20 March 2010

10 minute read

Beef/Cattle: Increasing prospects for beef exports, prospects for adequate pastures this spring due to the snow-laden winter, cattle prices above year-earlier prices, and positive feeding margins add up to a more positive outlook this year compared with the two previous years.

Beef/Cattle Trade: Beef exports for 2010 are forecast to increase nine per cent from 2009, with continued growth in Asian markets anticipated. Beef imports for 2009 had a modest increase of three per cent, the first increase in beef imports to the United States in five years. Although import growth in 2010 is also forecast at nearly three per cent, shipments from prominent suppliers, including already-supply-tightened Australia and New Zealand, may be constrained. Cattle imports for 2009 came in at just over two million head and are projected to be at 2.15 million head for 2010.

Dairy: The slightly higher milk production expected this year, along with modestly increasing demand, both domestic and foreign, will support higher prices this year compared to last. Prices should rise, but modestly, over the course of 2010.

Beef/Cattle

Weather Conditions Indicate Good Spring Start

Weather has moderated in most areas from the heavy snows and cold blasts of December and January. Snow melt due to warmer-than-usual conditions in the northern half of the United States and recent rains have kept fieldwork in many areas at a minimum. Colder-than-normal and wet conditions have kept southern operators out of fields, although wheat has benefited. If the colder conditions slow wheat growth enough to delay jointing, cattle could remain on wheat pasture longer than is typical. The potential gain in weight, along with the potential for some wheat to be grazed out, could lead to slightly heavier placement weights during mid-March through much of May.

With adequate moisture over most of the United States, pastures should be off to a good start this spring. Exceptions are areas in the West and Northwest and northward into Canada, where dry conditions have led to a 38-per cent increase in year-to-date imports of Canadian cows for slaughter, up over the same period last year (through February 27). Good pasture conditions and feeder cattle prices about $10 per cwt higher than this time last year may slow the pace of US beef cow slaughter from now through June-July. Cumulative total federally inspected cow slaughter in the United States is down three per cent (through February 27) year over year, as increased beef slaughter (up six per cent) has partially offset decreased dairy cow slaughter (down 13 per cent).

Cattle feeding margins were positive for January and February of this year, and, if fed cattle prices remain at current levels, margins could be positive for several months. According to ERS’ High Plains Cattle Feeding Simulator, break-even prices will range from $87 to $89 per cwt through May 2010. Any further declines in feed prices could also improve this outlook, although increasing feeder calf prices will reduce margins.

The extreme winter weather has exacerbated the seasonal decline in dressed weights of cattle slaughtered. The potential for average dressed weights well below 2009 levels is high. According to Livestock Slaughter data from the National Agricultural Statistics Service, average monthly dressed weights declined seasonally an average of just under four per cent, or 29 pounds, over the last 10 years from a fall peak— usually in October, reaching a low point in April-May. From the September 2009 monthly high average dressed weight of 799 pounds, a typical decline would be to about 767-770 pounds. Last winter, a mild winter for cattle feeding, resulted in a decline of 22 pounds from peak to low. Weather-related setbacks in gains could moderate if weather patterns return to more typical conditions.

Combined with dressed weights below year-earlier levels, the net placements falling below year-earlier levels thus far this winter will likely result in total commercial beef production below year-earlier levels through at least mid-year. If lower placements continue during the first half of 2010, beef production could also be below year-ago levels in the second half. Wholesale beef prices will receive support from lower beef production, especially with any increase in prices for beef middle meats, pork, and poultry.

Wholesale Choice beef prices increased from an October 2009 low of $137.15 per cwt to $143.22 in February 2010. Retail prices for Choice beef declined from a winter peak of $4.29 in November 2009 to $4.19 in January and $4.20 in February. Although there are many factors affecting the relationship between price series, these opposite directions for wholesale and retail price changes provide an example of price relationships that, while appearing inconsistent, instead reflect the lags between wholesale and retail prices.

Beef/Cattle Trade

Outlook Is Bright for US Beef Exports in 2010

Export demand for US beef finished on a stronger note than anticipated for 2009 and was helpful in offsetting waning domestic demand as the year progressed. The year-ending total for 2009 exports of US beef was 1.869 billion pounds, down only 1 per cent from 2008. A weakening US dollar in the latter part of 2009 and increasing exports to emerging and reemerging Asian markets boosted export totals in lieu of the global economic recovery still in progress. US exports of beef to Japan increased 19 per cent, while shipments to emerging Vietnam and Hong Kong markets increased 22 and 154 per cent, respectively. Exports of beef to NAFTA countries represented 50 per cent of total exports of US beef. Japan and Vietnam came in third and fourth in terms of US beef export destinations, with 15- and 8- per cent shares, respectively.

Exports of US beef for 2010 are forecast to increase nine per cent from 2009 to 2.04 billion pounds. This increase is anticipatory of continued growth of Asian markets into 2010 and beyond. The 16-per cent growth seen in the fourth quarter of 2009 is expected to remain equally strong into at least the first and second quarters of this year. With a relatively weak US dollar, the Canadian import market should demonstrate steady growth above year-earlier levels, particularly in the first quarter. In Mexico, population growth and economic recovery should also result in increased exports to the region. With a US dollar remaining relatively weak, however, total export growth in 2010 may chart potentially higher.

US imports of beef for 2010 are forecast at 2.7 billion pounds. This would be an increase of three per cent from the 2009 year-ending total of 2.627 billion pounds. Imports for 2009 were also over 3 per cent higher than 2008 levels. Primary sources of beef such as Australia and New Zealand are facing both constrained slaughter and production levels, as producers are expected to increase cattle herds and are finally receiving the rainfall necessary for doing so. As cattle are withheld from slaughter in those markets, 2010 imports from Australia and New Zealand are expected to be constrained. Imports will be further aggravated by a weakened US dollar, particularly relative to the Australian and New Zealand dollars. However, with a lower US national cattle herd, cow slaughter is forecast to decrease three per cent this year. Lower cow slaughter in 2010 will serve to encourage beef imports in 2010. As fed beef production in Canada is expected to increase by the second and third quarters, Canada again looks to remain a steady beef supplier.

Live Cattle Imports To Pick Up as 2010 Unfolds

Imports of cattle to the United States in 2010 are forecast at 2.15 million head, a seven per cent increase from the 2.002 million head imported in 2009. Imports for 2009 were 12 per cent below year-earlier levels, with imports from Canada down 33 per cent. Thus far in 2010, AMS weekly reports show a continued decrease in Canadian cattle imports. Although a weakened US dollar reduces returns for foreign producers marketing cattle in the United States, Canadian producers should begin to see some increased incentive to market their cattle in the United States as the US-Canadian price differential for feeder and fed cattle has widened in recent weeks. CanFax market reports for Alberta and Saskatchewan also show marketings from feedlots trending downward due to lower fall placements.

Canadian placements, however, have been up since January, implying increased marketings, and subsequent export potential, by the second quarter of this year. Although cattle imports into the United States for 2010 are currently below yearearlier levels, as US feeder cattle prices are expected to increase and grazing conditions deteriorate seasonally in Mexico, greater numbers of cattle should be marketed to the United States in the latter part of the year.

Dairy

Despite a Smaller Dairy Herd in 2010, Milk Production Will Inch Ahead; Further Dramatic Price Increases Are Unlikely

The drawdown in the size of the US dairy herd, which began last year, is forecast to continue in 2010. The contraction is expected to be larger in the first half, with the year-over-year reduction reaching 1.7 per cent following a 1.2 per cent contraction in 2009. The milk-feed price ratio is expected to recover smartly in 2010 compared with the 1.72 ratio calculated for 2009. The improved milk-feed ratio will likely support a continuing rise in output per cow in 2010. Producers will continue to push for additional output per animal before expanding herd size. While larger operations seem to be adding cows, some of that increase may be a freshening of herds, which would also contribute to increasing output per animal. On balance, the rise in output per cow to a projected 20,950 pounds—balanced against a reduction in the national herd size to an estimated 9,045 thousand cows for the year—will result in 189.5 million pounds of milk, about 150,000 pounds more milk in 2010 compared with 2009.

Ending stocks on both a fats and skim-solid basis ended 2009 above the previous year, but stocks are forecast to end 2010 lower than at the beginning of the year. The drawdown comes from an expected increase in commercial use and a modest recovery in exports expected this year. Most of the drawdown in stocks is likely to occur in the second half of 2010.

Commercial use is projected to reach 188.7 billion pounds in 2010 on a fats basis, up 1.43 per cent. Moderating prices for cheese and economic recovery are the basis for stronger domestic commercial use on a fats basis. The higher commercial domestic use should draw down currently high cheese stocks over the course of the year and firm cheese prices by year’s end. Commercial use on a skim-solid basis is expected to reach 168.0 billion pounds, up 0.7 per cent from last year. Higher exports of powder, especially later in 2010, are expected to draw powder from the domestic market, limiting commercial domestic use on a skim-solid basis.

Commercial milk equivalent exports are forecast at 4,730 billion pounds and 25,450 billion pounds on a fats and skim-solid basis, respectively. Most of the improvement comes with increased exports of butter, milk fat, and nonfat dry milk (NDM). While exports have been modest in the first quarter, movement is likely to improve in later quarters due to economic recovery in importing countries and tighter supplies from potential competitors.

The overall demand outlook is one of recovery. Forecast growth in commercial use of dairy products overall is expected to be moderate in 2010. While milk supplies have tightened since 2009, there is still sufficient milk to meet expected demand, both foreign and domestic. Cheese prices could continue to strengthen in the second half of the year and are expected to average $1.500 to $1.560 per pound. Butter prices could also rise over the course of the year as demand improves. Butter prices are expected to average $1.415 to $1.505 per pound in 2010.

NDM prices should climb in the second half of 2010 as exports increase. NDM prices are forecast to average $1.135 to $1.185 a pound in 2010. In 2010, whey prices are expected to rebound; prices will likely average 38.0 to 41.0 cents a pound this year.

Since milk production appears ample for meeting expected demand, prices are expected to be higher than 2009, but are unlikely to rise to 2007 or 2008 levels. The Class IV price is forecast at $13.65 to $14.35 per cwt, substantially above 2009’s average of $10.89 per cwt. The Class III price is expected to average $14.20 to $14.80 per cwt, compared with 2009’s $11.36 per cwt average. The all milk price is forecast to average $15.55 to $16.15 per cwt, up from $12.81 in 2009.

Further Reading

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March 2010