Where’s the beef? The U.S. Department of Agriculture’s semiannual inventory report confirmed expectations of lower beef cattle numbers. Total U.S. cattle inventories Jan. 1 were 92.6 million head, down 1.4 percent from a year ago and the lowest since 1958. The reduction was driven by a jump in beef cow slaughter in 2010 — the largest since 1996. A combination of factors such as sharply higher feed prices, surging consumer demand for ground beef and a sharp decline in beef trimming imports from Australia have helped drive U.S. cull cow prices to record-high levels. As a result, beef producers are sending more heifers to slaughter. Heifers accounted for 37 percent of all feedlot placements in 2010, the largest since 1997.
January’s monthly USDA cattle report showed 11.52 million head on feedlots, up 4.6 percent from a year ago and more than expected. New feedlot placements in December were up 16 percent from a year ago. But those numbers are coming at the expense of record-high off-feedlot liquidation. Off-feedlot cattle supply could hit record-low levels in 2011. Even if producers decided to expand herds today — unlikely given sky-high feed prices — it would be over two years before we would see the result of that expansion converted into an increase in beef supplies. The USDA forecast 2011 beef output to be down 2.5 percent and increased its 2011 price estimate for choice steers from $100 to $103 per hundredweight. Cattle futures peaked at $110.20 per hundredweight on Jan. 12, and prices are up 33 percent over the past six months. Forward contracts through 2012 are trading in the $112-$118 range.
Coffee – Futures prices closed in January at $2.40, up 43 percent from just six months ago. Two consecutive seasons of poor harvests in Colombia and Central America and the sharp decline in certified stocks have squeezed the supply side of the market. In December, the USDA estimated world coffee output at 139.1 million bags in 2010/11 and ending stocks of 31.3 million bags in 2010/11, down from its June estimate of 36.3 million bags. A cyclical “up year” for Brazilian in 2010/11 has helped boost world output. But production shortfalls elsewhere, poor availability of quality arabica beans, new demand from emerging economies and macroeconomic phenomena, such as the dollar’s fluctuation, speculation and certification, will likely continue to skew prices toward the high side.
Dairy – Block cheese prices, which fell to a low of $1.40 per pound in November, have recovered to $1.73. But there is a big retail demand gap between the Super Bowl and Easter that should allow for a price correction. The USDA currently is forecasting block at $1.5550 per pound for 2011, but that projection is at least a nickel low based on current price levels. Butter prices soared during the first week of January to close at $2.10. Tight supplies, a weak dollar and global demand are supporting prices. But producers are worried that $2 butter will slow exports and domestic demand. Looking ahead, 2011 will be a tug-of-war between higher milk prices and increased feed costs — the former encouraging increased milk output and the latter eating into producer profit.
Grain – Prices soared in the wake of USDA’s January world supply and demand estimate, which slashed estimated 2010/11 corn output by 12.6 percent and reduced U.S. 2010/11 ending stocks for corn by 10 percent, from 832 million bushels to a 15-year low of 745 million. Soybeans were cut from 165 milion to 140 million bushels, and wheat was cut from 858 million to 818 million bushels. Grain markets haven’t yet recovered from last summer’s Russian drought and export bans. Supplies have been further strained by drought in Argentina, dryness in the U.S. plains and floods in Australia. On the demand side, corn exports and ethanol usage continue to grow. Corn hit highs of $6.59 per bushel Jan. 18 and started February at $6.44, 80 percent above a year ago. Wheat hit highs of $8.56 per bushel on Jan. 26, also 80 percent above year-ago levels.
Pork – Higher feed prices are leading to shrinking herd numbers. The USDA’s quarterly report said there were 64.3 million hogs in inventory Dec. 1, down 0.9 percent from a year ago. Hogs kept for breeding were well-below expected levels, down 1.4 percent. Growth in pigs per litter has been running in the plus-2-percent range and could offset a portion of the farrowing declines. Even so, less pork is now expected for the second half of 2011. The USDA said it expects production to be up “slightly” for the year in 2011. Lean hog futures that started 2010 at $65.85 per hundredweight finished the year up 19.7 percent at $78.85, and then jumped to a record-high $85.75 to close out January. Part of the price strength comes from South Korea, where a hog kill-off to contain foot-and-mouth disease will force them to increase imports by 20 percent to 30 percent this year — most of it from the United States.
Poultry – Broiler production in the fourth quarter of 2010 was up 5.3 percent from a year ago. Chicken inventories are now 15.3 percent higher than last year. Stock levels for both leg products and paws have grown steadily from earlier this year, resulting from trade disruptions with Russia and China. U.S. broiler exports were record large in October thanks to a resurgence in Russian purchases. Exports are forecast to recover: up 3.6 percent in 2011 following a 6-percent drop in 2010. The big question for producers is the outlook for profitability in light of costlier corn. The USDA is projecting broiler output to rise by just 1.3 percent in 2011, given the slow economic growth and higher prices for corn and soybean meal.
USDA boneless skinless breast prices, which spent most of January in the $1.10- to $1.15-per-pound range, could be $1.50 by April. The USDA whole-wing market, at $1.07 per pound at the end of January, was $1.72 a year ago. Wings markets look to be gradually lower post-Super Bowl, getting to the mid-90-cent range by spring. Leg quarters at 35 cents per pound will likely continue to trade in the mid- to upper-30-cent range into spring.
Soybean oil – Global vegetable oil stocks in 2010/11 are expected to fall to a seven-year low, which has strengthened prices across all markets. U.S. soybean oil prices have risen with an outlook for lower output, higher use and a tightening soybean supply. A weakening dollar and higher prices for crude petroleum also support the soybean oil market. Supply growth is likely to lag demand growth globally in 2011, keeping the price outlook bullish. As a result, the USDA has raised its 2010/11 soybean oil forecast from 39 cents per pound to 50 cents per pound over the past three months. Futures remain record high in the 57-cent range, up 40 percent from a year ago.
- U.S. inventories lowest since 1958
- 2011 beef output projected down 2.5 percent
- Price estimate for choice steers up to $103 per hundredweight
- Cattle inventories, beef supply forecast lower for 2011
