COMMODITIES

Commodity Insights

Competitive Commodity Information: Would you Choose to Raise Beef Cattle, Either?

The vanishing American cattleman?

This perspective makes painfully obvious the reasons why the number of beef cattle ranchers continues to decline

Steve Kay, editor and publisher of the beef-business newsletter Cattle Buyers Weekly wrote an illuminating blog entry about his perspective on the beef-cattle situation in the country. Kay's  friend, "Howard," was among the country’s 20 biggest producers of beef calves 25 years ago, before drought and other factors whittled down his herd. Howard's ranch, Kay said, had been fortunate enough to avoid the devastation of the drought that has claimed so many Nebraska ranchers. Still, Howard has no desire to grow the size of his herd. Why? Howard's answers, through Kay, paint a picture of why the U.S. cattle population continues to shrink and why expansion will likely be years away.

  • Howard is in his '70s and longs to retire. The average age for all cattle farmers as of the last agricultural census was 58 years old, up from 56 in 2002. Those numbers are now more than five years old and the average age is expected to top 60 in the next round.
  • Howard has no family members interested in taking over the business. With the exception of the last ag census, which was driven by an increase in small urban and suburban truck plots, the number of youth leaving the country for the city has steadily increased since the Great Depression. Because of its high initial investment that may not pay off for years, beginning beef ranchers face unique obstacles to getting started, including high startup costs and limited availability of land.
  • He’s aggressively selling off his older cows, in preparation for making his cowherd attractive to someone who has the means to buy him out. Though he may be better off financially than many, Howard is typical of many ranchers in this region who likely will sell the remnants of their herds if spring doesn't bring desparately needed water. A lot of them won't be back, even when times improve.
  • Howard has seen his operating costs skyrocket, doubling in the past six years. Howard’s calves last year each cost $600 to raise, compared to $300 six years ago. Even with calf prices at record-high prices last year and likely this year, they are nowhere near double, so ranchers like Howard aren't seeing the kind of returns that will encourage them to stay in business much longer.  Howard's experience mirrors the cost-sqeeze the entire American beef industry has come under. From 1990 to 2003, feedyard cost of gain was $261 per head; in the past four years, feedyard cost of gain has shot to $494 per head.

The only bit of good news out of Kay's story is that despite the likelihood the U.S. cattle herd will shrink for the 17th year in a row this year, the beef industry has compensated for the loss of numbers by growing increasingly productive. The 29.9 million cows U.S. ranchers managed in 2012 produced just about the same amount of beef that 34.5 million cows did in 1997. That productivity growth has come from a combination of better genetics, improved nutrition, use of growth promotants and better overall management.

Competitive Commodity Information: Drought, Drought, Go Away

Drought continues

Minus summer's heat this time of year, it's easy to forget the fact the midwest remains in one of the worst droughts in history. Despite some improvement in the eastern Corn Belt, the National Weather Service's most recent drought outlook warns that continuing drought is highly likely for a majority of the High Plains, including Nebraska:

 

Predictions for drought to continue

What that uncertainty does to commodity markets, most of which center around the two most common livestock and poultry feedstuffs, corn and soybeans, is stark, according to one commodity market analyst.

"If it rains then corn will be $4 [per bushel]," Steve Meyer, President of Paragon Economics, told a meeting of pig farmers in Minnesota in January. " If it doesn't rain, then it will be $8." Farmers who have managed to hold on during the last season's drought have basically bet everything they have remaining on the hope we get rain this spring, Meyer says. "It's going to be very critical that we get timely rains before spring."

The country experienced its lowest corn yield since 1991, which dropped 22 percent below the average for the period from 1960 to today, Meyer reported. If you consider the trend since only 1996, when biotech varieties of corn capable of withstanding drought better came on the market, the yield last season was a full 25 percent below average.

Corn trends

Soybean yield trends

Competitive Commodity Insights: Holiday Meats

TurkeyTurkey. USDA reports U.S. turkey production over the last three months has increased 4.3 percent higher than in the same period in 2011, at a total of 1.56 billion pounds. In October, much of the increase in turkey production was due to a higher number of birds slaughtered, up 7.3 percent, but a 2.4 percent gain in the average liveweight of birds at slaughter to 29 pounds also played a role. That higher production has increased stocks of whole turkeys, which is expected to place downward pressure on prices.

Long-term outlook: Given higher stocks and lower prices for whole birds, turkey farmers are expected to lower production in 2013. USDA's projections through 2021 predict turkey production, like the entire poultry sector,  is expected to expand over the projection period, although at not quite as fast a rate as broiler production. Per-capita consumption by 2021 should add about a pound per person, going from 16.4 pounds per person this year to 17.3 pounds by 2021.


Ham Pork. The rest of the world, particularly Mexico, Canada and Russia, continues to soak up a large portion of American pig farmer's products, as exports rose to almost a half billion pounds in October, 2.2 percent above October 2011's level. For the first 10 months of 2012, U.S. pork exports were more than 7 percent higher than in the same period of 2011. That export market is expected to help absorb continually, although gradual, production increase of 1 percent, holding 2012 overall hog prices for fourth quarter 2012 an average 10 percent below a year ago. Those prices are expected to rise in 2013 by about 6 percent over 2012, in spite of large accumulations of pork stocks reflecting larger year-over-year production.

Long-term outlook: USDA's longterm projections predict that as lower feed prices improve farmers returns, coupled with slightly increasing hog prices, farmers will increase their breeding numbers. That herd increase, coupled with continuing improvements in animal productivity and higher animal weights at slaughter will continue to increas supplies for the next decade. Per-capita pork consumption in the United States is expected to be 1 pound higher by 2021 than this year, at 47.2 pounds per person per year.

 

ChickenChicken. Broiler meat production in fourth-quarter 2012 is expected to rise to 9.1 billion pounds, or 2.7 percent higher than 2011. This higher production is expected to raise ending stocks for 2012. Year-over–year changes in broiler meat production have varied widely in the last 2 months, chiefly due to changes in the number of slaughter days compared with the previous year.  Examining broiler meat production over a slightly longer time frame, to account for those anomolies in accounting periods, shows average production has been very similar to the previous year. Broiler meat production from August to October 2012 was only 0.3 percent less than in the same period in 2011.

Even with relatively strong prices for a number of broiler products, particularly whole birds, breast meat and wings, continuing high corn price forecasts for 2013 are expected to lead broiler integrators to scale back supply production next year. The number of chicks being placed for growout continues slightly lower than in the previous year. From the beginning of November through the first week of December, chick placements averaged 155 million, down 0.9 percent from the same period in 2011. Those placements are expected to remain below year-earlier levels into the first half of 2013 and then to gradually exceed year-earlier levels in the second half of 2013. The timing and speed of that change will be all-dependent on what happens with corn and soybean supplies.

Long-term outlook: Poultry production is projected to rise the most among the meats over the next decade, as poultry is the most efficient feed-to-meat converter. However growth in the sector will be slower than occurred in the 1980s and 1990s. Poultry prices are expected to improve with increased demand, although poultry will face competition from increased supplies of red meats. Additionally, despite declining from recent highs, feed prices are projected to remain relatively high. Poultry production growth is expected to come from both higher bird numbers and higher average weights.

Longterm meat and poultry predictions

Competitive Commodity Information: Turkey Outlook

Turkey supplies steady to increased in the long-run

Despite dire warnings, longterm production on the rise, USDA reports

Just a short year ago, the turkey sector, along with the overall U.S. poultry industry, was faced with conditions nothing short of dire. Record-high feed grain prices, trade-agreement stalemates that threatened the ever-important export market, and a stalling U.S. economy had led some poultry companies to put the axe to production and sell off processing units. Speaking for the larger poultry complex, Michael Welch, CEO of Harrison Poultry testified before the Senate in summer 2011, "Broiler companies until recently have tried to weather the storm of very high, very volatile corn prices. But, now, companies can no longer withstand the storm."

"You make turkey out of corn," D.A. Davidson market analyst Tim Ramey told one financial media outlet. "[And] there's no doubt that will be expensive going forward." With this summer's drought-reduced corn supplies coupled with steady to increasing global corn demand put a further squeeze on feed supplies, turkey prices have risen. However, smart feed purchasing in advance by most of the major turkey producing companies along with favorable market price support in export markets have kept turkey companies afloat and supplies stable.

Turkey meat production in the United States for the fourth quarter of this year is forecast at 1.55 billion pounds, which once again would be almost a 4-percent increase from the same period a year earlier. At the end of September, stocks of whole turkeys were estimated at 305 million pounds, up 9 percent from a year earlier. Higher whole bird stocks have placed downward price pressure on their wholesale prices.


Click to enlarge. Long term U.S. turkey trends

Most of this fourth-quarter supply increase is expected to come from a higher number of turkeys slaughtered, with only small gains in average weights.

For the year ahead, production is forecast at 5.79 billion pounds, a decrease of 3 percent from the previous year. The decline in turkey production is expected to come from the combination of high feed prices, larger beginning stocks and lower year-over-year prices for whole birds in fourth-quarter 2012 and in the first half of 2013, USDA reports.

Overall turkey cold storage holdings at the end of 2012 are forecast at 250 million pounds, about 18 percent higher than the previous year. As with third-quarter 2012, almost all the increase is expected to come from larger holdings of whole turkeys, with little or no increase in stocks of turkey products. With higher stocks of whole birds, there has been downward pressure on whole turkey prices. Prices for whole frozen hen turkeys at the wholesale level averaged $1.09 per pound in third-quarter 2012, only a little over one percent higher than in second-quarter 2012 and 2 percent higher than the previous year. This compares with prices in the first two quarters, which were 12 and 7 percent higher, respectively. Whole turkey prices are expected to average $1.05-$1.09 per pound in fourth-quarter 2012, down several cents from the $1.12 per pound average for fourth-quarter 2011.

The long-term trend toward higher U.S. per-capita turkey consumption year-round has helped stabilize demand and maintain production. According to the U.S. Turkey Federation, only 31 percent of turkey is consumed during the fourth quarter of the year, compared to about half 40 years ago. That increase in consumption during the other three quarters of the year has helped increase per-capita consumption from just over 8 pounds in 1970 to more than 16 pounds today.

Turkey, not just for the holidays anymore

Competitive Commodity Insights: How Did Pumpkins Fare the Drought?

Pumpkin supplies have grocers smilingDespite early reports the summer’s relentless drought had caused many pumpkin crops to be much smaller than normal and that harvest was slightly behind schedule, pumpkin supplies appear to faring the unusual weather reasonably well.

USDA reported in late September that U.S. pumpkin production areas were reporting good crop progress for this year’s Halloween season. With volume on track, average retail advertised prices for pumpkins in the early weeks of September had been running as much as 25 percent below the same period in 2011.

Meanwhile, Associated Press news reports said farmers around Peoria, where USDA says more than three-quarters of the country's pumpkin crop originates, were calling this crop one of the few successes to survive the devastation of the drought. "Pumpkins have been kind of a bright spot," one Morton, Ill., farmer told AP.

Some localized regional supplies outside Illinois, hit hard by the drought, appear to be lower than usual; however, supplies from border areas, particularly Minnesota and Arkansas, are filling any void left. Pumpkins are not as vulnerable to drought as other crops, because they develop a deep root that can reach water when other plants can’t. Many growing areas got rains at a key point in the plants’ growth cycle, but drought still slowed that growth. And because excessive heat can cause pumpkins to delay flowering and fruiting, that may spell a late harvest. Anecdotal reports also suggest large pumpkins will be in short supply, likely because of that shortened season.

Although the outlook is favorable, yield and quality still remain to be seen, and will depend on the weather. Excessive rains and a wet finish to fall could cause rotting and molding that reduce the final crop numbers.

Have an experience to share? Give us your feedback on your local pumpkin supplies and pricing.

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Supported by the Nebraska Corn Board

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