Current Situation and Analysis - 7/23/2020

Friday, July 24, 2020
Cattle Inventory: Where did the heifers go?

The July 1 Cattle Inventory report was largely within industry expectations. All cattle and calves were about even with a year ago, beef cows were down slightly, along with the total cowherd.  Steers over 500 pounds increased the most, up 300 thousand head, about 2% up from last year.

One of the more interesting notes on the report was the number of beef heifers in the replacement category and other heifers.  Other heifers are the heifers not destined for replacement.  The replacement number was even with a year ago signifying neither expansion nor contraction.  The implied backed up on feed number by the Cattle Inventory report is about 300 thousand head, but it was interesting to see that heifers are not showing as large of a backlog as steers, only a hundred thousand head higher than last year.

This leads us to look at the calculations outside of feedlots.  Anecdotally, higher numbers on pasture was thought to be the be case, but with drought covering most of the Western U.S., it seemed there may not be enough grass to support heavy grazing numbers.  LMIC calculated the number of steers and heifers outside of feedyards to be up 300 thousand head year-over-year, or about 0.8%.  Using the quarterly cattle on feed class estimates, LMIC calculates about 100 thousand of that increase are heifers.

The only other explanation is that heifers on feed at feedlots under 1,000 head are not counted in this report.  Heifers on feed are now almost 40% of the mix in 1000 head and larger lots, so it would be unique to see mixes larger on smaller feedlots.

Dairy Herd Declines with Slaughter Levels

The latest milk production report showed an interesting trend revising the U.S. dairy herd lower in May estimates, and fell to 9.35 million head, a 35,000 head decline from the previous quarter-end. This is in the face of some extremely volatile milk prices throughout 2020.  The latest Agricultural Prices released by USDA NASS showed national all milk prices in May to be $13.60 per cwt. The class prices released in June, however, suggests a much higher milk price moving forward.  Class III registered over $21.00 per cwt in June and wholesale cheese prices have continued to climb through July.

Dairy cow slaughter sank to very low levels over the last several weeks.  Over the last 10 weeks, dairy cow slaughter has been below a year ago, adjusting year-to-date figures to 3.3% below last year.  Albeit, last year’s first half of the year showed large slaughter, the last several weeks have seen weeks nearly 10% below last year.  The latest week was shockingly small, down 18% from last year. The July 1 Cattle Inventory report fell in line with the Milk Production estimates for the cowherd, but the real story is in the replacement figures. Dairy heifer replacements were even with a year ago.  Given the slowness in dairy cow slaughter and the jump in Class III in June, that replacement number indicates a rather stable to slightly higher herd. Other possibilities are that sexed semen is a very finely-tuned instrument for the dairy industry and high volumes in the replacement bucket are not needed. Or herd turnover rates are likely moderating from where they were and dairy farmers are keeping cows in the barn longer.

Dairy demand may continue to struggle this year, and without the help of exports, dairy prices may continue to be volatile.  It has been somewhat surprising the very sharp run-up in cheese prices without the indication that the domestic demand profile has rebounded as strongly as prices may imply.

Broiler Prices Struggle While Wings Rebound

The National Composite (Whole Bird) Weighted Average Broiler price has been under pressure since the start of the year. Every week this year has been below the same week last year, dipping as low as $0.50 per pound in mid-April, the lowest price on record since the series started in 2009. Since the low, prices have regained ground tracking in the mid to low $0.70 per pound range since late May, which is still well below 2019 levels and the five-year average.

Boneless skinless breast meat prices have fluctuated through the first half of 2020. Leading up to the COVID-19 events prices rose to $1.26 per pound, the highest level seen for the year at that time. Just three weeks later, the price dropped 30.6% to $0.87 per pound in the wake of the quarantine but would rise over the next five weeks to $1.65 per pound, an 88.9% increase, and the highest point in nearly two years. The fluctuation in breast meat prices is likely due to consumers seeking a product that is inexpensive, familiar, and easy to prepare at home.

Leg quarter prices have been under pressure for most of this year starting in the upper $0.30 to $0.40 per pound range. Prices have precipitously declined through the year with the most recent week at $0.27 per pound, the lowest level this year, and a 34.4% drop from the high in early February.

Wing prices started the year tracking similar to last year and the five-year average, but prices dropped 46.6% in three weeks to $0.91 per pound in mid-April, the lowest level since June 2011. Five weeks later prices recovered to $1.80 per pound, almost doubling the low increasing 49.4%. The most current week’s price was $1.95 per pound, 4.0% above the same week last year, and the highest point for 2020. Wings are typically thought of as an item consumed while viewing sporting events and at restaurants. The quick rebound in wing prices is interesting given restaurants are slow to re-open and sporting events have just started to come back online. The quick return of wing prices might suggest at-home consumption of wings is growing.