeder cattle prices, growth in natural and organic beef sales, and increasing beef exports.

Beef/Cattle Trade: U.S. beef exports in 2011 posted a 21-percent year-over-year increase. Beef exports for 2012 are forecast at 2.76 billion pounds, fractionally below 2011 levels. U.S. beef imports were 10 percent lower than year-earlier levels, the United States remained a net exporter. Beef imports for 2012 are forecast at 2.09 billion pounds, 2 percent higher than 2011.


Mixed Signals Cloud Beef’s Future

The January 2012 Cattle inventory report indicated 1 percent more beef replacement heifers and beef replacement heifers expected to calve in 2012 than in 2011, or about 37,300 more heifers expected to calve in 2012. However, in the case of heifers expected to calve, the 1 percent higher number is from a previous-year base that was already low. In the January 2011 report, 7 percent fewer heifers were expected to calve than were expected to calve in 2010, or about 245,000 fewer heifers, leading to 2011’s smallest number of heifers entering the herd since 2005. Thus, for the 2 years 2011 and 2012, beef heifers expected to calve were down by a net decline of over 200,000. In addition, beef cow numbers declined by half-a-million from January 1, 2010, to January 2011, and by another 966,700 head from January 2011 to January 2012. A year-over-year decline of 967,000 beef cows (offset by a 1-percent increase in dairy cows) is not likely to be offset by 37,300 more calving replacement heifers, especially following large declines the previous year. Thus, the question remains: do the heifer inventory changes indicated in the January 2012 Cattle Inventory report mean that an expansion in the beef (or total) cow herd is underway?

A number of factors affect motivation for an expansion in beef cow numbers. These include prospects for future steer and heifer calf prices, feeder cattle prices, fed cattle prices, cutout values, and retail beef prices, as well as prospects for costs or profit margins at every level, the state of the beef trade, and the occurrence of drought. Despite a very positive outlook from the cow-calf producers’ perspective, it is not clear that larger cattle inventories are in fact economically sustainable from an overall industry profit perspective. On the positive side, supplies of feeder cattle outside feedlots—which include imported feeder cattle from Mexico and Canada— declined by 3.9 percent from January 1, 2011, to January 1, 2012, the steepest decline since the discovery of bovine spongiform encephalopathy in Canada resulted in reduced U.S. imports of Canadian feeder cattle during 2003-2004. Demand for feeder calves has pushed recent feeder cattle prices to record highs.

At the same time, January 1, 2012, cattle on feed inventories are among the largest for the last decade. Cattle feeders placed more cattle in the first three quarters of 2011 than in the same quarters in 2010, and placed only slightly fewer cattle in fourth-quarter 2011 than in fourth-quarter 2010. This occurred for two reasons— initially, placements were motivated by anticipated reduced supplies of fed cattle in the hope of higher fed cattle prices in the future, and later, placements were made in response to the decreasing forage supplies due to the worsening drought.

Retail beef prices are at record levels, but these prices are not sufficient to provide the long-term margins and profits the wholesale and cattle feeding sectors must have in order to sustain an expansion. There are signs that consumers are beginning to resist the escalating retail prices. It is not clear how much higher beef retail prices can go with pork and poultry so much less expensive. Both cattle feeders and packers have absorbed negative margins for most of 2011 and thus far into 2012.

As La Niña continues to exert weather patterns similar to those that existed into 2012, placements of feeder cattle in feedlots could continue to be motivated by lack of forage outside feedlots. Further, given the short supplies of feeder cattle outside feedlots, feedlot owners— who have to cover fixed costs of feedlots, unlike cattle feeders for whom overhead is a variable cost—are likely to continue to encourage placements of any cattle in order to lower their costs, which may lead to greater placements of more-readily available lighter weight and younger cattle. Cattle feeders, on the other hand, will likely be motivated to place relatively high proportions of lighter and younger feeder cattle in anticipation of positive profit margins in future months. Within bounds, pulling cattle forward could continue at the margin into 2014 or 2015, or until feeder cattle supplies once again reach levels that will allow lighter weight cattle a chance to first grow on pasture before being placed in feedlots. This will be modulated by increases or decreases in feed costs, weather, and other factors over the same period.

Expansionary activity will also depend on cow-calf producers’ inventory management strategies, to the extent they will be willing to hold on to heifers for breeding herd replacements vs. letting them go as feeder cattle for placement in feedlots. Heifers are currently selling at prices less than $10 per cwt below steer prices for similar weights. These price differentials at current price levels will provide significant incentive to producers to sell heifers as feeder cattle rather than retaining them as breeding herd replacements. Heifers sold as feeder cattle reduce the impact of declining supplies of feeder cattle outside feedlots, but prolong the time before calf crops can catch up to the demand for heavier feeder cattle.

Cattle feeders have endured negative margins since April 2011, the last month to show a positive margin (High Plains Cattle Feeding Simulator, Despite expectations of somewhat higher fed cattle prices in 2012 over 2011, until corn and/or feeder cattle prices decline, cattle feeding margins—anticipated at or below breakeven levels of $125-$130 per cwt—are not likely to encourage cattle feeding, even by feedlot owners seeking to reduce overhead costs. The scenario is exacerbated further by a still-unimpressive economic recovery and a general trend of producing more beef from fewer cows (see special article), despite below-trend average dressed weights during 2010 and 2011. With La Niña remaining in place, the potential for another dry year could also adversely affect expansion plans, particularly in Southern-tier States.

Negative feeding margins have been the result of escalating feed costs, up by as much as a third or more over the past year, and feeder-cattle costs that have increased by over 20 percent. On a per cwt basis, the current upward trend in monthly average feed and feeder cattle costs began in January 2010 and by the end of January 2012 had increased by 72 percent. At the same time, monthly average Texas/Oklahoma/New Mexico fed cattle prices rose by 44 percent.

Some analysts have alluded to excess capacity in feedlots and packinghouses as a major cause of the negative margins. The negative margins for cattle feeding and feedyard closures in New Mexico and the Southern Plains, for example, and the apparent reduction in cattle feeding in lots of less than 1,000 head tend to support the notion of excess capacity. However, the expansion of larger feedlots contradicts that notion.

The notion of excess meat packing capacity is similarly characterized by conflicting information about packinghouse closures and openings/reopenings, the recent announcement of the reopening of the refurbished beef packing plant in Tama, Iowa being an example,. At the same time, there is further evidence of excess capacity in observations of $100 per carcass losses, reduced kills, and reduced hours of operation.

At the same time, small, custom-slaughter facilities appear to be struggling to keep up with more local cattle slaughter and processing of “natural” beef and organic beef. At least some, if not most, of this beef is sold at farmers’ markets, a rapidly growing segment of the beef industry. Despite the economic challenges consumers have faced during the past couple of years, this growth has continued. Data characterizing this growth in natural/organic beef sales are hard to find. However, citing scanner data summarized by the National Cattlemen’s Beef Association, the Agricultural Marketing Resource Center (AMRC) relates that the retail share of natural and organic all-fresh-beef sales has increased from 1.1 percent in 2003 to 4.2 percent in the first quarter of 2011, although the AMRC cautions that part of the increase in the share of retail sales is due to price increases over the same period. However, ERS data indicate that the 31-percent increase in all fresh retail prices for the same period, from $3.31 per pound for all of 2003 to $4.35 for first-quarter 2011, accounts for only a small portion of the nearly fourfold increase in growth of retail sales of natural and organic beef.

Beef/Cattle Trade

U.S. Beef Exports Increase by 21 Percent in 2011

U.S. beef exports posted strong gains in 2011. Total beef exports were 2.79 billion pounds, 21 percent higher than the previous year’s totals. The strongest gains were to Russia (+85 percent) South Korea (+37 percent), Japan (+30 percent), Canada (+27 percent), and Hong Kong (+21 percent). Canada and Mexico, however, were the top beef export destinations for the United States. Japan and Korea were the third and fourth export destinations for U.S. beef, respectively. Together, these four countries imported 65 percent of total U.S. beef exports. Beef exports in 2011 were also 11 percent higher than pre-BSE export levels; however, exports to Japan and South Korea were only 50 and 65 percent of pre-BSE levels (2003), respectively.

U.S. beef exports for 2012 are forecast at 2.76 billion pounds, fractionally below 2011 levels. Bullish market conditions for the beef export market are expected to continue in 2012, driven by several factors: slow growth in worldwide cattle inventories, relatively stronger economic growth in Asian countries, and favorable exchange rates for foreign purchasers.

U.S. Beef Imports 10 Percent Lower in 2011

For much of 2011, the U.S. beef imports can be summarized as constrained by Australia and New Zealand’s efforts to rebuild their cattle herds and, subsequently, lower quantities of beef available for export from Oceania; a relatively weak U.S. dollar, making prices of foreign imported products higher; and continuing strong demand for beef in global markets. Total 2011 U.S. beef imports were 10 percent lower than year-earlier levels, making the United States a net exporter of beef in 2011 by 32 million pounds. Canada was the top supplier of beef to the United States on a quantity basis in 2011, providing one-third of total U.S. beef imports. Imports of Canadian beef, however, were 20 percent lower year-over-year. Australia and New Zealand were the second and third largest exporters of beef to the United States, although nearly equal quantities were imported from these countries; approximately 22 percent of total U.S. beef imports were imported from each country. Year-over-year imports from Australia were 20 percent below a year ago, compared with 3 percent lower for New Zealand. Imports from Mexico and Central America (Nicaragua, Costa Rica, and Honduras) were higher year-over-year, by 44 and 27 percent, respectively, as these countries captured market share from Australia and New Zealand. Beef imports from Brazil, Argentina, and Uruguay remain at considerably lower levels compared with previous years. Primarily, limited supply has hampered beef exports for Uruguay and Argentina; thus, these countries have generally reduced shipments to all markets, including the United States. Brazilian-U.S. beef exports (processed beef only) are expected to continued to recover, as they have been since trade resumed mid-year 2011.

Beef imports for 2012 are forecast at 2.09 billion pounds, or 2 percent higher than 2011. While beef production, and subsequently exports from Australia and New Zealand, are expected to increase this year, growth will be limited by producers retaining stock for breeding purposes. Weather and forage conditions in Australia will be among the primary determinants for cattle slaughter levels and thus for exportable supply. Export returns were lowered in 2011 by the strength of the Australian dollar, and the exchange rate will also be a factor in determining to which countries will be more competitive in bidding for product in 2012. Given the herd rebuilding efforts that are already underway in Canada, exports from Canada will be also be constrained, but there is still expected to be significant Canadian incentive to export because of U.S. demand for processing beef. With the apparent supply constraints among the major U.S. beef trading partners, Mexico and Central American countries should continue to pick up some of this slack.

Annual US Beef Exports by Destination

Annual US Beef Imports by Country of Origin

U.S. Cattle Imports 8 Percent Lower in 2011

U.S. cattle imports for 2011 totaled 2.1 million head, marking an 8 percent decline from year-earlier levels. Despite a diminished total North American cattle inventory, U.S. cattle imports could have been much lower had it not been for drought extending into Mexico and prompting producers there to market cattle in the United States. Cattle imports from Mexico were 16 percent higher year-over-year, but the increase was not enough to offset the 35-percent decline in Canadian cattle imports. Herd rebuilding has been underway in Canada as cows imported for slaughter declined by 39 percent compared to imports of all cattle for slaughter (-31 percent). The increase in Mexican cattle imports was solely attributed to increased imports of lighter weight feeder cattle (less than 400 pounds). Many of these calves directly entered feedlots due to strong U.S. demand and drought conditions that limited grazing options in the Southern Plains.

U.S. cattle imports in 2012 are forecast to be 2 percent lower, at 2.05 million head. Severe-to-exceptional drought conditions are still present, extending into Northern Mexico, where feeder cattle imports to the United States primarily originate. U.S. import levels should thus remain elevated from Mexico at least through the first half of the year. Cattle numbers and calf production are expected to expand slightly in Canada this year, increasing the availability of fed cattle for export (and immediate slaughter), particularly in the second half of the year. (In the last 5 years, cattle over 700 pounds for immediate slaughter averaged 70 percent of total Canadian cattle imports). Imports of cows for slaughter from Canada should remain at lower levels, as Canadian producers continue to hold back breeding stock as they expand herds.

Canadian Cattle Imports to the United States, 2000-2011

Dairy Summary

Dairy: The dairy cow herd size is currently above a year earlier; but, weakening producer returns should prompt herd size reduction by the end of 2012. Expected higher milk production will lower price prospects this year for milk and the major dairy products, except whey. Exports will help support dry product prices. Whey prices continue above 2011 and milk powder prices should strengthen later in the year.


Although the Milk Cow Herd Remains Above Last Year, Lower Milk Prices Should Prompt Herd Reduction by Year End

The January Cattle report showed a 1 percent higher inventory of dairy cows on farms than a year earlier. However, the number of heifers for milk cow replacement and the number of heifers expected to calve in 2012 were both reported 1 percent below a year earlier. Although the cow inventory forecast for 2012 is only raised slightly to 9.19 million head, the January report points to higher forecast cow numbers early in the year, with a sharper fall off than projected in January expected later in 2012.

Although 2011/12 soybean meal prices are forecast below last year’s $290 to $320 a ton, corn prices in 2011/12 are projected to be higher than last year’s $5.80 to $6.60 per bushel. The continued outlook for relatively high feed prices and forecast lower milk prices in 2012compared with last year will weaken returns for dairy producers over the course of 2012, leading to herd reduction. Milk per cow is forecast higher than in January at an average 21,645 pounds per cow. The higher than expected milk per cow observed in the fourth quarter of 2011 will likely continue through 2012. Further, the mild winter is expected to benefit milk production, especially in the first quarter. On balance, this forecast would lead to 199 billion pounds of milk production in 2012, higher than the January estimate and 1.4 percent above the 2011 total output.

Fat-basis imports remain unchanged from last month at 3.3 billion pounds and exports also were unchanged at 8.6 billion pounds. On the skims-solids supply and use table, there were no changes from January’s import forecast of 5.1 billion pounds. Skims-solids exports were increased slightly to 32.3 billion pounds as skim milk powder exports were higher in the fourth quarter of 2011 and there appears to be little drop-off heading into 2012. U.S. prices and the exchange rate will likely keep U.S. dairy exports competitive with New Zealand and the European Union.

Domestic prices for the major dairy products were reduced in the February report, with the exception of whey. Cheese prices are forecast at $1.610 to $1.680 per pound; this represents a reduction from January’s estimate and is well below the $1.825 per pound price posted last year. The expected increase in milk production in 2012 contributes to the lower cheese price, especially in the first quarter. Similarly for butter, prices were projected lower at $1.570 to $1.670 per pound, representing a downward revision from January and a sharp drop from 2011’s average price of $1.950 a pound. The same market fundamentals apply for both butter and cheese, with higher production overtaking demand. This situation could be ameliorated by the fourth quarter, firming prices if the forecast 2012 milk production growth rate slows from the robust increase forecast for the first quarter. Nonfat dry milk (NDM) prices were revised downward in February as well. NDM is forecast at $1.360 to $1.420 per pound. The sharpest declines in cheese, butter and NDM prices will occur in the first quarter. Export demand should support some recovery in product prices as the year goes on, but prices for cheese, butter and NDM are not expected to recover to 2011 levels. The whey price forecast was raised from January to 61.5 to 64.5 cents a pound and is well above the 2011 average price of 53.3 cents a pound. The pace of whey exports has kept prices moving upward for the last 3 years, a situation expected to continue in 2012.

Milk prices were revised downward based on the price outlook for dairy products. The Class III price was revised to $16.70 to $17.40 per cwt, considerably below last year’s $18.37 per cwt average. The Class IV price was lowered this month to $16.25 to $17.05 per cwt, also considerably below the 2011 average of $19.04 per cwt. The all milk price is forecast at $18.00 to $18.70 per cwt, down from the January forecast, and as with the Class III and Class IV prices, much lower than the $20.14 per cwt average posted in 2011.

Sheep/Lamb Summary

Sheep/Lamb: The U.S. sheep and lamb inventory declined for a sixth straight year in 2011. The January 1, 2012 inventory of sheep and lambs was 5.35 million head, down 2 percent from January 2011. The number of replacement lambs was down 2 percent. The 2-percent reduction in the number of market sheep and lambs and lamb crop on January 1, 2012 and the 2 percent smaller lamb crop in 2011 should result in lower slaughter numbers. Lamb prices are expected to remain fairly strong this year as production is expected to remain tight.


Sheep and Lambs

The U.S. sheep and lamb inventory declined in 2011. The January 1, 2012, inventory of sheep and lambs was 5.35 million head, down 2 percent from January 2011. The total breeding inventory was down 3 percent and the lamb crop in 2011 was 2 percent lower than the previous year. The number of replacement lambs was also down 2 percent from the previous year. Sheep death loss during 2011 totaled 240,000 head, an increase of 4 percent from 2010, while lamb death loss increased 3 percent from 370,000 head in 2010 to 380,000 head in 2011.

Eighteen of the published States registered inventory declines on January 1, 2012. Texas, the largest sheep producing State, saw a 24-percent drop in all sheep and lamb inventory, its largest single-year decline in sheep inventory ever. The Texas sheep and lamb inventory declined from 850,000 head on January, 2011 to 650,000 head on January 1, 2012. The significant decline was largely due to extreme drought conditions in the Southwest. California, the second largest sheep-producing State, saw a 5-percent drop in all sheep and lamb inventory.

Fourteen of the published States reported inventory increases. Signs of these increases were seen primarily in the medium-level producing States; Colorado, Wyoming, Utah, South Dakota, Idaho, and Minnesota, all States with more than 100,000 head, registered increases. Colorado saw the biggest inventory increase, 24 percent, in its sheep and lamb inventory. While some of Colorado’s increase may have been due to the relocation of herds from Texas, some increase may have been associated with the efforts to grow the flock.

Commercial lamb and mutton production is forecast at 145 million pounds in 2012, nearly 3 percent below 2011. Production in 2011 declined 9 percent. The 2-percent reduction in the number of market sheep and lambs on January 1, 2012, and the 2 percent smaller lamb crop in 2011 should result in lower slaughter numbers this year. The smaller lamb crop may also make it more difficult for producers to grow their flocks. Production for the first quarter of 2012 is forecast at 38 million pounds. The number of slaughter animals is expected to be lower, but average weights are expected to be higher than normal.

Lamb prices are expected to remain fairly strong in 2012 as production will remain tight throughout the year. The San Angelo Choice slaughter lamb price is forecast to average in the $138 to $150 per cwt range for 2012. This would be below the 2011 average price. The average price in 2011 was $160.60 per cwt. Choice slaughter lamb prices at San Angelo have more than doubled in the past 5 years.

Lamb and mutton imports for 2012 are forecast at 178 million pounds, more than 9 percent above 2011. Expected economic improvements this year and tight domestic production should fuel this increase. Imports in 2011 declined 2 percent to 163 million pounds. The strong Australian and New Zealand currencies relative to the U.S. dollar appeared to have had a dampening effect on imports. U.S. lamb and mutton exports increased 6 percent to 19 million pounds in 2011, largely due to increased shipments to the Caribbean. U.S. exports for 2012 are forecast at 14 million pounds.

Special Article

Imported Livestock Contribute to U.S. Domestic Meat Supplies

Kenneth H. Mathews, Jr.
Rachel J. Johnson

Beef and pork production in the United States have increased since 1972. More beef is now produced with a smaller cow herd (basis: January 1 U.S. cow inventory) than at any other period in U.S. history. Dressed weights of steers (fig. 1), heifers, cows (fig. 1), and bulls have also increased. Similar increases have occurred in dressed weights of hogs (fig. 1). However, part of the increased production is from meat production from cattle and hogs imported into the United States for feeding and slaughter. Unless accounted for, this production from imported livestock clouds what can be said about changes in U.S. technical efficiency in beef production.

Greater detail in trade data since the early 1990s has made it possible to better assess the contribution of foreign livestock to U.S. beef production. As a result, data indicate that the quantity of meat produced from each head of breeding stock— in some sense, a measure of technical efficiency gains and genetic improvement— has increased since 1972. After adjusting for beef produced from foreign-born animals, Brester and Marsh (1999) estimated that beef production per U.S. beef cow increased by 26 percent over the 25-year period ending in 1998. In 1976, commercial beef production reached 25.667 billion pounds, which included an estimated 497 million pounds of beef produced from cattle imported from Canada and Mexico (Brester and Marsh, 1999). After subtracting beef produced from foreign cattle, an average of 457 pounds of beef was produced per U.S. cow in the U.S. base cow herd of 54.971 million cows (January 1, 1976 total cow inventory).

Extending the Brester-Marsh methodology beyond 1998—the end point in their original study—implies an increase in beef production per U.S. cow of 44 percent from 1972 to 2010. In the most recent peak year of 2008, 26.561 billion pounds of beef were produced, 1.565 billion pounds of that beef attributable to cattle imported from Canada and Mexico. Again adjusting for beef from foreign livestock, an average of 600 pounds was produced per U.S. cow in the January 1 total cow inventory of 41.692 million cows.

Federally inspected average dressed weights reported by USDA's National Agricultural Statistics Service (NASS) have increased steadily over time (fig. 1). Annual average dressed weights for all cattle in 1970 that averaged 624 pounds per head had increased by almost 26 percent to 784 pounds in 2009, the heaviest annual average weights to date. The dressed-weight measures in both years include effects from imported livestock.

The U.S. depends on foreign sources for a significant share of its red meat. These sources include both meat imported directly as beef, pork, or lamb and the meat produced in the U.S. from imported live animals. For beef, foreign sources have accounted for as little as 8.2 percent (1974 and 1975) to as much as 18.2 percent (2005). Even during 2003 through 2005 when cattle imports from Canada were subject to restrictions due to the discovery of Bovine Spongiform Encephalopathy, beef from foreign sources accounted for 14.6 to 18.2 percent of U.S. beef supplies.

For 2011, cumulative imports of Canadian cattle into the United States were 35 percent lower year-over-year than in 2010, while imports of beef from Canada were 20 percent lower, again, year-over-year. Over the same period, imports of cattle from Mexico were up by over 16 percent. In 2011, estimated (by the Brester-Marsh method) beef produced from cattle imported into the United States from Canada and Mexico combined with all beef imported into the United States represented a quantity equal to about 11 percent of total U.S. beef supplies (excluding beginning cold storage stocks and on-farm production),. This was down from almost 13 percent in 2010 due to reduced imports of cattle from Canada.

Average Dressed Weights of Cattle and Hogs Have Increased Since 1972

Imports of Cattle and Hogs Have Increased Along With Total Production, 1972-2011



Brester, G.W., and J.M. Marsh. "U.S. Beef and Cattle Imports and Exports: Data Issues and Impacts on Cattle Prices." Policy Issues Paper No. 9, Trade Research Center, Montana State University, Bozeman, MT, April 1999.

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