AUGUST red meat production in the U.S. totaled 4.2 billion lb., down 4% from 2012, according to the latest "Livestock Slaughter" report from the U.S. Department of Agriculture's National Agricultural Statistics Service.
Even with smaller production last month, accumulated red meat production for the year was down just slightly from last year's figure.
Digging into the slaughter data, USDA reported that beef production, at 2.24 billion lb., was 5% smaller than last year. Cattle slaughter totaled 2.82 million head, down 6%, but liveweight was up 3 lb. from last year, at 240 lb.
Analysts largely expect liveweights to trend lower in the final quarter of the year as Zilmax, Merck Animal Health's zilpaterol beta-agonist, will more or less be phased out of commercial production during the month of September.
The company temporarily suspended sales of the popular growth-promoting feed additive after Tyson Fresh Meats announced that it would no longer accept cattle finished using the product.
How the product's absence will ultimately affect beef production remains an open question; anecdotal evidence from the field suggests that many major producers have switched from Zilmax to Elanco's competing product, OptaFlexx.
While OptaFlexx is not viewed as aggressive in terms of adding productive pounds to finished cattle, it should save anywhere from one-third to one-half of the pounds Zilmax use added to U.S. finished cattle.
USDA released its latest "Cattle on Feed" report late Friday afternoon. At press time, analysts expected the report to show sharply lower placements and feedlot inventories compared with a year ago.
Dow Jones' pre-report survey of livestock market experts projected a fed cattle inventory that would be down 6.5% from last year, August feedlot placements that would be 8.4% lower and marketings during August that would be down 4.5%.
If the placement estimate is anywhere close to accurate, that would mean that only 1.838 million head were placed in feedlots last month, breaking the previous record for the smallest August placements by more than 155,000 head (the previous record was set in August 2005).
Likewise, the Sept. 1 inventory could be the smallest monthly inventory since August 2010.
This column will discuss the "Cattle on Feed" results next week, but the report's findings are available now at www.Feedstuffs.com.
Massive flooding in Colorado temporarily shuttered one of the nation's largest beef processing facilities last week.
JBS cancelled at least two shifts at its facility in Greeley, Colo., Sept. 16 due to the record flooding that damaged thousands of homes and killed at least six people.
Cow slaughter, meanwhile, remains below year-ago levels as pasture conditions have improved significantly compared with last year. With conditions hovering near the 10-year average reported by USDA, producers haven't felt compelled to send cows to town due to the lack of available quality forage.
"The expectation is for cow slaughter to run significantly below year-ago levels through the end of the year," economists Len Steiner and Steve Meyer wrote in the "Daily Livestock Report."
"This does not mean weekly cow slaughter will decline from current levels," they added. "Cull cows normally come to market in the fall, and we will have a fall cow run again this year."
What it does mean, however, is that the seasonal increase in cow slaughter should be smaller than usual. For the week ending Aug. 24, USDA reported that beef cow slaughter was down 15.2% from the same week in 2012, and beef cow numbers in August were down 14% from last year.
Aside from pasture conditions, the market is signaling cowhands to hold onto those productive mothers. The expectation is for sharply lower corn prices by the end of the year, along with extremely good feeder calf prices — both of which add up to solid cow/calf sector profits.
The beef cow inventory was down 692,000 head as of Jan. 1, 2012, and fell another 863,000 as of Jan. 1, 2013. Heifers held back for replacement increased in each of the past two years, but not by enough to stem the trend of smaller inventories — a trend that will likely continue with the Jan. 1, 2014, inventory update.
Hog slaughter, capacity
In its September slaughter report, USDA put August pork production 3% lower than last year, at 1.94 billion lb. Hog slaughter totaled 9.56 million head, down 4% from August 2012, and the average liveweight was up 2 lb. at an average 271 lb. per head.
Accumulated pork production for the year was down just slightly, and the industry generally expects expansion to kick in, to some degree, over the course of the next 12 months, reflecting improvements in producer profitability.
Weekly hog slaughter, however, dropped significantly in the second week of the month, down 10.5% from a year ago and more than 3% smaller than the five-year average for the same period.
Certainly, the hot, humid weather in late August had an effect on getting hogs to market, perhaps slowing the time it took producers to get hogs finished, but this may not be the only issue, according to Steiner and Meyer.
Still unknown is the effect porcine epidemic diarrhea virus has had on the flow of pigs to market, so that is one possible explanation for the "marketing hole."
Another is that China now requires third-party verification for pork produced without ractopamine, which might have prompted some producers to abandon the beta-agonist, effectively slowing the time producers need to get hogs finished.
The larger and potentially more concerning question is if producers are just taking more time to get pigs finished because of the weather, the disease and the export issue or if there are simply fewer hogs out there.
USDA will release its quarterly "Hogs & Pigs" report Sept. 27.
If the industry does expand, as many expect, Steiner and Meyer project that hog numbers could challenge record-large inventory levels sometime in 2015. If that occurs, it could present an interesting scenario with regard to packing capacity.
While hog numbers are growing, pork slaughter capacity has remained essentially flat (Figure 1), with no additional capacity under construction, and major packers have not announced any firm expansion plans.
This is counter to the beef sector, where cattle numbers are reaching their lowest levels in nearly a half-century.
According to Steiner and Meyer, the largest weekly slaughter total in 2012 left nearly 10% unused capacity, with an average week leaving 15% of packing capacity unutilized (Figure 2).
"That has not been good for margins, and the pressure is likely to grow as the diminished calf crops of 2012 and 2013 work their way through pastures and feedlots," they wrote.
Live cattle prices continued to hover near $123/cwt. Trading was fairly light through Thursday of last week, and weekly slaughter was running 19,000 head below year-ago levels at press time (although up 6,000 head from the previous week).
Even with cattle prices holding mostly steady, the steer:corn ratio has improved considerably in recent weeks as spot corn bids are now more than $1/bu. off their August average in many parts of the country.
This measure is likely to continue to improve as corn prices fall on further harvest pressure and depending on whether cattle prices improve — as expected — following Friday's "Cattle on Feed" report from USDA.
Market analyst John Otte, writing for Farm Progress, noted that August feedlot placements are expected to be the smallest for the month of August since USDA began its current data series in 1996. Live cattle futures settled at a two-week high for the spot contract ahead of the report, with deferred contracts gaining more than $1 in last Thursday's trade.
The boxed beef cutout was down nearly 85 cents from last week, clocking in at just above $193. Values were weak on Choice but firm on Select, given light to moderate demand and offerings. Chuck and trimming values were steady as of last Thursday, while middle meats were a bit weaker.
Hog prices firmed through last Thursday, with weekly hog slaughter expected to be 9% smaller than last year at roughly 2.187 million head. USDA reported an eastern Corn Belt base price weighted average of $94.96/cwt. and a western Corn Belt average of $95.70 — both much stronger than prices for the previous week.
As with cattle, the hog:corn price ratio has improved considerably and is at its most producer-favorable level in quite some time. The pork cutout continued to improve last week, with a five-day average of $98.46/cwt., up $1.91 from the previous week.
Loin prices hit a five-day high last Thursday at $103.11, up $1.09 for the day and nearly $3 stronger than the week's average. The projected CME two-day lean hog index gained for a 10th day in a row as of last Thursday and, at $97.46, was approaching its recent peak of $102.56 that was set on Aug. 15.
All of this could change, however, as packers are greatly fatigued by nonexistent pork processing margins, and despite record open interest in the futures market, sources told Feedstuffs that the market could be reaching a top, if it hasn't done so already.
Chicken prices trended steady to firmer last week, with a pretty good balance of floor stocks contributing to some stability in the market.
USDA will release its next "Cold Storage" report Monday, which will allow the trade to assess inventories of various parts. USDA has committed to buying surplus dark meat for its nutrition and feeding programs, which is expected to help firm prices in that segment.
The Georgia dock price remained steady for the week at $1.0625/lb. for broilers and fryers, a good deal stronger than last year's 95.75 cents. Poultry slaughter through last Thursday tallied 158,190 head, with an average weight of 5.75 lb.
Ready-to-cook volume for the year was still running roughly 3% ahead of last year, at 25.05 million lb.
Reports surfaced late in the week that Russia would lift its ban on poultry products from Arkansas effective Sept. 18. The country, along with China and Japan, had banned imports due to concerns over low-pathogenic avian influenza.
Broiler-type eggs set continued to run ahead of last year, with eggs set for the week ending Sept. 14 up 5% from last year at 194 million eggs. Chick placements totaled 165 million head, up 3% from the same week last year. Cumulative placements for the year are up 1% at 6.11 billion.
Egg prices were largely steady last week, with light offerings and moderate supplies. Market activity last week was described as slow, with retail prices for large and extra-large eggs mostly at $1.03-1.07/doz.
Total weekly shell egg inventory fell 2.8% for the week ending Sept. 15, with inventories declining in almost every category. The inventory of stocks on hand available for marketing totaled 1.028 million cases as of Sept. 16.
Turkey markets remained challenging, but cutout margins likely turned positive in August for the first time since 2012. As supplies tighten and feed costs moderate, the outlook could be improving further still.
USDA's latest "Turkey Hatchery" report found that the number of eggs set as of Sept. 1 was 3% smaller than last year, at 25.5 million eggs, and off 8% from the Aug. 1 inventory. Hatchings during August, at 22.8 million, were down 4% from last year and down 3% from July.
The net placement of turkey poults during August was off 4% from the same month in 2012 and fell 6% from July's net placements.
Prices last week were essentially steady, with hen prices at 98 cents to $1.05/lb. on a frozen, basted processor equivalent and 98 cents to $1.07/lb. for toms.