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Where will beef prices go?

Following deep herd cuts spurred by high feed costs due to drought-induced shortages, U.S. beef production is dropping to its lowest point in 21 years. U.S. beef production is predicted to drop almost 5 percent next year, to 24.1 billion pounds. That drop, for the fourth in a row now, should make the U.S. cow herd its smallest since at least 1973.

Yet with retail ground-beef prices in June up 13 percent from the same time last year, wholesale beef prices dropped 12 percent since reaching a record $2.1137 a pound in late May, and cattle futures prices had dropped this year by about 6 percent. Since peaking in early May at $1.29 per pound the weekly price for cattle ready for slaughter has declined steadily to just above $1.20. Why the apparent disconnect between tightening supply and price?

U.S. beef cattle numbers on the decline

USDA reports nagging drought in the western and southwestern United States continues to motivate ranchers to send cows to slaughter, which temporarily elevates supply, despite the decreasing herd size. At the same time, feedlots continue to bring in heavy-weight cattle to put on feed for finishing. Both those scenarios contribute to increased short-term beef production during the late summer and fall, exerting downward pressure on fed cattle prices. From mid-March through at least the week ending June 22, weekly federally inspected cow slaughter has exceeded year-earlier levels, with both beef and dairy cows contributing to the increased year-over-year slaughter. At the same time, weekly feeder cattle sales volumes were generally above year-earlier levels, averaging close to 2 percent above year-earlier sales.

But it's not good news; the piper is eventually going to have to be paid. USDA reported the tide turned during June, as weekly sales volumes declined by more than 15 percent year-over-year. These developments foreshadow future declines in cow inventories, feeder cattle supplies, and, ultimately, total beef production.

Market watchers predict live cattle futures prices will reverse this year's decline, easily taking them back close to the record of $1.35 per pound reached in January, and are well on their way to a record for annual 2013. As wholesale beef prices, at $1.9028 a pound, reached their highest point in four weeks this week, University of Missouri ag economist Ron Plain was predicting they would easily exceed the peak $2.1137 they set in May in 2014.

 

Photo: USDA

Photo: Flickr/USDAgov

Consider the paradox of industry pundits arguing over the legality of a Chinese company owning Nebraska farmland through its announced plans in May to purchase the nation's top pork producer, Smithfield, even as a delegation of Nebraska farmers leaves for a trade mission last week to promote additional sales of Nebraska farm products in Asia. The situation underscores a market change that's been growing for decades in the food chain: U.S. farmers today are producing relatively less and less for domestic retailers and more and more to please the palates of overseas consumers.

According to one estimate, Nebraska now sends fully half its annual wheat crop to buyers outside the country. Altogether, the state sells $5.3 billion in ag products outside the United States, which according to the state ag department creates around $7 in economic activity. Now, a new report by the U.S. Department of Agriculture quantifies the scope of that international impact on commodity markets, along with the predictions for the impact to come. Highlights of the 19-page report, which you can read here, include:

  • Although down slightly from earlier estimates, fiscal 2013 agricultural exports are forecast at a record $139.5 billion, up $3.7 billion above fiscal 2012 exports. The most-shipped commodities include grain and feeds, sugar and tropical products, oilseeds and their products, horticulture products, cotton, and livestock, poultry, and dairy. The trend prediction for grain and feed as well as sugar and tropical products is down slightly, oilseeds and products and cotton slightly up, and livestock and dairy unchanged from last quarter.

Exports value

  • Spurred by slow but steady world growth in 2013, trade growth, which in 2012 had dropped to 2 percent from a robust 7 percent in 2011, is slated to rise 3 percent in 2013. China and other emerging Asian economies, in pursuing policies of slower but more balanced growth, are becoming less export dependent, seeing more domestic demand driven by higher wages, rising consumer spending and housing growth. In addition, higher Western Hemispheric and African growth is expected to offset the impact of Europe's continued recession on developing economies' exports and provide further insurance against a worldwide slowdown. In particular, Brazil and Argentina are expected to see 3 percent growth in 2013, due to strong export growth, higher investment, and high commodity prices. Europe's recession and Japan's growth slowdown are the major factors preventing more rapid trade and world economic growth in 2013.
  • USDA estimates that over the past two decades, the share of all U.S. farm production that went to other countries, based on value, rose from 13 percent in 1990 to 18 percent in 2009 (latest figures available). The export share based on volume remained relatively stable at around 20 percent over the same period. Since 1990, the volume of U.S. agricultural exports has grown by 1.2 percent annually, on average. The corresponding export values increased 4.9 percent annually from 1990 to 2009; thus, export unit values of all farm products rose by about 3.75 percent annually during the past two decades. Export prices of nonfood products, which are largely bulk commodities, climbed 1.9 percent per year over the same period. Based on an annual export volume growth of 3 percent and 2 percent since 1990 for processed and unprocessed food exports, respectively, export unit values for processed foods increased 3.3 percent per year, on average, while unprocessed food prices climbed 1.8 percent per year. Thus, not only is the volume of processed food exports growing faster than unprocessed foods, but their prices are also increasing faster. Given that processed food exports are mostly high-value products and unprocessed foods are largely bulk commodities with lower per unit values, their relative growth patterns favor processed food exports.

Export share

  • Consumer spending for food and beverages in the United States over the past year has slowed from the preceding year. As in 2012, spending at food services (food away from home) is still stronger than spending for food consumed at home, although both were weaker during the last four quarters. Furthermore, prices of many key imported farm commodities—such as coffee, cocoa, sugar, rubber, and tropical vegetable oils—have fallen sharply from their 2012 levels. The downward effect of these domestic food spending developments and lower import prices on U.S. agricultural imports is partly offset by the relatively strong 3.2-percent growth in personal disposable income in the past year through March 2013. The net result is a $1.5-billion reduction in the fiscal 2013 import projection to $111 billion from the previous estimate of $112.5 billion. This import value still represents a 7-percent gain from 2012, when agricultural imports grew 9 percent.

Agriculture's balance of trade

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Nine out of every 10 American households now own an outdoor barbecue, grill or smoker, says the Hearth, Patio & Barbecue Association. Just in time for the kickoff of the long-awaited summer grilling season, here's your look ahead at the projections for the commodities that will be occupying those devices.

Beef production by quarterBeef. The U.S. Department of Agriculture reports improved prospects for grazing in 2013 because of recent rains have bolstered prices feedlots are willing to pay for younger cattle to put on feed. Lower year-over-year supplies of beef have provided support for cow prices, indicating ranchers are considering rebuilding their diminishing herd sizes. However, that price confidence hasn't yet reached those who bid for cattle ready for market today nor for wholesale beef. With strong global demand, U.S. beef exports are expected to decline only about 1 percent in 2013. U.S. beef imports are expected to strengthen as the year progresses.

Pork production by quarterPork. The latest quarterly USDA Hogs and Pigs report showed larger March 1 inventories farmers were keeping than compared with a year ago. That increase means commercial pork production in 2013 is expected to increase about 1 percent. February exports off sharply, with lower shipments to all major markets except Canada, should also help boost domestic supply.

Broiler production by quarterChicken. USDA's forecast for first-quarter 2013 broiler meat production was lowered slightly to 9.16 billion pounds, just under 1 percent higher than in first-quarter 2012. At the end of
February, cold storage holdings were 615 million pounds, up 8.3 percent from the previous
year. Broiler and turkey shipments in February 2013 fell from a year ago, with broiler shipments dropping almost 8 percent from
a year earlier, totaling 588.4 million pounds.

Beef production by quarterLamb. Lamb prices declined throughout the first quarter of 2013 and are expected to weaken further during the ensuing quarters, as demand for feeder and slaughter lamb declines. Prices are not expected to show much improvement during 2013 as demand and supply appear to be well balanced. Supply is tight enough to push prices up, and demand appears weak enough to pull prices down.

 

 

Just in time for June National Dairy Month, the U.S. Department of Agriculture’s 35-page report, Why Are Americans Consuming Less Fluid Milk? A Look at Generational Differences in Intake Frequency, attempts to understand why most Americans don’t consume enough dairy products. Despite rising cheese consumption in recent years, per capita dairy consumption has long held steady at about 1.5 cup-equivalents, or only about half the amount the 2010 Dietary Guidelines for Americans recommends for anyone older than 8 years old.

Why?

Milk consumption declining

Data from USDA’s dietary intake surveys conducted between the 1970s and 2000s show that Americans remain pretty stable in the portion size when they drink milk. On the occasions they drink fluid milk, they typically consume about a cup. The change has come in consumption frequency. Between the 1970s and 2000s, people have become less apt to drink fluid milk at mealtimes, especially with lunch and supper, reducing the total number of consumption occasions, by:

  • Between surveys in 1977-78 and 2007-08, the share of preadolescent children who did not drink fluid milk on a given day rose from 12 percent to 24 percent, while the share that drank milk three or more times per day dropped from 31 to 18 percent.
  • Between 1977-78 and 2007-08, the share of adolescents and adults who did not drink fluid milk on a given day rose from 41 percent to 54 percent, while the share that drank milk three or more times per day dropped from 13 to 4 percent.

Underlying these decreases in consumption frequency, the USDA study says, are differences in the habit of drinking milk between newer and older generations. When you hold all other factors, like race and income, constant, generations of Americans born after the 1930s have consumed fluid milk less often than their preceding generations:

  • Americans born in the early 1960s consume fluid milk on 1.1 fewer occasions per day than those born before 1930.
  • Americans born in the early 1980s consume fluid milk on 0.3 fewer occasions per day than those born in the early 1960s.

Milk no longer a staple throughout the day

Those differences across the generations in fluid milk intake explain the observed decrease in per capita fluid milk consumption in recent decades despite efforts by government, dairy marketers and farmer-funded advertising campaigns to stem the decline. If that’s not bad enough news, the worse news is that the trend promises to continue. Milk-drinking habits are formed in childhood, by parents, and as today’s newer less-milk-consuming generations replace older ones, they will not only continue their habit of less consumption, but will teach it to their children, as well.

If there’s any good news to be found, it’s the fact that when Americans do consume fluid milk, they have continued to drink at least as much as they did in the 1970s. The fact that portions appear not to have decreased suggests any successful attempts at marketing or recommendations that help reintroduce milk-drinking at different times of the day should result in an upward bump in overall consumption.

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.

Partners

Supported by the Nebraska Farm Bureau

The farm and ranch families represented by Nebraska Farm Bureau are proud sponsors of the Farmer Goes to Market program. We take great pride in supporting Nebraska's agricultural foundation. A key part of that effort is to make sure we produce safe and affordable food. This newsletter is an important part of our effort to connect the two most important parts of the food chain -- the farmer and the grocer -- with the goal of increasing consumer awareness and information about how their food is raised in Nebraska.


Supported by the Nebraska Corn Board

The Nebraska Corn Board, on behalf of 23,000 corn farmers in Nebraska, invests in market development, research, promotion and education of corn and value-added products. The board aims to work closely with the farmer-to-consumer food chain, to educate everyone about the role corn has in our everyday healthy lives. The Nebraska Corn Board is proud to sponsor the Farmer Goes to Market program to help bring its mission of expanding demand and value of Nebraska corn to the consumer, through the strongest touch point in that chain: the Nebraska retail grocer.


In patnership with the Nebraska Grocery Industry Association

The Nebraska Grocery Industry Association was formed in 1903 by a group of Omaha grocery store owners, wholesalers and vendors to allow them to promote independent food merchants and members of the food industry, and to promote education and cooperation among its membership. NGIA continues to represent grocery store owners and operators, along with wholesalers and vendors located throughout Nebraska, by promoting their success through proactive government relations, innovative solutions and quality services. NGIA offers efficient and economical programs. NGIA also lobbies on both a state and national level, ensuring that the voice of the food industry in Nebraska is heard by our representatives.


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