No spring for cattle

No spring for cattle

- Cold weather and record-high beef prices delay grilling activities. - Cow/calf producers may continue herd liquidation. - Bird flu i

CATTLE did not trade in sufficient volume through Thursday last week to establish prices and, at week-before levels, were $126-127/cwt. north and south on the Plains, 5.2% higher than year ago.

An expected seasonal spring rally remained dead in the water as a combination of cold weather and snow and high retail beef prices continued to delay grilling activities, according to Feedstuffs sources.

Retail Choice beef prices established a new record in March at $5.222/lb., up 7 cents from February and up 24.7 cents from last March, according to Scott Brown and Ron Plain at the University of Missouri. The average price for all fresh product was $4.198/lb., also a new record, they said.

These high prices are choking off beef demand and driving consumers to more competitively priced chicken and pork, noted Bob Price at North America Risk Management Services.

Indeed, Brown and Plain said the average price for ground beef in March was $3.84/lb. -- 61 cents higher than a pound of boneless chicken breasts and only 12 cents lower than a pound of boneless pork chops.

The feedlot inventory report issued April 19 was disappointing and indicated that this fall's beef and fed production won't be as tight as previously thought but still will be below last year (Table).

The report came in with the lowest March marketings since 1997, with March placements that were well above expectations and average placement weights that were the heaviest for any month in five years, analysts said.

The April 1 inventory also exceeded expectations.

Accordingly, cattle markets will remain on the defensive, Price noted, and supplies will be larger than forecasted in the August-October time frame, Steve Meyer and Len Steiner added in an edition of their "Daily Livestock Report."

However, in a report to clients, Price said the cattle situation will stay on track for a seasonal spring advance as soon as the weather improves enough to get backyard enthusiasts out to their grills.

Price noted that despite the 6% year-over-year increase in placements in March, first-quarter placements still will be under year ago and, in fact, will be the lowest for the quarter since 2008. Furthermore, he said the market-ready supply is in good shape.

Market negatives are floundering beef demand due to high beef prices and futures markets that are at a discount to cash, both of which will suppress a rally. Still, he said, cash cattle will price stronger this spring.

As for the March placements, Oklahoma State University livestock extension specialist Derrell S. Peel pointed to the April 1 number of heifers on feed, which was down 7.6% from year ago, compared with the Jan. 1 number of heifers on feed, which was down 9.5% from the year before.

He suggested that this means that cow/calf producers who were holding heifers for herd replacement purposes at the beginning of the year are moving a great number to feedlots. A large portion of the increase in March placements was from heifers that earlier had been intended for the cow herd, he said.

Moreover, Peel said cow slaughter has increased 11.1% in the last four weeks after decreasing earlier in the year.

He said this is probably the consequence of prolonged and severe winter weather that has kept livestock off grass and spent hay supplies.

The combination of increasing cow slaughter and heifer placements suggests that cow herd liquidation, which had been expected to stop this year, is continuing, Peel said.

The best-case scenario outlined in this column before (Feedstuffs, Nov. 12, 2012) calling for herd stabilization in January 2014 and rebuilding in January 2015 may be falling apart, sources said.

 

Feedlot inventory report, April 1

 

2011

2012

2013

2013 as %

Category

-Million head-

of 2012

March 1 inventory

11.386

11.677

10.857

93.0

March marketings

1.990

1.918

1.771

92.3

March placements

1.914

1.792

1.899

106.0

April 1 inventory

11.257

11.482

10.909

95.0

120-day-plus inventory

4.235

4.790

4.277

89.3

Source: National Agricultural Statistics Service.

 

Hog situation

The hog markets seemed to be gaining some momentum finally as hog prices increased $2.06-3.27 east to west across the Corn Belt to $75.26-82.18/cwt. on a lean carcass basis last Thursday.

Wholesale pork also noticeably strengthened, with bacon up $7.89 to $153.00/cwt., hams up $4.59 to $71.85/cwt. and the complete cutout up $3.02 to $87.33/cwt. (Wholesale prices are based on the new mandatory reporting series and cannot be compared to year ago.)

However, prices were equivalent to a $57-62 live cash hog market, still well below breakeven for producers and 0.8% less than year ago. So, there is still work to do in the pork sector, but the work may be getting started, sources said.

Producers should return to profitability this spring, Purdue University agricultural economist Chris Hurt said.

He referenced the March 28 "Grain Stocks" report that found much more corn and soybeans on hand than expected (Feedstuffs, April 1) and started "a dramatic downward movement in feed prices" that had not been foreseen until mid- to late summer, when the 2013 crops would be in the ground and growing.

Accordingly, Hurt said while he earlier predicted that hog producers would return to profitability this spring because of a higher hog prices, he is now predicting a return to profits due to lower feed costs.

Hurt estimated that hog production costs have dropped from $70/cwt. liveweight to $65.50 in the current quarter and $63.00 in the third quarter and predicts hog prices in the mid-$60s this spring and summer. Therefore, producers should cover their costs this spring and earn about $8 per head this summer, he said.

Good harvests this fall will lower feed costs even more -- probably pushing them under $60.00, he said.

Another positive for U.S. pork producers is the avian influenza situation in China that is causing a dramatic loss of chicken demand, sources said. At the same time, the Chinese -- and pan-Asian -- middle class is consistently growing, prompting a surge in demand for meat, sources said.

"This has got to benefit pork consumption," Dennis Smith at Archer Financials said in an evening wire.

 

Chicken situation

The chicken markets were firm last week, with breast meat on fire, of sorts, sources said, pointing to breast meat demand for new products at every quick-service restaurant system in the country that sells chicken. This has left little breast meat for spot trade, underwriting an extremely strong price situation, sources said.

Chickens were unchanged to up 1 cent at $1.05-1.10 and 1.00-1.05/lb. in the eastern and midwestern regions last Thursday, 28.7% higher than year ago. The Georgia dock, which has been setting record after record every week, was up another 0.25 cent to $1.03/lb., 10.5% higher than year ago.

Breasts were $1.10-1.14/lb., 2-4 cents higher than the week before and 23.1% more than year ago, and breast meat was $1.74-1.84/lb., 11-18 cents more than the week before and 36.1% over year ago.

Leg quarters were 48-54 cents/lb., unchanged from the week before and the year before. Full wings were unchanged for the second straight week, suggesting that wings are bottoming out, and were $1.25-1.45/lb., 15.1% less than year ago.

The U.S. chicken industry was closely watching the avian flu situation in China last week; companies like Yum! Brands Inc., which operates KFC units in China, reported significant business losses in the country.

Yum! said sales at its KFC restaurants open for at least one year were down 13% in March, and analysts cautioned that decreased chicken consumption could also affect U.S. integrators that export chicken to China.

China and Hong Kong represented the third-largest export market for U.S. chicken last year, accounting for 6% of total exports, according to the U.S. Department of Agriculture. Add in Taiwan -- which reported last week that the flu strain had jumped from the mainland to Taiwan -- and the region represented the second-largest export market, accounting for 10% of total exports.

It should be noted that turkey consumption is also feeling the impact of the flu, with China/Hong Kong and Taiwan accounting for 18% of total U.S. turkey exports last year.

China's chicken industry has suffered terribly, sources said, with reports that not only was chicken demand falling rapidly and significantly but that Chinese authorities were culling a large percentage of the country's flock and closing wet markets.

"Everyone (in the U.S. poultry sector) is talking about China and the notable decline in demand for chicken and turkey," one source said, adding that Chinese consumers are "in a panic" and, frankly, growing weary of avian influenza outbreaks, which have been occurring for more than 10 years.

Chinese consumers definitely are switching to pork and seafood, the source added.

The International Poultry Council, which represents poultry producers in more than 20 countries, emphasized last week that the World Health Organization "and leading influenza experts" agree that proper cooking "is the best defense" against foodborne illness, including influenza.

Elsewhere in the poultry sector last week, the egg markets were unchanged at 94-98 cents and 84-86 cents/doz. for large-sized eggs delivered to eastern and midwestern store doors last Thursday, prices that were down more than 50 cents from their Easter peak but still 12.9% higher than year ago.

Sources said demand was light to moderate, with some export orders shipping to Mexico, but the primary problem is "too many hens producing too many eggs for this time of year."

The turkey markets were unchanged, with a national average offer last Thursday of 94 cents to $1.01 for hens and 92 cents to $1.01 for retail-sized toms, 10.1% and 11.9% lower than year ago.

Sources said there's "a lot of conversation" that the turkey situation will begin improving soon. Poults are being destroyed in an attempt to bring production in line with demand, and every producer "believes he'll be the main supplier to House of Raeford" when it exits live production this year to focus on processing turkeys.

Fresh tom breast meat was also unchanged at $1.55/lb., 19.3% under year ago. Processors "are hiding and holding" breast meat to try to boost prices, with talk about breast meat increasing to $2.00 this summer, one source said.

Volume:85 Issue:17

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