US Livestock Economic Analysis Market Update - May 2007

By Jim Sartwelle, III, Livestock Economist, American Farm Bureau. This is the Livestock Information taken from the AFBF Economic Analysis Team Market Update - May 2007.
calendar icon 9 May 2007
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April was a month spent digesting USDA’s March 30 planting intentions report. That report was initially thought of as friendly to the livestock complex and market activity bore that optimism out. CBOT July Corn futures took a 40-cent break from the $4.15 area mid-March to the $3.65-$3.85 area by the end of April. This was welcome news to cattle, dairy, hog, and poultry producers who had run up against a completely new world of corn demand and feed prices.

USDA released its monthly Cattle on Feed report on April 20th. The supply of cattle resident in the nation’s 1,000-head plus capacity feedyards grew by 45,000 head during April. Relative to year-ago levels, April 1 cattle on feed was 1% lower in 2007. March 2007 marketings were 6% lower and placements were 7% higher. This report seemed pretty bearish on its face. However, the markets took that information, blended in new feedgrain planting intentions, and plowed on. At month’s end, cash markets for all classes of calves and feeder cattle remained strong, backed up by CME Feeder Cattle futures contracts from the nearby through the end of 2008 trading at or above $109.

The fed cattle and beef trades traveled rocky roads during April. Live Cattle futures followed beef values the first three weeks of the month. Carcass cutout values dropped more than $10/cwt and the cash and futures markets for fed cattle followed. After hitting the $100 mark in early April, the cash trade lost $5. Still, there is little or no reason to think beef markets will drop much more. Memorial Day draws near, marking the traditional start of the summer outdoor grilling season. Every CME Live Cattle futures contract from June 2007 through June 2008 closed the month trading above $92.50.

The pork and dairy complexes also had a good April. Lean Hog futures contracts from the nearby through the end of this summer ended the month trading above $75. The Chinese melamine situation concerned many by month’s end, but those jitters were not obvious in either the cash or futures trades. Dairy markets remained strong. Class III and Class IV milk, block and barrel cheese, and butter all added value. Non-fat dry milk and whey markets remain amazingly strong. The weak U.S. dollar and reduced dry products in other major producing areas combine to drive these hot markets. Expected cutbacks in production per cow and cow numbers are yet to materialize, but we remain concerned with scarce hay supplies and other high production costs and will continue to monitor milk production as temperatures rise during the next few months.

Many livestock producers are likely watching the current farm bill debate. Most major crop commodity associations have promulgated proposals for farm bill reauthorization, and in late April, the American Farm Bureau Federation provided details on its own proposal. There are several items in the AFBF proposal that pertain directly to livestock producers.

Farm Bureau supports allowing haying, but not grazing, on Conservation Reserve Program (CRP) acreage with a reduction in the rental rate to partially offset the economic gains. Farm Bureau supports increasing the EQIP baseline funding by $125 million annually for hog and broiler operations. AFBF believes Congress should prioritize research on modifications of Dried Distillers Grains (DDGs) and other byproducts to expand their use, especially in non-ruminant animals.

AFBF’s Standing Catastrophic Assistance proposal would apply the same assistance criteria across years to all forage crops, as well as field crops and specialty crops. This would address the concern of many livestock producers that they are sometime omitted from federal disaster funds that are triggered by crop losses.

Competition issues have come front and center in the pre-farm bill debate. AFBF supports enhancing USDA’s oversight of factors that have the potential to limit the competitiveness of livestock markets. AFBF calls upon USDA, in conjunction with the Justice Department, to closely investigate all mergers, ownership changes or other trends in the meat packing industry for actions that limit competition. To that end, AFBF supports establishing an Office of Special Counsel for Competition at USDA.

AFBF supports amending the Packers and Stockyards Act to provide jurisdiction and enforcement over the marketing of poultry meat and eggs as already exists for livestock. This includes treating breeder hen and pullet operations the same as broiler operations. AFBF supports efforts to provide contract protections to ensure that a production contract clearly spells out what is required of a producer. In addition, we support prohibiting confidentiality clauses in contracts so that producers are free to receive assistance with the contract from family members, an outside advisor, a lawyer, or a lender.

Farm Bureau supports a proposal to change the structure of the dairy price support program from the current program that supports the price of milk to one that supports the price of butter, nonfat powder and cheese. Farm Bureau supports this change only if total federal government funding does not increase by moving to the new program. AFBF supports continuation of the Milk Income Loss Contract (MILC) program or another form of counter-cyclical payments and opposes reductions in the program payments. Farm Bureau supports implementation of the dairy promotion assessment on imports.

Livestock producers must discuss external issues like the impending farm bill debate and the relentless advance of animal welfare advocates who seek to effect serious change on our modern animal production practices. While we spend great time and resources following markets and production trends, these outside forces most directly shape the longterm economic viability of animal agriculture, if not its very existence. We will ignore these forces at our own significant peril.

Further Information

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May 2007

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