High prices fuel expansion talk

High prices fuel expansion talk

New high prices have beef and dairy producers considering expanding herds.

EXCELLENT prices for the dairy and cattle markets that reached new heights in 2014 have producers smiling again but still taking a conservatively optimistic approach to expanding herds in regions not under drought conditions.

In the dairy markets, the all-milk price has established new record highs each month since the beginning of 2014, with April settling at $25.50/cwt.

Higher dairy product prices — such as the record cheese price of $2.3547/lb. in April and the new high for nonfat dry milk of $2.0897 in March — are keeping milk prices strong, according to Jerry Dryer, whose reports are available at www.dairymarketanalyst.com.

Of note, butter prices exceeded $2.00/lb. on May 1 for the first time since September 2011. The U.S. Department of Agriculture had reported that butter production in March was below the year-ago level for the fifth consecutive month.

The low butter inventory, even in competing countries, coupled with the start of summer ice cream demand — which pulls cream from the butter market — will likely keep butter prices above the $2 mark for the near term.

However, over time, the higher prices for milk and dairy products will dampen demand, especially in the global marketplace, where competing countries have ramped up production.

In recent weeks, cheese prices have dropped, which suggests price resistance for U.S. dairy products, Dryer explained.

Even so, U.S. dairy producers are enjoying improving profit margins, with revenue-over-feed costs for April exceeding $15/cwt. for the third month in row.

Traditionally, this trend of good revenues triggers an increase in milk production. However, recent severe weather and producers' cautious attitude has hindered growth.

Lower total slaughter for both dairy and beef cows clearly means that feed costs have dropped while prices are robust. Dairy cow slaughter is running 9.6%, or 98,660 head, below a year ago, while beef cow slaughter is about 9.4%, or 88,780 head, lower than 2013.

With good consumer demand for hamburger plus record-high prices for pork and beef, cull cow prices will remain at high levels for most of this year, according to Tim Petry, a livestock economist from North Dakota State University Extension Service.

Nevertheless, the expanding drought — with the southern Plains and Southwest both moving into very dry conditions — may force liquidation and weaken cull cow prices.

Still, high prices in the cattle markets for the fourth straight month in 2014 have market participants searching for an explanation, Purdue University economist Chris Hurt noted.

Since the memo on tight beef supplies seems to be stuck on repeat, no one is stunned to see record beef prices. However, many market participants, including beef producers, are wondering if the high levels are the new norm.

The reductions in female slaughter and heifers in the feedlot signal that beef herd expansion has begun, but it's a process that will take several years. Therefore, beef supplies will remain constrained in 2015 and 2016, which will keep beef prices high.

For consumers, record beef prices have become a reality at the meat counter, with retail beef prices averaging $5.29/lb. in 2013 and advancing to $5.55/lb. in the first quarter of 2014. According to Hurt, retail prices for the rest of 2014 are expected to average $5.67/lb., increasing 7% from last year.

 

March exports

U.S. beef and pork exports had another outstanding month in March, with leading markets — Mexico, China/Hong Kong and South Korea — reaching double-digit increases, according to statistics released by USDA and accumulated by the U.S. Meat Export Federation (USMEF).

Despite a 4% decline in U.S. pork production, exports reached their first new monthly high since October 2012, with 29% growth in volume to 209,704 metric tons at a value of $606.7 million. March pork exports equated to 31.5% of total U.S. pork production. The sharp upsurge in exports has likely further reduced cold storage inventories, USMEF reported.

Overall, U.S. pork exports were strong in all key markets, with Mexico and Japan being the leading destinations (Table 1); however, the largest increase was for exports to South Korea, which rose 73% in volume and 83% in value and recorded the biggest export month for the region, according to USMEF.

U.S. beef exports also had a banner month, with Choice beef cutout values in mid-March at $2.42/lb. Similar to pork, beef production in the U.S. dropped 5% in March compared to the year before.

Still, beef exports in March climbed 12% in volume to 83,380 mt and rose 17% in value to $516.2 million. This accounted for 14% of total beef production. Mexico and Hong Kong posted the largest upswings in volume (Table 2), rising 83% and 88%, respectively.

 

Market roundup

Memorial Day weekend is fast approaching, and market observers will be closely tracking retail beef and pork purchases for signals of whether consumers and restaurants will switch to poultry or adjust to cheaper cuts of beef and pork.

In the cattle markets, cattle futures appeared to be softening as wholesale beef cutouts continued to slip last week. These factors have made it difficult to build momentum in the cash fed cattle trade. USDA again reported mostly inactive negotiated trade in all feed regions.

The hog markets were weaker last week, pressured by stress over consumer demand and heavier slaughter weights, which are boosting tonnage.

In the dairy markets, cheese prices continued their downward trends, with blocks at $2.045/lb. and barrels at $2.0525/lb. last Thursday. Butter prices continued to rally, settling at $2.155/lb.

 

1. Leading markets for U.S. pork

 

-March volume (mt)-

-March value ($)-

Country/region

2013

2014

2013

2014

Mexico

28,110

40,075

53,071

98,012

Japan

35,937

36,959

158,483

159,964

Hong Kong/China

15,077

26,274

31,751

60,267

Canada

19,149

16,385

72,412

71,258

Korea

8,624

14,710

23,147

43,024

Central/S. America

7,256

9,822

19,207

25,887

Oceania

6,276

7,010

20,085

22,134

ASEAN

3,755

4,627

11,066

14,171

 

2. Leading markets for U.S. beef

 

-March volume (mt)-

-March value ($)-

Country/region

2013

2014

2013

2014

Japan

16,572

14,105

98,018

88,495

Mexico

6,603

12,590

36,013

74,477

Taiwan

2,945

3,044

23,343

25,668

Hong Kong/China

5,924

11,998

35,446

80,021

Canada

12,093

7,698

82,935

54,051

Korea

7,487

8,681

41,955

61,499

Central/S. America

1,257

1,374

8,726

10,234

ASEAN

1,548

1,452

10,685

9,029

European Union

2,059

2,223

22,483

24,706

Source for Tables: U.S. Meat Export Federation.

 

Volume:86 Issue:19

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