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LIVESTOCK MARKET REPORT: Snowstorm impacts production with plant closuresLIVESTOCK MARKET REPORT: Snowstorm impacts production with plant closures

Dairy prices expected to improve as 2016 unfolds.

Krissa Welshans 1

February 5, 2016

6 Min Read
LIVESTOCK MARKET REPORT: Snowstorm impacts production with plant closures

A large snowstorm made its way across Colorado, Nebraska, Kansas and the Upper Midwest earlier this week, causing several meat plants to shut down Tuesday, according to reports.

A Tyson spokesperson told Reuters that three of its six pork plants were not operating Tuesday, with the affected plants being in Iowa and Nebraska. Additionally, one of Tyson's beef processing facilities was not operating, and two others, located in Iowa and Nebraska, reduced production hours. Cargill also reported that one of its beef plants in Nebraska was shut down Tuesday due to the inclement weather.

Reports indicated that the plants would add hours later this week or increase slaughter levels to make up the lost time.

However, in the “Daily Livestock Report,” Len Steiner and Steve Meyer said the total impact left estimated daily cattle slaughter at 77,000 head, compared to 112,000 a week ago and 113,000 a year ago. Estimated daily hog slaughter for Tuesday was 305,000 head, compared to 440,000 a week ago and 437,000 a year ago. Tuesday's slaughter levels were revised in the U.S. Department of Agriculture's Agricultural Marketing Service report on Wednesday.

Wednesday's estimated slaughter levels were 98,000 for cattle, compared to 109,000 a week ago, and 395,000 for hogs, compared to 438,000 a week ago.

“The storms mostly disrupt the ability to transfer hogs from barns to the plants, but since the hogs are raised in barns, the storm will have little impact on those weights,” Steiner and Meyer noted. “Conversely, we can expect to see a downward adjustment in cattle weights as cattle in feedlots deal with winter weather (and) then mud aftermath.”

Despite the cattle weight impacts, Steiner and Meyer explained that there is a normal seasonal trend of fewer head slaughtered in February compared to January and that weights should continue to get lighter through May.

“Even with winter weather, the potential of cattle weights to track below year-ago numbers may not be probable until the second half of 2016,” they said. “On the beef side, we do not think this recent major storm will cause much of a market shock in terms of supplies and prices. This is largely because we are not in the peak of beef demand, and plants will likely recoup lost time later in the week.”

Dairy prices to improve

Bob Cropp, professor emeritus of University of Wisconsin-Madison, said falling dairy product prices at the end of 2015 and into 2016 spell much lower milk prices for the first quarter of this year. While it is not unusual for butter and cheese prices to fall after holiday orders are filled, he said prices have taken a significant tumble.

On CME, butter was $2.90/lb. at the beginning of December and $2.01/lb. by the end of December. Cropp reported that butter prices have rallied a little since then, with the current butter price at $2.17/lb.

The 40 lb. block cheddar cheese price was $1.71/lb. at the end of November, $1.56/lb. at the beginning of December and $1.45/lb. at the end of December. The current price is around $1.46/lb. The dry whey price has been about 23 cents/lb.

With these product prices, Cropp said the January Class III milk price will be near $13.75/cwt., which compares to $14.44/cwt. last December and $16.18/cwt. a year ago. The last time the Class III price was this low was January 2011, he said, adding that the Class III price is likely to remain below $14 the entire first quarter.


“U.S. dairy exports will keep a damper on milk prices at least for the first half of the year,” Cropp noted. “There remains a buildup of world dairy stocks that need to be worked off before world prices increase and before we can expect improvement in U.S. dairy exports.”

Additionally, he said the U.S. can also expect to see strong competition from the European Union and New Zealand.

“How soon world stocks are reduced will depend upon what happens to milk production in the EU and New Zealand. While EU dairy producers have faced financial stress from low milk prices, many have geared up for more milk production with the elimination of quotas last April,” Cropp noted.

Low milk prices in New Zealand have reduced cow numbers there, and El Nino may cause drought conditions that will affect milk production, according to Cropp. There are estimates that New Zealand milk production could be down as much as 7-10% for the July 2015 to June 2016 production year.

Despite the global challenges, Cropp expects milk prices to improve as the year progresses. As of now, he said it looks like the Class III price will average below $14/cwt. for the first quarter but could be in the $14s for the second quarter, the $15s for the third quarter and the $16s for the fourth quarter. If this holds, Cropp said the Class III milk price will average about 50-60 cents lower than the $15.80/cwt. average for 2015.

The latest USDA milk price forecast has prices averaging lower than this, with an average Class III in the range of $14.05-14.85/cwt. and the average all-milk price in the range of $15.35-16.15/cwt.

However, Cropp said a lot can change as the year unfolds. “I think the odds for milk prices ending up better than this is higher than ending up lower,” he added.

Market recap

February live cattle futures were higher Monday through Thursday this week, closing at $135.675/cwt. on Monday and climbing to a higher close of $137.075/cwt. on Thursday.

Nearby feeder cattle futures also posted gains for most of the week before falling off slightly on Thursday. March feeder cattle futures finished higher Monday at $157.775/cwt. and climbed to $157.95/cwt. on Wednesday. However, nearby contracts plunged Thursday to $156.525/cwt.

The boxed beef markets were slightly higher this week. The Choice and Select cutouts closed higher at $223.03/cwt. and $218.48/cwt., respectively.

February lean hog futures started the week lower but climbed as the week progressed. Nearby contracts closed lower Monday at $65.35/cwt. and fell through Tuesday but were able to recover some of the losses by Thursday's close of $65.125/cwt.

Pork cutout values were mostly lower this week. The wholesale pork cutout finished lower at $76.52/cwt. but was higher than the previous week. Loins and hams were also lower at $80.72/cwt. and $57.86/cwt., respectively, while bellies closed higher at $125.22/cwt.

Hogs delivered to the western Corn Belt were higher than last week, closing at $61.36/cwt. on Thursday.

In the poultry markets, the Georgia dock was slightly lower Wednesday at $1.1225/lb. Breast meat prices were lower at $1.465/lb. Leg quarters were unchanged at 33 cents/lb., while wings climbed to $1.705/lb. from $1.68/lb. the prior week.

According to USDA, California and regional egg prices were steady Thursday, with a weak to sharply lower undertone. Offerings were moderate to heavy, with light to moderate demand, USDA reported.

Large eggs delivered to the Northeast were sharply higher at $1.66-1.70/doz. Large eggs delivered to the Southeast and Midwest were also higher at $1.67-1.70/doz. and $1.59-1.62/doz., respectively. Large eggs delivered to California were unchanged at $2.83/doz.

The turkey markets on Thursday were steady, with a steady to firm undertone, according to USDA. Offering were light to moderate, with light to fair demand. Prices for hens and toms were unchanged at $1.09-1.19/lb. and $1.09-1.38/lb., respectively.

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