Two recent USDA reports illustrate the good news/bad news aspect of current U.S. beef cattle markets. The survey data confirm the good news that American cattle farmers are actively expanding the beef-cattle herd, which will eventually lead to greater beef supplies and more moderate prices as a result. The bad news: That rebuilding process is going to be long and slow, at least to start.
Supplies are still tight. USDA's July Cattle report contained USDA’s first estimate of the 2015 calf crop and it came in 1.2 percent higher than that of 2014, at 34.3 million head. If the estimate is true, 2015 will be the first year the calf crop has grown by 1 percent or more in more than two decades, according to Iowa State ag economists Chad Hart and Lee Schulz. Young female cattle now make up 16.1 percent of the total U.S. cow herd--another 20-year high mark--which means cattle ranchers are now holding females off the market at a rate consistent with levels during the large expansionary phase of the early 1990s, diverting them into producing more calves down the road, but temporarily cutting into the beef supply as they do so.
We have a long way to go to recover from the lost numbers brought on by continued drought during the last decade. The number of "feeder calves," those ready to go onto the final phase of feeding before being marketed as beef, are still tight. Feeder cattle supplies have been within the range of 34.87 and 35.50 million for the past four years, and that 35.25 million average of those four years still falls 8.4 percent lower than the average for 2004 through 2010—the last years in which we saw what they consider an overall increase in feeder cattle supplies.
Much of that year-over-year increase in feeder cattle supplies is being fed by a relatively larger increase in the number of light calves, those under 500 pounds. What that statistic means is that even though the overall supply of calves available to put on feed is increasing, the majority of those are those light calves, which won't be big enough to go into feedlots until late in the year and into next year. So don't expect any significant impact on beef supplies to appear until 2016. Beef cattle inventories are increasing right now, but the supply of beef will actually fall another 1 percent or 2 percent in 2015 following the 5.7 percent year over year decrease in 2014. That adds up to sustained high wholesale prices for the near future.
USDA reports that driven by the decrease in the number of layers in the table egg flock, primarily in Iowa, due to the avian flu outbreak, total U.S. table egg production dropped 7 percent in May to 571 million dozen. During May, the number of hens in the table egg laying flock averaged 283 million, down 7 percent from a year earlier. The strong decline in May has caused the forecast for second-quarter 2015 to be reduced by 15 million dozen to 1.7 billion dozen, down almost 6 percent from the previous year. Year-over-year table egg production is forecast to be lower than the previous year during the second half of 2015 and into the first quarter of 2016, reflecting the time needed to get replacement pullets to repopulate farms and into production.
The size of the table egg flock was reduced by the impact of the HPAI outbreak, but since the broiler sector has not been significantly impacted, the size of the hatching egg flock and egg production have remained above the previous year. In May, hatching egg production totaled 95 million dozen, 4 percent higher than a year earlier. With this strong increase, the forecast for second-quarter hatching egg production was raised to 280 million dozen. Broiler-type egg production dominates this sector of the industry, and hatching egg production is forecast to remain above the previous year throughout 2015 and through the first half of 2016 as the broiler industry expands. Wholesale prices for grade A large eggs in the New York market averaged $1.70 per dozen in second-quarter 2015, up 27 percent from the previous year. Over the last 2 weeks of June and carrying over into the beginning of July, wholesale egg prices had been steady at $1.89 per dozen, but have moved higher in recent days. Lower table egg production during the second half of 2015 is expected to keep upward pressure on prices, and the forecast is for wholesale prices in the New York market to remain well above year-earlier levels.
Total egg exports (shell eggs and egg products) reached the shell egg equivalent of 26 million dozen in May, 16 percent lower than in the previous year. The decline was primarily due to a sharp decrease in exports to Mexico. Shipments to Mexico were 34 percent lower in May compared with a year earlier. Egg exports in 2015 are now expected to total 364 million dozen. The forecast for 2016 exports remains at 385 million dozen.
So much milk is now available in this country that a 1,200-dairy New England marketing cooperative last month, for the first time in 50 years, started dumping milk, according to a report by Bloomberg Business News. Dairies in that region dumped 31 percent more milk over the first half of this year than they did during the same time in 2014, Bloomberg cites USDA data as showing. The co-op says the common alternative of shipping surplus milk to this part of the country isn't viable today because no plants have available capacity to process it.
What’s going on with dairy supply?
U.S. domestic output in May reached 18.4 billion pounds, the most in any month and up 1.7 percent from April, and it will likely rise to a record 208.7 billion pounds this year, according to USDA date. Meanwhile, worldwide milk production is also on the climb, increasing 2.1 percent to a record 582.52 million tons. Each U.S. cow averaged 1,911 pounds pounds of milk in April, 19 pounds above April 2014, even as the number of cows increased to 9.305 million head, or about 65,000 head more than April 2014 and about a thousand head more than March 2015. Only California, still crippled by drought, produced less milk compared to this time last year, down 2.1 percent.
U.S. farmers have been in expansion mode since dairy futures reached record territory last September and expectations for low feed prices have increased. Based on April data, the total 2015 forecast for milk production has been raised by 0.1 billion pounds from last month’s projection, as the forecast for yield per cow has been increased by 10 pounds for the year. Even in the face of those supply increases that should pressure costs, though, both dairy product prices and milk prices continue to hold up better than expected. Based on recent price data and strong expected cheese demand, the 2015 forecast for the cheese price has been raised to $1.635 to $1.675 per pound. With recent price changes and abundant supplies, USDA predicts, price forecasts for butter, NDM, and dry whey have been lowered, respectively, to $1.8 to $1.870, $1.005 to $1.045, and 46.5 to 48.5 cents per pound, respectively. Prices have been supported by good butter and cheese sales thus far this year along with dairy product production and stock levels favorable to prices. Butter production has been below a year ago with April down 1.7 percent and year‐to‐date down 2.8 percent. Nevertheless, April butter stocks increased 25 percent over March and were 23 percent higher than April 2014.
Looking ahead to next year, USDA says, the yield per cow forecast for 2016 has been raised from last month’s forecast by 30 pounds, raising the milk production forecast by 0.3 billion pounds to 213.9 billion pounds.
Now that Memorial Day has officially kicked off the start of summer grilling season, what price trends will dictate which meats consumers choose? Here's the latest figures.
USDA reports the relentlessly upward trajectory in wholesale beef prices had begun to at least slow down, as the market transitioned into the spring quarter. The choice cutout declined a little over $3 per hundred pounds, topping $2.59 per pound in late April. USDA believes domestic demand has weakened modestly in the near term, although it remains strong by historical standards. For the week ending May 8, the choice cutout valuewas still 24 percent higher than its 3-year average.
USDA adjusted its second-quarter commercial hog crop predictions by 100 million pounds over previous estimates--nearly 6 percent higher than a year ago when experts feared the new disease Porcine Epidemic Diarrhea was going to cut heavily into pig supplies. As a result of that unexpected increase in supplies, the price of live hogs are expected to average 42 percent below the same period last year. High beef prices combined with ample pork supplies makes it a natural feature for grilling season, USDA anticipates. The agency expects about 1 percent more pork production in 2016, for an average per-pound retail price of $3.70--17 cents lower than the expected 2015 average.
A current pattern of moderate increases in the number of broilers slaughtered and higher liveweights is expected to continue throughout most of 2015, according to USDA. The supply increases are expected to push forecast broiler meat production in 2015 to 40.2 billion pounds, about 4 percent higher than in 2014. The national wholesale price for whole birds averaged $1.05 per pound in April, up from the first-quarter average of $0.97 per pound but still down 4.8 percent compared with a year earlier. In the parts market, dark meat prices continued to decline due to lower exports. The April average price for leg quarters in the northeastern market totaled $0.33, the lowest monthly price since 2009. Breast meat prices in the northeastern market averaged $1.53 per pound in April, a 13-cent increase from March but still 10.6 percent lower than in April 2014.
With its first inventory increase in nearly a decade reported at the beginning of this yar, the U.S. sheep industry is expected to experience tighter supplies as farmers hold back animals from market to use as breeding stock. Even with a larger lamb crop in 2014, USDA expects little change in market supply for this year, with a total forecast production of 152 million pounds. Live animal prices and resulting wholesale markets are expected to remain strong in 2015, averaging $1.53 to $1.62 per pound. Continued tight supplies will likely maintain those prices.
Despite reductions by USDA in its turkey production estimates for the second and third quarters of this year based on some 6 million birds lost to an outbreak of avian flu, continued strong production growth in the first three months of this year, along with continued signs of expansion in turkey eggs set for hatching and the number of young birds placed for growout leads the agency to expect total 2015 production to top last year by nearly 4 percent. Wholesale prices were reflecting the supply expectations, with prices for whole hen turkeys averaging $1.04 per pound in April, just 0.5 percent above the previous year. Prices for whole birds and turkey parts are expected to experience some downward pressure for the remainder of 2015. Prices for whole frozen hens are forecast below year-earlier levels throughout 2015. The average national price for frozen whole hens in second-quarter 2015 is forecast at $1.03-$1.07 per pound, about 5 cents below a year earlier, with the yearly price forecast at $1.04-$1.08 per pound, likely to be down from 2014’s $1.08 per pound.
A highly contagious strain of avian influenza found so far in at least 60 commercial poultry flocks, according to USDA reports, has some market watchers spooked. Most of the affected flocks are turkey operations in the midwest, and the state of Minnesota, the nation’s top turkey producer, has suffered worst, losing an estimated 2.6 million birds, and prompting the state's governor to declare a state of emergency. At risk is the approximately $4.8 billion value of some 200 million turkeys this country grows annually. But with detection of the virus in wild birds along the Mississippi and Pacific Flyways indicating the virus is active in migratory bird populations, the deeper fear is the virus could approach the chicken-producing centers of the eastern U.S.
Several European and Asian have placed some restrictions on imports of U.S. poultry as a result of the outbreak. As of its mid-April report, USDA was reporting 2015 turkey exports would fall 10.5 percent, to 720 million pounds, due to trade restrictions in China and Korea, the strength of the dollar against most currencies, and restrictions on U.S. exports due to the outbreaks. U.S. turkey meat production in first quarter 2015 is now estimated at 1.4 billion pounds, 25 million pounds less than the previous estimate but 7 percent higher than a year earlier. Turkey cold storage holdings at the end of February were 323 million pounds, an increase of 4 percent from a year earlier.
Meanwhile, although broiler meat production in January was 5 percent higher than the previous year, production in February was down 1 percent to 3 billion pounds; however, the estimate for first-quarter 2015 remained at 9.7 billion pounds, an increase of 5 percent from a year earlier. Current data point toward a strong increase in broiler meat production in March based on one additional slaughter day, leading to a higher number of birds slaughtered, in addition to continued increases in average liveweights. In February the number of birds slaughtered fell by 2 percent, but that decline was partially offset by a 1-percent increase in average liveweights at slaughter. This pattern of moderate growth in the number of birds slaughtered and higher liveweights is expected to continue throughout most of 2015. The increases are expected to push forecast broiler meat production in 2015 to 40 billion pounds, 4 percent higher than in 2014.
Although this outbreak of avian influenza, the worst in years, does pose significant risk to the industry and can be devastating to individual flocks, it's prudent to remember the world's strongest surveillance program for the disease. Federal and state animal health agencies along with industry has responded to try to contain and control the outbreak through several measures:
* Restricting movement of poultry and poultry-moving equipment into and out of specific quarantine areas
* Euthanizing affected flocks to prevent spread
* Testing wild and domestic birds in a broad area around the quarantine area
* Disinfecting affected flock locations to kill remaining virus
* Retesting to confirm affected farms remain virus-free. USDA also is working with its partners to actively look and test for the disease in commercial poultry operations, live bird markets and in migratory wild bird populations.