News Update
April 26, 2011

Daily Livestock Report: Cattle Futures Soften on Cash Concerns

Live- and feeder-cattle futures were sharply lower Monday as markets fretted about the outlook for cash beef prices this spring and summer. The biggest decline came in the June live-cattle contract, which closed at $112.8 per hundredweight (cwt.), 242.5 points lower than the Friday close and now at the lowest point since March 21. The June contract was seen as vulnerable after hitting all-time record highs in early April. Since April 5, the June contract has declined almost 800 points, or 6.7%.

Feeder cattle were limit down on a combination of weak out-front live-cattle futures, as well as higher corn values. That is never a good combination for feeders, and traders quickly responded, sending the entire complex tumbling lower. The nearby feeder-cattle contract currently stands at $129.975 per cwt., compared to almost $140 per cwt. in early April.

As we have noted before in the Daily Livestock Report, the true test for the summer cattle market would come in April as retailers prepared for the start of the grilling season. One kink this year was the fact Easter was one of the latest on record, which likely skewed post-Lenten features.

The reason we thought April would be a key test is because this is the time of year when demand shifts from winter items, such as chucks and rounds, to beef cuts that are more appropriate for grilling, such as rib and loin items. So far, the test has not beef very positive and does not bode well for overall beef demand.

On April 5, the U.S. Choice beef cutout index stood at $192 per cwt., $27.4 per cwt. or 16.4% higher than a year ago, while the Select cutout was valued at $187.5 per cwt., 15.2% higher than a year ago. Some items, such as chucks and rounds tend to weaken in April and that was the case again this year. The chuck primal value was running about $35 per cwt. over a year ago in early April, but the latest reading has it just a little over $20 per cwt. Round primal values were up some $30 per cwt. in early April compared to 2010 levels, but they are currently running about $18 per cwt. over last year.

As the round and chuck values weakened, beef packers had two choices. They could either try to put more money on cuts for which demand seasonally improves (ribs and loins), or they could buy lower-priced cattle in order to maintain their margins. Loin and rib prices are doing worse now than they were in early April. On April 5, the rib cutout was running almost $40 per cwt. higher than a year ago compared to just $26 currently, while the loin cutout was up $13.3 per cwt. in early April and it is currently just $4 per cwt. higher than last year. The only item that saw some gains was the brisket, which is understandable given how late Passover was this year compared to 2010.

In all, the weakness in beef prices in large part reflects the failure of high-value steak cuts to carry more value and justify the lofty cattle prices (and they’re still high) the board was indicating only a few weeks ago. Corn prices are expensive, but consumer demand needs to hold up in order to justify current beef and cattle values.

— April 26, 2011, Daily Livestock Report by Steve Meyer and Len Steiner.

• Click here to read an April 25 Wall Street Journal article on food inflation.

NCBA Cautious About Final Dust Policy Assessment 

As anticipated, the Environmental Protection Agency (EPA) released its final Policy Assessment for the Review of the Particulate Matter National Ambient Air Quality Standards. According to Tamara Thies, chief environmental counsel for the National Cattlemen’s Beef Association (NCBA), the policy assessment is an important document in the regulatory process that sets forth the EPA staff’s advice to the administrator about the regulation of coarse particulate matter, more commonly known as dust. In the final policy assessment, agency staffers determined that EPA Administrator Lisa Jackson would be justified in either keeping the current standard or tightening it to a level that would be essentially twice as stringent for much of rural America. Thies said the good news is that the policy assessment included options rather than a stand-alone recommendation to make the “dust standard” more stringent. The bad news is EPA can still choose to regulate dust in a way that would put a stranglehold on rural America.

“Dust is a part of life in rural America. Cattle ranchers work hard to provide safe and nutritious food for this country and abroad. Finalizing a rule that would result in heavy fines for creating dust by simply driving down a dirt road or herding cattle is unacceptable. If EPA Administrator Jackson is serious when she says EPA is not working against agriculture, she needs to prove it,” said Thies. “We urge EPA Administrator Jackson to keep the current standard.”

The final policy assessment states that the two standards are essentially equivalent in terms of health protection. However, Thies said the effect on the rural American economy is not equivalent. A recent study commissioned by NCBA found that changes being considered by EPA could bring vast areas of the Midwestern, Southwestern and Western United States into nonattainment or to the brink of nonattainment where slight changes in a weather pattern could make all the difference. 

“While Administrator Jackson has complained recently about so-called ‘myths and misconceptions’ about her intentions regarding this issue, NCBA urges her to put all our minds at ease by declaring unequivocally that EPA’s actions will not result in a more restrictive regulation of dust in rural America. Avoiding responsibility by claiming it’s up to the states to determine how dust will be regulated is inappropriate since agriculture is a dust-generating industry that is likely to be negatively affected by a tighter standard,” said Thies. “Since tightening the standard is not required by science, this is the administrator’s opportunity to reduce the mounting pile of burdensome and unnecessary regulations on agriculture.”

U.S. Representative Kristi Noem (R-S.D.) introduced, with bipartisan support, the Farm Dust Regulation Prevention Act of 2011 (H.R. 1633) that would block dust regulation by EPA in rural areas where state dust laws are in effect. 

“We support Congresswoman Noem and the other members of Congress who have risen in support of farmers and ranchers against burdensome and scientifically unfounded regulations,” said Thies.

EPA is expected to issue a proposed rule to regulate dust in August 2011.  

— Release by NCBA.

Cattle Prices Move Past Seasonal Highs

Cattle prices have had a remarkable run to the upside with finished steers reaching the low $120s per cwt. in early April. Now there are signs that those lofty prices will not be maintained into the spring and summer, said Chris Hurt, a Purdue University Extension economist.

“It is the strength of demand that has been the driver of higher cattle prices, not supply. So far in 2011, beef production has been 1% higher as a result of both a few more head and higher weights. Exports have been an important demand stimulant,” he said.

Since September 2010, the industry has exported a larger volume of beef than it has imported — a rare historical event. As an example, in calendar year 2009, the industry imported more than they exported, with net imports accounting for 3% of domestic production. Imports greater than exports increases the domestic supply and lowers prices, he noted.

“Since last September, exports have exceeded imports by an average of nearly 3% of domestic production. This means more beef is flowing out of the country than into the country, so consumers have to pay higher prices for more limited supplies. Although total beef production is up about 1% this year, the amount available for U.S. consumers is actually down about 2% because of the impacts of trade,” he said.

Domestic demand has been strong as well, but consumers are expected to become more reluctant buyers of beef as the spring and summer progresses. The continued slow recovery in the general economy has helped a few more people get back to work, and rising stock market prices have increased the net worth of some households, making them feel a bit more comfortable, he noted.

However, there are troubling signs on the horizon for beef consumption. First is the continued rise in retail beef prices, which averaged a record $4.64 per pound (lb.) in the first quarter of the year. That compares with just $4.23 per lb. in the same quarter a year earlier, he said.

The difficulty facing beef demand is that retail prices probably have substantial increases still to come this spring and summer. It is likely that retail beef prices will move toward $5.00 per lb. at times in the coming months as retailers pass along the much higher prices of wholesale beef from this spring, he said.

“This will come at a time of severe pressure on household budgets as $4.00-plus gasoline and $5.00 beef have the potential to force adjustments in consumer behavior. For the entire year, expect retail beef prices to average $4.87 per lb., up 11% from last year,” he said.

Feed remains another major potential driver of the beef industry this summer, starting with the drought conditions in the central and southern plains. The drought impact states of Texas, Oklahoma, Kansas, Colorado and New Mexico represent 32% of the U.S. beef cow herd, he said.

The drought is generally expected to continue for most of this area, at least through July, so cow liquidation could become a factor. Fortunately, it appears that much of the Northern Plains and Midwest will have abundant moisture and some of these cows can be relocated further north and east, he said.

“However, a number may move to slaughter, increasing the beef supply and edging cattle prices lower. Of course, the greater any forced liquidation of cows this summer, the higher cattle prices will rise in 2012 and later,” he noted.

Corn is the second big feed issue. There is no sign that cattle feeders (or any other livestock producers) have backed down on corn consumption plans for this summer. The number of cattle on feed, as an example, remained 5% higher on April 1, with 7% more steers and 2% more heifers in feedlots, he said.

“Major questions remain regarding just how much old-crop corn is available, about how high gasoline prices could impact corn demand for ethanol, and how foreign buyers will respond if corn availability becomes even tighter. To these concerns we can add the slow start to the 2011 planting season and escalating new-crop corn prices,” he said.

Finished cattle prices are expected to moderate from spring highs in the low $120s. Second-quarter prices are expected to average near $117, with third-quarter prices a few dollars lower. End-of-summer lows could be in the $110 to $112 range. If drought forces cow liquidation, summer prices could be even lower.

“Prices should rally back into the $117 to $120 range in the fall and continue to move upward into the early spring of 2012,” he said.

Overall, much higher cattle prices than historic norms are expected in coming years. However, producers should secure feed supplies for this summer and continue to manage margin risks very closely, Hurt said.

— Release by Phyllis Picklesimer, University of Illinois College of Agricultural, Consumer and Environmental Sciences.

USDA Rule Encourages Purchase of Local Ag Products for Critical Nutrition Assistance Programs

Today, Agriculture Undersecretary Kevin Concannon announced that USDA’s child nutrition programs are implementing new rules designed to encourage use of local farm products in school meals. The final rule, published in the Federal Register, will let schools and other providers give preference to unprocessed locally grown and locally raised ag products as they purchase food for the National School Lunch, School Breakfast, Special Milk, Child and Adult Care, Fresh Fruit and Vegetable, and Summer Food Service programs. The rule is part of the Healthy, Hunger-Free Kids Act of 2010 signed into law by President Obama and one of the key provisions to bolster farm to school programs across the country.

The rule supports USDA’s ‘Know Your Farmer, Know Your Food’ initiative, which emphasizes the need for a fundamental and critical reconnection between producers and consumers. USDA expects consumer demand for locally grown food in the U.S. to rise from an estimated $4 billion in 2002 to as much as $7 billion by 2012.

— Adapted from release by USDA.

NMSU Extension Offers April 27 Meeting to Discuss Fire Damage

New Mexico producers in Curry and Roosevelt counties have suffered a huge loss from recent fires that have destroyed nearly 17,000 acres of land — the majority of that rangeland designated for livestock grazing. In response, New Mexico State University’s (NMSU’s) Cooperative Extension Service is offering a free informational meeting where producers can talk with various experts and decide what their next steps should be.

The meeting is at 10 a.m. Wednesday, April 27, at the Extension Building on the Curry County Fairgrounds, 1900 East Brady, Clovis. Attending the meeting will be representatives from all USDA agencies, including the Farm Service Agency, Natural Resources and Conservation Service and Farmers Home Administration. There will be representation from an Extension range specialist and Extension veterinarian, as well as the State Health and County Emergency Management offices.

For more information, contact Stan Jones, Curry County ag Extension agent, at 575-763-6505 or Patrick Kircher, Roosevelt County ag Extension agent, at 575-356-4417.

— Release by Audry Olmsted, NMSU.

— Compiled by Shauna Rose Hermel, editor, Angus Productions Inc.