Livestock

A lack of rainfall and a developing drought is raising caution flags for American cattlemen. The U.S. Drought Monitor shows 67 percent of the United States is in an abnormal drought. The majority of the dry conditions are lingering in the southern Plains, which is paired with weakening wheat and pasture conditions. In addition, the U.S. Department of Agriculture's monthly condition report shows Oklahoma's wheat fields are being impacted by the drought with 79 percent of the crop is rated poor to very poor. In Kansas, 14 percent is rated good to excellent. It's a considerable drop from a month ago, 44 percent of the Kansas wheat crop comes in at poor to very poor. Is it too early to worry a drought in the Plains will shrink the national herd? Could cattlemen see another massive drought like they saw in 2011 and 2012 when the national herd was forced to liquidize? AgDay national reporter Betsy Jibben looks into the issue with John Hofferth, chief operating officer with Pinal Feeding Company based in Maricopa, Arizona; Chris Hurt, agricultural economist with Purdue University; Chip Flory, Farm Journal economist and host of AgriTalk and AgriTalk After The Bell; Don Close, vice president of food and agribusiness research and animal protein at Rabo AgriFinance; and Derrell Peel, livestock marketing specialist at Oklahoma State University.

Popularity of ground beef continues to grow, and packers are responding to the increase in demand. Cargill Protein is investing $4.2 million at its Columbia, S.C. plant to expand beef grinding capabilities for consumers in the East Coast. The investment will adds new precision grinding equipment by May 2018 to increase plant production by 15%. Cargill purchased the Columbia facility in 2016 from FPL Food. At the time, Cargill said the 100,000-square-foot plant, employing more than 200 people, would help serve their eastern retail and food service customers. "This investment shows our commitment to the beef industry in the Eastern U.S. and allows us to deliver on the increasing needs of beef customers in the region, through the installation of higher performance production technologies," said John Keating, president, business operations and supply chain, Cargill Protein. In the past two years, Cargill says it has invested more than $850 million in their U.S. and Canada plants to meet the additional demands from consumers for more protein. This includes a $111 million cooked meats plant conversion in Nebraska, $27 million egg processing facility expansion in Michigan, $50 million distribution center at its Kansas beef plant, $146 million expansion of a cooked meats facility in Tennessee, and acquisitions of meat processing facilities in Texas, South Carolina and Tennessee.

The U.S. pork industry has enjoyed unprecedented export growth in the last five years: New markets show potential and traditional markets are strong because prices have been favorable. But the U.S. is producing more pork than ever before, which means exports are even more vital. Until recently, the industry had been on a "nice glide path," says Dermot Hayes, Distinguished Professor at Iowa State University. "The National Pork Producers Council and the U.S. trade representative were opening new markets almost every year. The Trans-Pacific Partnership (TPP) looked like it would increase our access to Japan and Vietnam, and that would have been big. "Now we're on this rocky road that causes concern," he says. "It's possible present policies could turn things around and cause exports to go back down." Under NAFTA, Mexico has been importing a surprisingly large quantity of U.S. pork"”up to 10% of U.S. production"”and it seems every year it goes up by another 10%, Hayes says. "For me, that was a puzzle, so I've been doing applied research. It turns out the Mexican economy was centered on beef because beef was what they had, but pork has become much more affordable. "Mexican citizens are changing their diets, their recipes and their restaurants from a beef-based diet to a pork-based diet," Hayes says. "That period of six or seven years of extremely high beef prices really had a negative impact on beef consumption in price-conscious countries like Mexico, Columbia, Peru and Argentina. Beef was scarce for a long enough time that consumers developed an appreciation and a taste for pork." With Mexico wanting U.S. pork more than ever, an unresolved NAFTA would be devastating for producers, because the industry would potentially need to downsize, Hayes says. "That's miserable, because the only way to get an industry smaller is to induce losses and that's a major concern right now," he says. He hopes the outlook will improve with a renegotiation of the North American Free Trade Agreement and other bilateral agreements. "When I look at the map, we have free trade agreements with Australia, South Korea, Columbia (which is growing like crazy), Peru, Central America, Mexico and Canada. Where the economics have been allowed to work, we've seen U.S. pork exports increase," Hayes says.

By the end of 2018 all cattle producers in Canada will pay a national C$2.50 beef checkoff per animal sold. Previously the Canadian Beef Cattle Checkoff was C$1 per animal marketed and it had been at that pricing since 2002. Similar to the beef checkoff in the U.S., funding goes towards research and marketing of beef. Currently, the national beef checkoff in Canada generates an estimated C$7.5 million (US$6.04 million) annually. The increase to C$2.50 would bring the annual checkoff revenue to C$18.75 (US$15.09 million). The increase to the beef checkoff in Canada was set in motion in 2014 when a document called the National Beef Strategy was developed by beef industry leaders from various organizations. "It lays out a collaborative business plan to use combinations of research, marketing and promotion, policy development and stakeholder engagement to increase production efficiencies, reduce cost disadvantages compared to main competitors, increase carcass cutout values, enhance synergies within industry and connect positively with consumers, the public, government, and partner industries," writes Bryan Thiessen, Chair of the Beef Cattle Research Council and manager of Namaka Farms near Strathmore, Alberta. With fewer cattle and inflation, Canadian cattle producers recognized a change was needed to help fund need research and marketing that will help get beef to consumers around the globe. "As an industry, we have a responsibility to help pay for the beef research and extension that benefit us and to work more closely with government to ensure priority research is invested in. There's also a broader range of research needed now because fewer and fewer people have connections to the farm and therefore the public has little understanding about agriculture," Thiessen says. Some provinces have already started taking in the $2.50 national checkoff. This past fall both eastern provinces Prince Edward Island and Nova Scotia began taking in funding. The remaining provinces plan to start collecting the increased checkoff amount in 2018. For instance, Alberta producers will begin paying the additional amount in April. Increasing the beef checkoff has been a debated topic in the U.S. for several years with many individual states holding referendums to increase their local checkoff. Oklahoma recently had a vote that failed, while Iowa and Ohio had successful referendums in the past few years. The U.S. still only has a US$1 beef checkoff per head assessment nationally. Annually the U.S. beef checkoff brings in US$72 million for research and marketing. Canada's increase to C$2.50 per head in national checkoff is a drop in the bucket compared to the total checkoff assessment some producers pay when adding in their local provinces fee. For instance, in Quebec cattle producers pay an additional C$10.49 per cull cow, and less for younger cattle. Manitoba and Ontario pay C$3 per head for the province fee. (Note: $1 U.S. Dollar equals $1.24 Canadian Dollar. The national Canadian beef checkoff would equate to US$2.01.)

U.S. pork exports recorded the highest-ever monthly value in November while U.S. beef export value took another step toward a likely full-year value record, according to export results released by USDA and compiled by the U.S. Meat Export Federation (USMEF). November pork exports totaled 223,962 metric tons (mt), down slightly from a year ago. But through the first 11 months of 2017, export volume remained on pace for a new record at 2.23 million mt, up 7 percent year-over-year. November export value was a record-high $615.6 million, up 5 percent year-over-year and just the fourth time monthly export value has topped $600 million. Through November, pork export value increased 10 percent to $5.9 billion. Exports accounted for 27.7 percent of total pork production in November (down slightly from November 2016) and 24.1 percent for muscle cuts only (up about one percentage point). For January through November, these ratios increased about one percentage point from a year ago to 26.5 percent of total production and 22.2 percent for muscle cuts. November pork export value averaged $58.38 per head slaughtered, up 6 percent from a year ago and the highest in six months. Through the first 11 months of the year, per-head export value averaged $53.18, up 7 percent. Beef exports reached 111,915 mt in November, down 3 percent from the large volume of November 2016 but still the second-highest monthly total of the year. Export value was also the second-largest of 2017 at $666.4 million, up 8 percent year-over-year. January-November export volume totaled 1.15 million mt, up 7 percent, while export value climbed to $6.6 billion, up 15 percent from a year ago and slightly above the record pace established in 2014. Beef exports accounted for 13.1 percent of total production in November, the highest since July but down from 14.9 percent in November 2016. For muscle cuts only, the percentage exported was 10.9 percent, down from 11.7 percent a year ago. For January through November, beef exports accounted for 12.8 percent of total production (down from 13.5 percent in 2016) and 10.3 percent for muscle cuts (steady with 2016). November beef export value averaged $306.63 per head of fed slaughter, up 4 percent from a year ago and the highest in nearly three years. January-November export value averaged $282.34 per head, up 9 percent. Pork variety meat exports top $1 billion, breaking previous full-year record. Although pork variety meat exports slowed in November, the 11-month total of 498,661 mt was still 6 percent higher year-over-year. Export value climbed 19 percent to $1.06 billion, setting a full-year record and exceeding $1 billion for the first time. "For all livestock producers, variety meat exports make a very important contribution to carcass value," explained USMEF President and CEO Dan Halstrom. "USMEF has made it a priority to help our international customers develop more uses for pork variety meat and to broaden the global market for these products. At a time of record-large pork production, it is especially gratifying to see variety meat export value jump nearly 20 percent, which boosts the bottom line for everyone in the supply chain." Other January-November highlights for U.S. pork exports include: In South Korea, where most U.S. pork now enters the market duty-free under the Korea-U.S. Free Trade Agreement (KORUS), strong November growth pushed January-November volume up 28 percent year-over-year to 153,569 mt, valued at $420 million, up 30 percent. Pork exports to Mexico moderated slightly in November but remain poised for a sixth consecutive volume record in 2017. Through November, volume was up 12 percent from a year ago to 726,717 mt, while export value increased 15 percent to $1.37 billion. Mexico is a critically important destination for U.S. hams, especially with the current high level of U.S. hog production. In Australia, which is also a leading market for U.S. hams, November exports climbed 29 percent from a year ago in volume (6,393 mt) and 23 percent in value to $18.4 million. Through November, exports totaled 62,675 mt (up 9 percent) valued at $183.8 million (up 14 percent). Exports to leading value market Japan posted a strong November performance, increasing 4 percent in volume (38,979 mt) and 7 percent in value ($164.5 million) from a year ago. This pushed Japan's 11-month totals up 1 percent (to 361,401 mt) and 4 percent (to $1.49 billion), respectively. Chilled pork export volume to Japan was steady at 200,856 mt, while value increased 4 percent to $949 million. November pork exports to South America edged higher year-over-year in both volume and value, as the region continued to build on the full-year records already achieved in October. January-November exports to South America were up 64 percent from a year ago in both volume (96,763 mt) and value ($248.9 million). Regional growth has been driven by record-large exports to leading market Colombia, while exports to Chile and Peru have also set full-year records. Exports to Central America and the Dominican Republic are also on a record pace in 2017. Led by strong growth in mainstay markets Honduras and Guatemala, January-November exports to Central America were up 5 percent year-over-year in volume (65,056 mt) and 8 percent in value ($158.5 million). Export volume to the Dominican Republic climbed 24 percent to 28,836 mt, while value increased 31 percent to $66.2 million. Pork exports to China/Hong Kong trended lower in 2017, reflecting an increase in China's domestic pork production, though muscle cut shipments regained some momentum beginning in October, ahead of Chinese New Year. Through November, exports to the region dropped 9 percent year-over-year in volume to 454,816 mt, but value dipped just 1 percent to $973.9 million. China/Hong Kong is the leading contributor to the aforementioned pork variety meat value record, as January-November variety meat exports increased 4 percent in volume (293,756) while value soared 17 percent to $667.6 million. Pork variety meat export value to China/Hong Kong equated to $6 for every hog harvested from January through November. Japan, Hong Kong drive beef export growth; new value records in Korea and Taiwan Japan continued to be the pacesetter for U.S. beef exports in November, with volume increasing 5 percent year-over-year to 24,819 mt and value up 6 percent to $159.2 million. This pushed Japan's 11-month totals to 285,336 mt (up 20 percent) valued at $1.75 billion (up 27 percent and a new post-BSE record). Chilled beef exports reached 137,707 mt through November, up 35 percent, valued at a record-high $1.02 billion, up 39 percent. Approaching Chinese New Year, beef exports to Hong Kong gained momentum in October and climbed again in November, with volume up 20 percent from a year ago to 16,106 mt (the largest since December 2014) and value soaring 43 percent to $119 million. Through November, exports to Hong Kong climbed 13 percent in volume (113,440 mt) and 26 percent in value ($765 million). November exports to China were 655 mt, the largest since the mid-June market opening, valued at $5.7 million. Through November, exports reached 2,225 mt valued at $22.8 million. "U.S. beef has only really scratched the surface in China, so exports are still relatively small but the value per pound is among the highest in the world," Halstrom said. "This makes China an exciting addition to our strong portfolio of Asian markets, where beef exports continue to expand at an impressive rate. 2017 was a tremendous year for U.S. beef in Asia, and the coming year looks very promising as well." Other January-November highlights for U.S. beef exports include: Driven by strong retail demand and reduced tariffs under KORUS, beef exports to South Korea have already set a new value record. Through November, exports increased 5 percent year-over-year in volume to 167,532 mt, valued at $1.1 billion, up 19 percent from a year ago and edging past the 2016 record of $1.06 billion. Chilled beef exports to Korea accelerated at an even faster rate, jumping 88 percent in volume to a record 41,086 mt, valued at $368.5 million, up 93 percent. A new value record was also established in Taiwan, where U.S. beef holds more than 70 percent of the chilled beef market. Through November, exports to Taiwan increased 3 percent from a year ago in volume (40,402 mt) while value climbed 16 percent to $369.9 million, breaking the 2016 record of $362.8 million. November beef exports to Mexico dipped 8 percent in volume from a year ago to 20,161 mt, but value increased 2 percent to $80.8 million. Through November, exports to Mexico were steady with the first 11 months of 2016 in both volume (216,765 mt) and value ($894.1 million). Mexico is the second-largest volume market for U.S. beef (behind Japan) and ranks third in value (after Japan and Korea). Strong year-over-year growth in Indonesia, the Philippines and Vietnam pushed January-November exports to the ASEAN region to 38,039 mt (up 46 percent year-over-year), valued at $193.3 million (up 39 percent). Led by Chile, Peru and Colombia, beef exports to South America have already set new annual records. Through November, exports increased 27 percent from a year ago in volume (26,786 mt) and 23 percent in value ($106 million). Since shipments began in April, exports to Brazil have shown solid potential, reaching 1,998 mt valued at $7 million. November lamb exports struggle, but value still higher year-over-year U.S. lamb exports were 520 mt in November, down 36 percent from a year ago and the lowest since April, while export value fell 11.5 percent to $1.75 million. For muscle cuts only, November volume was down 12 percent to 284 mt but value increased 2 percent to $1.51 million. Through November, lamb exports dropped 16 percent from a year ago in volume (6,659 mt) but increased 6 percent in value to $17.8 million. Muscle cuts exports moved higher year-over-year in both volume (2,197 mt, up 10 percent) and value ($12.89 million, up 18 percent). Despite an unusually severe hurricane season, muscle cut exports to the Caribbean increased 12 percent in volume (596 mt) and 37 percent in value ($4.84 million). NOTES: Export statistics refer to both muscle cuts and variety meat, unless otherwise noted. One metric ton (mt) = 2,204.622 pounds

Demand has proven the key to holding livestock markets in the black during 2017. Despite increasing beef production, cattle feeders experienced a booming market last spring that padded closeouts at times in excess of $400 per head. Demand, industry analysts say, was the driving force that kept pulling cattle forward and in the process a steep decline in carcass weights. That windfall for feed yards fueled the desire for replacement cattle, supporting prices for feeder cattle and calves at unanticipated levels. “Strong demand for beef kept pulling cattle forward, and feedyards had the incentive to bid up replacements,” says Sterling Marketing president John Nalvika. “That put a lot of dollars in ranchers pockets for feeder cattle that we didn’t think would be there at the beginning of the year.” Now the question on rancher’s minds is, “Can demand continue to support the growing supplies?” The short answer is, “Yes, but probably not without a modest decline in prices.” Price risk is always possible, but analysts say risk and volatility is reduced at this point in the cattle cycle. That’s because prices are well below the peaks of a couple years ago, and market fundamentals have replaced much of the market’s emotion. Generally, analysts expect 2018 cattle prices will be somewhat lower on an average basis than in 2017. That’s due to further increases in supply of beef and all proteins. “In four short years, we’ve seen total red meat and poultry supplies increase 10%, recovering from the drought-fueled low set in 2014,” Nalivka says. He projects per capita red meat and poultry supplies will near 222 pounds in 2018, or 20 pounds more than the low of 202 pounds in 2014. Specifically to beef, feeder cattle numbers will be up for the third consecutive year, on-feed numbers will increase and total beef production is projected to jump another 4% in 2018 to record highs. “We are still in the stage of the cattle cycle where supplies are going to get larger for another two or three years,” CattleFax CEO Randy Blach told cattlemen at the National Angus Convention. But, he noted, the cattle industry has navigated those hurdles well. “We’ve got everything going our way - exports are better than anticipated, domestic demand has been good, consumer spending and consumer attitudes have all been very positive - but it doesn’t take much and we could start to move back the other way.” Blach told attendees at the Kansas Livestock Association convention that increasing domestic household income and growing consumer confidence has led to the highest-quality beef supply in decades. “The Prime-Choice spread has stayed at very large levels despite the increase in supply,” he said. “That’s demand. That’s the market telling us they want more of the good stuff.” Although the demand picture is positive, Blach said feeder cattle prices will stay flat, ranging from $135 to $160/cwt in 2018. He anticipates modest, yet solid profit margins in the calf market. Maintaining a strong export market for beef will be critical for domestic prices in 2018. “Demand surpassed expectations in 2017,” Nalivka says. “Retail beef prices in 2017 were 10 cents cheaper while per capita consumption was increasing 1.5 pounds. That’s excellent demand.” And a 12% gain in U.S. beef exports in 2017 shows robust demand, especially following a 13% gain in 2016. “Exports amounted to 11% of production in 2017,” Nalivka says. “I project we’ll see another 4% gain in exports in 2018, which will be record high. It would mean we’re exporting 3 billion pounds of mostly high-value beef.”