Quality, genetics work togetherWritten by Saige Albert
The U.S. beef industry is continually working toward higher-quality cattle, but a recent segment from Certified Angus Beef’s Angus VNR, Allan Sents of McPherson County Feeders noted that an increased genetic focus will be required as markets continue to change.
“As we go forward, especially in times of tight margins and the risks that we have in the market place, anything that can be done genetically to narrow that down and to focus on some of the premiums that are possible that way I think gives the cow/calf producer especially a great advantage, perhaps as much as anyone in the industry to take advantage and to be rewarded for the effort that they can put into improving genetics that way,” Sents said.
He noted that cow/calf producers have been responsible for the improvement in quality of the past several years as a result of smart genetic selection.
Sents explained, “Genetics is a huge factor, and we know that there is great variation, even within breeds in terms of genetic potential of the cattle. It is interesting and encouraging to see what progress can be made as people focus on quality.”
It is equally important, he added, to not lose track of cutability and growth in production.
As a smaller feedyard in Marquette, Kans., Sents says they are able to focus on harnessing the genetic potential of the cattle.
“We can focus more on individual sorting, attention to customers, knowing their history and knowing what their cattle are capable of,” he explains. “We do actively sort cattle to try and maximize their potential and harvest them before they have been around too long.”
But despite the benefits they have seen recently, Sents noted that they are still working to make adjustments and improve, always seeking to optimize the potential of cattle.
He commented, “The biggest adjustment I think we could make from a management standpoint is being aware of the potential of the cattle and then using our sorting and then evaluating which particular grid might be best to market the cattle and get the best premium we can for our customer that way.”
Saige Albert, managing editor of the Wyoming Livestock Roundup, compiled this article from a recent segment of Angus VNR. Watch the full segment on YouTube or by visiting cabpartners.com or angus.org.
Murphy sees optimism in the future of the cattle industryWritten by Saige Albert
Dramatic growth in the cowherd this year has resulted in some market fluctuation, and CattleFax’s Mike Murphy said the cattle cycle has returned.
“We had really short supply driven by drought but also the protein supply shortages with pork and poultry,” he said. “All three grew significantly in the last 24 months. Now our market’s corrected, and we know where we can go from here.”
Murphy added that, looking into 2017-18 and even 2019, cow/calf producers will have a better idea about what they have to look forward to.
“It’s going to be a tough two or three years, but it’s going to get better,” Murphy added, commenting that January 2016 saw nearly 1 million more beef cows than the year prior.
He also expects another 800,000 to 1 million more cattle on Jan. 1.
“We’ve got to keep in mind that we’re going to get more global access,” Murphy continued. “China made an announcement that they’re going to look to open to beef some time soon, so things are better longer-term from a cow/calf perspective.”
Murphy added, “Don’t panic about this depressed calf market today. Just recognize that better things are going to come to us. We have to manage our business accordingly in the next few years.”
One way to manage in the meantime is seeking added value through developing their calf crop.
For example, average calves that don’t have branded affiliation, vaccination programs or other affiliated programs are becoming more of a “discount market” product, said Murphy, who noted that they might see a $15 to $18 discount per hundredweight for calves that are in a vaccination or health program or that have a brand alliance.
“There’s a huge differentiation price-wise and value-wise for the buyer,” Murphy explained. “That’s why the differentiation is there.”
CattleFax predicts that fed cattle will range between $90 and $120 per hundredweight, and calves will sell for $105 to $150 on average over the next several years.
Saige Albert, managing editor of the Wyoming Livestock Roundup, wrote this article from a segment of Angus VNR, which is provided by Certified Angus Beef, LLC and the American Angus Association. Learn more at cabpartners.com or angus.org.
Quarterly stocks reveal bearish corn, neutral wheat marketsWritten by Saige Albert
After the release of USDA’s Quarterly Stock and Acreage report, DTN Economist Dan Newsom noted on June 30 that stocks numbers set the stage for the markets moving into the remainder of the year.
“There were some interesting stocks numbers, to say the least, in this year’s report,” Newsom commented.
June, July and August are the fourth quarter of the marketing year, said Newsom, and at the end of the third quarter, stocks came in at much stronger than the pre-report estimate.
“When USDA released the number 4.72 billion bushels, that was more in line with what we were thinking, but well above the pre-report averages,” Newsom said. “The immediate reaction was corn sold off hard.”
At the same time, particularly concerning the old crop, July and September contracts start to come under pressure.
“The corn number was bearish,” Newsom said. “We have 4.72 billion bushels of corn on hand, as of June 1. We don’t have the breakdown of what’s on-farm and what’s off-farm yet.”
However, he says that regardless of distribution, the number is very large.
“We are well above what we had last year at this time, which was 4.45 billion bushels,” he remarked. “I think the real implication here is where it now projects ending stocks.”
With ending stocks predicted at 2.27 billion bushels, Newsom noted that the number seems dramatically inflated, but all indications show that it may be right.
“Right now, USDA is estimating in its June supply and demand report just a shade over 1.7 billion bushels. It all comes down to how we are estimating demand,” Newsom said.
Newsom estimates demand for the fourth quarter at just over 13.1 billion bushels, but USDA uses 13.6 billion bushels as their number for old crop.
“These are all just hypothetical numbers, and we won’t know until we get there, but this is a burdensome number,” he commented. “Regardless of the size of this year’s harvest, we still have a lot of stocks on hand, as we did June 1. The basis market knows that, and it’s been reflecting that. This is going to be a problem for corn, certainly over the next quarter.”
The last several years have shown consistent growth in corn demand, with demand in the third quarter skyrocketing last in 2009-10.
“Last year, we climbed back up to about 3.3 billion bushels, and this year, third quarter demand came in closer to 3 billion bushels,” Newsom explained. “We need a much stronger number.”
While Newsom realizes that demand numbers will adjust slightly throughout the summer, he noted that much larger than normal demand will be necessary in the fourth quarter to reinvigorate corn markets.
“Total demand now, through the first three quarters, was a dip below what we saw last year, and we’re below what we saw the year before that,” he said. “When we consider that we had such huge production in 2015, filling our pipelines, our bins and our stocks, we’re lagging right now.”
Newsom added, “This is not a bullish development for the corn market. We need to see stronger numbers.”
Overall Newsom noted that quarterly stocks of old crop corn will continue to weight on the markets.
While acreage isn’t as influential in his mind, Newsom noted that acreage reports are market movers.
“They are hand grenades, not horseshoes,” he said. “There’s nothing accurate, but it certainly looks like that’s what is at play in the markets.”
“I think the market reaction we’re seeing today, the drop in corn and the strong rally in soybeans, all has to be tied to what we see in the acreage numbers,” he said.
However, he further noted that the acreage planted numbers will change.
“There’s nothing set in stone about these numbers,” Newsom commented. “As I like to say, they’re written in pencil or invisible ink.”
The report showed 94.1 million acres of corn will be planted this year, which is an increase over the 92.76 million acres forecasted before the report.
“This is down from what was projected in Prospective Plantings report,” he said. “The general consensus was that corn acres were going to lose out to soybeans.”
He noted, however, that farming practices don’t lend themselves to large swings between crops.
“Corn was above the high end of the Prospective Plantings report,” he said.
Wheat stocks came in at 981 million bushels in the June 30 report.
“This number was in line with USDA’s June report and June supply and demand report,” Newsom said. “This is also about the 977 million from 2009-10, and wheat has a large ending stocks.
Bearish futures spreads have been seen lately for wheat, with winter wheat going into variable storage.
“They’ve increased the storage rates because the carry is so strong,” Newsom said. “This report doesn’t do anything but confirm how large supplies are, so there’s no real surprise here.”
Looking at acres planted, Newsom said, “If ever there was a market that needed something bullish, some nugget to hold on to, they didn’t get it. All wheat acres came in at 50.8 million. We saw a little bit over a 1 million increase from March’s Prospective Plantings report.”
“There were no bullish numbers in the wheat market and nothing to support the five to seven cent rally in the market, unless there’s one of relief,” Newsom added. “As winter wheat harvest rolls along, we’re starting to see a bearish situation.”
Market impacts: Seasonal to lower prices expected this fall for cattleWritten by Gayle Smith
Whitman, Neb. – Beef producers can expect to see a few more years of declining cattle prices as the U.S. herd rebuilds its numbers, an agricultural economist told producers during the Gudmundsen Sandhills Laboratory 17th Annual Open House in Whitman, Neb.
Jessica Sampson, who works with the Livestock Marketing Information Center in Lakewood, Colo., said producers can expect less for their cattle as long as herd growth continues.
“Cattle inventory is projected to increase Jan. 1,” she said.
“Heifer slaughter year-to-date is actually one percent below last year. However, we have seen more heifers coming to the packer in recent weeks, compared to a year ago,” she continued.
Cull cow prices have also dropped significantly.
“In 2014-15, we kept a lot of cows in the herd longer, and now we’re sending more of those to the sale,” Sampson explained.
“We have slaughtered 10 percent more cull cows this year than at the same time last year,” she added. “We expect to see the seasonal decrease in prices of cull cows in October and November, so producers may want to plan ahead.”
Sampson said a 4.5 percent increase in annual production is expected this year, and another four percent increase is predicted for 2017.
“We have a larger inventory that is producing more calves,” she explained. “With four quarters in a row of lower prices, it may be an indicator to producers to slow down herd growth.”
Despite declining prices, producers are still seeing returns over $100 per cow. With estimated cow/calf costs more than $800 in most operations, it is realistic to expect these costs to decline because of corn, beans and wheat supplies, Sampson said.
Pasture rent will also need to decline to be more in line with the market, she noted.
With feedlots still struggling to get out of the red, Sampson sees feeder cattle prices at historically normal levels this year. The U.S. is carrying two percent more cattle on feed compared to last year, which is consistent with the 3.5 percent increase in cow inventory. Fat steers are selling around $1.19 a pound in the southern plains, she reported.
“For the most part, we expect to see seasonally normal price patterns this fall, although we expect a tightening in the fat cattle supply,” Sampson reported. “We may see a slight increase in the fourth quarter because we don’t expect the meltdown that we saw last year.”
She continued, “The conditions are entirely different. For one thing, feedlots are very current on their marketing right now. There are no backed up, overly heavy or overly fat cattle on hand like last year. The cattle feeders also have a better margin this year.”
Based on the fourth quarter and annual average, Sampson told producers to take what they sold calves for last fall and deduct 15 to 20 percent from that. She sees prices in the Southern Plains being around $1.72 for 500- to 600-pound calves, and in the high $1.40 range for 700- to 800-pound yearlings.
“We are projecting another three to four percent decline in 2017 on an annual average basis, which is reflecting the increase in the cattle supply,” she said.
Producers at the meeting expressed concern about the agreement to allow Brazil to import fresh, chilled beef into the U.S. Sampson explained that Brazil, like dozens of other countries doing business with the U.S., must adhere to a tariff rate quota system that limits the volume of beef that can be imported under this system.
“That limit is 65,000 metric tons on a first-come, first-serve basis,” she said. “After that quota is met, a 26 percent tariff will apply. At that point, it will be too expensive for them to send beef here. Because of this, I don’t think we will be seeing a huge influx of Brazilian beef coming into our market.”
Sampson also told producers that Brazil has market access to Russia and China, which are big markets for them.
“I don’t see them shifting their supply from those countries to the U.S.,” she explained. “They haven’t shipped any fresh or chilled beef here yet.”
One producer asked Sampson what impact Brazil could have on the cull cow market.
“The cull cow market is down two to seven dollars, and the sale barns are blaming Brazil,” the rancher said.
Sampson replied, “It is possible that lean grind imports could impact cull cow prices, but I would be hard-pressed to blame Brazil at this point. I think cull cow prices are down because more are being marketed. Brazil is definitely a concern though.”
Currently, most of the 90 percent lean grind imports into the U.S. are coming from Australia, but Sampson said as U.S. beef production increases, she sees those numbers declining.
“In 2016, that number was down 10 percent in the first half of the year. As we continue to increase production, I expect that number to continue to decline into next year,” she said.
Lamb markets see support early in summer monthsWritten by Saige Albert
The summer started with atypical support for the live, carcass and feeder lamb markets moving into the summer months.
“It’s not typical for us to start this early with market support,” said Brad Anderson, procurement director at Mountain States Lamb Cooperative (MSLC). “Generally, we’re still heavily into the old crop, California springs and lambs from Wyoming and Oregon, but this year, they’ve cleaned up faster than expected.”
This year’s trends resulted from a supply that shortened more quickly than expected, largely due to forecasting by East Coast lamb plants.
“This escalation doesn’t have anything to do with our consumer demands,” Anderson said. “We saw some of our competitors back east run out of lambs, so that moved the market up significantly.”
With fat lambs increasing, feeder lamb prices also moved up accordingly.
Companies in the East primarily source their lambs from the Midwest, which is a challenging market to test, Anderson explained.
“The average flock in the Midwest is less than 100 head. Those producers work independently, and it’s really hard to measure exactly what they’re doing – whether they decide to sell feeders early, retain them as fast, etc.,” he said.
Regardless of the cause, Anderson added, “We’re very, very current, and it looks like we’re going to stay that way.”
Demand for lamb has been a challenge for the sheep industry, but Anderson noted that work by the American Lamb Board (ALB) strives to highlight the superiority of American lamb.
“ALB is doing a lot in terms of local and source verified, and with new antibiotic directives coming out, a lot of consumers are starting to look at antibiotic-free lambs,” Anderson said. “MSLC is the largest supplier of antibiotic-free lambs in the nation, and we did close to 170,000 last year.”
ALB promotes American lamb, locally sourced products and more in an attempt to continue to sway customers toward a domestic product instead of imported lamb.
“Because of the strength of our dollar and lower prices, our biggest competitors are important,” Anderson said, highlighting that Australia and New Zealand imports are challenging. “If we’re going to lose customers, we’re going to lose them to imported products.”
Prices for lamb from Australia and New Zealand has also strengthened some recently.
“Whether that has to do with our dollar softening or tightening supply, we have seen some strength in import prices,” Anderson commented. “Also, there’s still an insurmountable amount of product in the freezer. It’s a lot, and we’re going to have to work through that.”
As summer progresses, Anderson said that lamb prices are likely to stay relatively high.
“Weights will be good, and yield grades will be good,” he said. “It should help that American lamb is a great quality product, and I think that markets could strengthen a little more.”
However, he notes that consumer demand is more difficult to predict.
“It’s yet to be seen if the consumer demand will follow that escalation in price,” Anderson commented. “I’m not sure if demand will reflect our price increases.”
He also noted that he sees profitability in the lamb feeding sector.
“Lamb feeders have not been profitable in the last three years due to the fact that when supply shortens, feeder and live prices escalate, then we stagnate and they can’t get lambs killed. That will be the challenge now, as well. We have to get enough supply but also keep lambs current so the feeders and producers can be profitable, as well as the packers.”
Anderson noted that MSLC’s acquisition of the JBS lamb plant has been beneficial to its membership, noting that the MSLC members should expect to stay current on a more consistent basis.
“It has also eliminated JBS in the marketplace buying feeders against our producers,” he said. “We will work hard as a more cohesive group to try to fill supply holes, as opposed to working as competitors.”