Livestock Outlook: Weather Conditions Improve Prospects

US - Weather Conditions Improve Livestock Prospects.
calendar icon 20 September 2006
clock icon 8 minute read

Feed and Forage: Conditions: Improved moisture conditions across the northern Great Plains and western Corn Belt during August have resulted in much-improved corn and soybean yields.
Cattle/Beef: Recent rains in the Southern Plains have improved prospects for winter pastures, which could mean reduced beef cow slaughter. Seasonal increases in cow slaughter will likely be reduced as much culling has already occurred, along with early weaning, due to drought. Improving grazing prospects, particularly for small grain pasture, will provide increased competition for relatively low feeder cattle supplies, at least in the near term. Reduced cow slaughter should provide support for cow prices, and increased competition should provide support for feeder cattle prices.
Dairy: Stable demand throughout the dairy complex combined with heatinduced tighter milk supplies have contributed to summer prices, which were higher than expected. However, continued rises in production and adequate stocks of most dairy products point to only modest price increases in the fall
months. Prices in 2007 were unchanged from August’s report. 

Feed and Forage Conditions 

Improved Moisture Conditions Raise Yields/Production Estimates 

Improved moisture conditions across the northern Great Plains and western Corn Belt during August have resulted in much improved corn and soybean yield estimates. Corn production is forecast at 11.1 billion bushels, up 1 percent from the August estimate and fractionally above a year ago. If realized, this would be the second largest crop on record. However, production of the other feed grains (sorghum, barley, and oats) is expected to decline. Total feed grain production (including corn) this year is expected to be up marginally from last year and down nearly 6 percent from the 2004/05 crop. Projected ending corn stocks were pulled down to 1.22 billion bushels and the 2006/07 farm price of corn is expected to
average $2.15 to $2.55 per bushel, up from $1.99 a bushel in 2005/06 and $2.06 2 years ago.

Estimated global 2006/07 coarse grain production was lowered to 969.4 million metric tons, and world coarse grain ending stocks were lowered to 125.8 million tons. These declines were due to reductions in the European Union-25, Former Soviet Union-12, Canada, and Australia.

Similarly the soybean crop is forecast at 3.09 billion bushels, again the second largest crop on record. Yield prospects have increased across the Corn Belt and most of the northern and central Great Plains. Consequently, soybean meal production is projected at 42,035 thousand short tons, up 2.5 percent from last year and up 3 percent from 2004/05. Soybean meal prices are expected to average $147.5 to $177.5 per short ton, down from $173.50 in 2005/06 and $182.89 in 2004/05.


Conditions Improving

 Recent rains in the Southern Plains have improved prospects for fall grazing and winter wheat pasture. However, the recent rains were too late to rebuild hay stocks. If winter wheat pasture is available this fall, feeder cattle prices will likely find support from tight feeder/stocker supplies because many cattle that ordinarily would be available for wheat pasture have already moved into feedlots. However, there
could be some movement of lightweight cattle, placed in feedlots earlier due to dry conditions, back to pasture. Cow prices have increased, along with fed cattle and beef prices, despite increased supplies and lower prices for some competing meats. Fed cattle futures prices for contracts expiring through spring 2007 were in the lowto mid-$90s during the first 2 weeks in September, well above earlier levels. If small grains and other pastures face problems later this fall or winter as they did last year, cattle likely will again move off pasture into feedlots and to slaughter sooner than normal. A positive factor for the cattle and beef sectors is that fuel and energy prices are declining.

Cow and feeder cattle prices are holding steady-to-stronger, supported by a number of positive factors. Feeder cattle supplies outside feedlots, up 1 percent over July 1, 2005, remain in the low end of their recent historical range. Improving pasture conditions will also mean some competition with cattle feeders for the available supplies of feeder cattle. While cow prices could decline if seasonal culling
increases, beef cow slaughter has been running well above levels observed for summer 2005 and above levels one would expect, given that we are in the second year of expansion of the current cattle cycle.

With feedlot breakeven costs between $83 and $84 per cwt (August marketing basis in the High Plains Cattle Feeding Simulator, fed cattle could be breaking even or showing a small profit in September. Feedlot placements in July 2006 included a large number of cattle weighing less than 600 pounds, 43 percent more than were placed in July 2005 and 35 percent more than the average of the previous 5 years, reflecting the extremely poor pasture conditions that prevailed in July of this year. Marketings of these cattle from feedlots will likely be spread over the 6 to 8 months from placement, and longer if small grain pasture development results in some of these lightweight cattle leaving feedlots and going back to pasture. These larger marketings will pressure prices. 

Wholesale prices appear to be following seasonal trends upward, as are dressed weights. Despite the continuing relatively low supplies of Choice beef, the spread between Choice and Select beef has declined to the corresponding 2005 level for the first time since spring of this year. As the Choice-Select spread narrows, the advantage to feeding cattle longer so they reach a higher grade lessens.

August average retail prices increased to $3.98 per pound after a July 2006 low of $3.88 per pound, which had slipped below $3.90 for the first time since September 2003. In addition, the farm-to-retail price spread widened by 2.6 cents per pound, composed of an 11-cent gain in wholesale-to-retail spreads only partially offset by an 8.4-cent decline in packer margins. The August wholesale-retail spread, at $1.70 per pound, continued to widen from its June 2006 low. Packers appear to be givingup the most ground. Retail prices reflect a wider spread and higher fed cattle prices, both of which were passed through to consumers. The effects of lower retail prices and narrow retail-wholesale price spreads will eventually make their way back to the feedlot and farm, at some point resulting in lower fed cattle and feeder cattle prices, or the retail price will have to rise. Pork production is rising seasonally into the fourth quarter. Broiler production is expected to remain unchanged in the fourth quarter. Consequently, supplies of some competing meats at lower prices will pressure beef prices. However, beef production is declining seasonally into the fourth quarter, helping to support prices.

South Korean Beef Market Responds

South Korea announced on September 7 that it would resume the importation of U.S. boneless beef from cattle less than 30 months of age. Plant approvals and export requirements for export to South Korea were announced September 11. Beef export forecasts for 2006 and 2007 have been increased. Beef exports in July were nearly double last year’s level with exports to Canada and Mexico continuing
to expand. Shipments to Japan began in early August and are expanding weekly, but will be slow to increase due to age restrictions--beef must come from cattle 20 months of age or younger—and trader concerns over further disruptions. Exports to South Korea should begin shortly, consisting of boneless beef that must come from cattle under 30 months of age. Prior to December 2003, when the first U.S. BSE case was discovered, Japan was our largest export market and South Korea was the third largest. Consumers in both countries are very familiar with the value of highquality U.S. fed beef. However, the import and export sectors must be confident that trade will not be disrupted before U.S. exports can begin to move toward pre- BSE levels.


Prices in Dairy Complex Trend Higher This Summer and Into the Fall

Much of the effect of July’s exceptionally hot weather was felt in California and several other States. Nationally, the impact was limited. The July NASS Milk Production report placed that months production in the 23 major production States at 1,686 pounds per cow, 3 pounds above a year earlier, suggesting that productivity continues to inch ahead. Cow numbers were 107,000 above July 2005 but 11,000
below June’s reported number.

 As a result, USDA is forecasting 2006 milk production at 182.0 billion pounds, 2.8 percent ahead of 2005 production. The 2007 forecast for milk production is 183.2 billion pounds. In 2007, cow numbers will finally dip below year-earlier levels but milk per cow will continue to rise, boosting production per animal to an average 20,285 pounds.

 July cheese production declined seasonally but remained above year-earlier levels. Year-to-date cheese production is 3.2 percent ahead of 2005. Cheese inventories, especially of other than American cheese, are high compared with year-earlier levels. However, continued strong demand for cheese is expected to absorb the added production and draw down stocks. Strong cheese and fluid milk demand
along with the residual effects of July’s hot weather have contributed to modest price increases since early July. The cheese price is expected to climb further into fall. The 2006 cheese price is expected to average $1.230-$1.250 per pound.

The August Cold Storage report placed July 31st butter stocks 30 percent above year-earlier levels, and butter prices have been below year-earlier and the 5-year average price. However, in August, butter prices rose to $1.199 per pound from $1.134 a month earlier. For the year, prices are expected average $1.205-1.245 per pound.

Prices for dry products rose slightly in August. The heat-reduced milk supplies adversely affected Nonfat Dry Milk (NDM) production more than other products because much of the production is on the west coast. With rising foreign demand and strong ingredient demand, fall quarter prices are expected to average above summer prices. The 2006 average NDM price is expected to be 85.0-87.0 cents per
pound. Projected dry whey prices for 2006 are unchanged from August’s report at 29.5-31.5 cents per pound.

The all milk price and Class III and IV prices are forecast to increase slightly into the fall months. Fluid milk sales for the first half of 2006 have increased year-overyear for the first time since 2003 according to Agricultural Marketing Service published Federal Order and California data. Continued fluid milk sales could support the all milk price for the remainder of the year. The 2006 all milk price is projected to be $12.65-$12.85 per cwt. The yearly Class III price is expected to be $11.60-$11.80 per cwt and the Class IV price, likewise, will average $10.70-$11.00 per cwt. These revised projections represent slight increases from August estimates for all milk and Class III yearly prices. Forecasts for 2007 remain

TheCattleSite news desk

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