THE futures market appears to have put aside its concerns about the impact of highly pathogenic avian influenza (HPAI) on live cattle prices and the wholesale beef market. Live cattle futures prices plummeted when stories of HPAI being detected in dairy herds first emerged at the start of April. But futures prices advanced last Monday and Tuesday even though USDA’s Animal and Plant Health Inspection Service (APHIS) listed a total of 28 confirmed cases up to last Monday. At least 18 states by then had placed restrictions on the movement of cattle. North Carolina and South Dakota were the latest states added to the list of states where (HPAI) has been detected in dairy cattle. HPAI, also known as bovine influenza A virus (BIAV), was previously detected in dairy herds in Texas (11 confirmed cases), Kansas (3), Michigan (4), Idaho (1), New Mexico (6) and Ohio (1).
Dairy producers should remain vigilant about advanced biosecurity on farms and minimize movement of cattle as much as possible, said APHIS. Sick or exposed animals should not be moved. New animals should be quarantined for a minimum of two weeks before introducing them to an established herd. APHIS has not issued federal quarantine orders at this time, nor is it recommending any state quarantines or official hold orders on cattle. But according to the American Veterinary Medical Assn, at least 18 states have declared restrictions for the movement of cattle. These states include Alabama, Arizona, Arkansas, California, Delaware, Florida, Hawaii, Idaho, Kentucky, Louisiana, Maryland, Mississippi, Nebraska, North Carolina, Pennsylvania, Tennessee, Utah and West Virginia. Restrictions vary by state but most pertain to the importation of animals from states where the virus is known to have infected dairy cows.
Risk To Public Is Low
The overall risk to the general public remains low, says the Food and Drug Administration. Because milk is pasteurized prior to packaging or processing, there are no concerns with the safety of the commercial milk supply at this time. The World Health Organization also assessed the public health risk to the general population posed by this virus to be low and for occupationally exposed persons, the risk of infection is considered low to moderate, it said.
Cash live cattle prices the week before last were lower than the prior week but HPAI was unlikely to have been a factor. In fact, the April live cattle contract traded in a narrow range between $178.90 per cwt and $180.70 per cwt all week. Cash prices averaged $183.84 per cwt live or $293.09 per cwt dressed. These were down $1.89 per cwt and $3.78 per cwt dressed, respectively, from the prior week. The April contract last Monday and Tuesday gained 260 points.
The cash trade last week was again slow to develop because of the positive basis between cash and futures prices. The only sales through Wednesday were of 701 head up north at $183 per cwt live or $292-294 per cwt dressed. The April live cattle contract Thursday closed up 27 points at $181.17 per cwt while the June contract closed up 5 points at $175.37 per cwt. The cash trade Thursday morning was at a standstill in all regions.
Cattle meanwhile graded their highest percentage of Prime in the latest reporting week since late May 2021. They graded 11.51% Prime in the week ended April 6 and 73.02% Choice. The record percentage for the two grades is 86.07%, recorded the week of February 20, 2021.
SLOW MARKETINGS CONCERN ANALYSTS
THE slow pace of feedlot marketings this year continues to concern industry analysts. Last Friday’s Cattle on Feed report was expected to show that March marketings were down more than 10% on March last year. This in large part reflected two less slaughter days this year than last. But daily average marketings were likely the smallest since last October. Analysts say carcass weights will need to decline at least as fast as the seasonal norm. They worry that cattle will now be carried over into the third quarter.
The slow marketing pace in March likely resulted from tight feeding margins, a weak fed cattle basis, eroding costs of gain and a poor price swap on replacement cattle, says Mike Sands. MBS Research. In addition, tight packer operating margins during the month and consequent reductions in slaughter schedules further dampened the feedlot sales pace. This resulted in a significant counter-seasonal rise in fed cattle carcass weights during the month. The slow marketing pace, coupled with the larger feedlot placements early last fall, helped boost the calculated feedlot inventory on feed on April 1 150 days or more by more than 500,000 head above a year earlier. It was record high for April 1 and likely will impair feeder cattle leverage in the weeks ahead, he says.
Sand projected that the April 1 Cattle on Feed total was near 103% of last year and up about 100,000 head from a month earlier. Yet it is more typical for feedlot inventories to stay flat or decline from a month earlier, he says. The slowdown in marketings during March pushed more cattle into the April-June quarter, which already had more cattle placed against it, reflecting the larger September-November placements. The strong fed cattle basis likely will encourage a more aggressive marketing pace in the weeks ahead. But front-end supplies appear burdensome and will remain a challenge. More typically however, the industry may be more inclined to place its way out of this supply imbalance rather than significantly boosting marketings, he says.
Weekly harvest rates should be increasing seasonally, says Andrew Gottschalk, HedgersEdge.com. As a gauge of the front-end cattle supply, carcass weights need to begin declining at a rate equal to or faster than the seasonal trend, following a six-week long contra-seasonal advance. The failure to do so would be confirmation of additional front-end loading of the supply. It remains imperative that marketing rates increase to limit any further front-end loading of the supply and minimize any carryover into the third quarter, he says.
Carcass weights did decline for the second week in a row in the latest reported week. But they were even higher than year earlier levels. Steer weights averaged 919 lbs in the week ended April 6, down 4 lbs from the prior week but up 27 lbs from the same week last year. Heifer weights averaged 849 lbs, up 1 lb and up 21 lbs, respectively. Overall weights averaged 847 lbs, down 1 lb but up 27 lbs, respectively. This was the equivalent to adding 20,322 head to that week’s slaughter total of 614,045 head, says HedgersEdge.com.
Beef Cutouts Continue Their Slide
Boxed beef cutout values meanwhile are still struggling to get any lift from the approach of the grilling season. In fact, they have gone backwards the last three weeks. The comprehensive cutout (cuts, grinds and trim) the week before last averaged $303.29 per cwt, down $1.21 per cwt from the week before. The Choice cutout averaged $301.00 per cwt, down $0.40 per cwt. Spot markets sales accounted for 29.8% of the total volume and formula sales accounted for 55.1%. Forward sales accounted for 15.1% and export sales accounted from 12.8%. The only bright spot was that the price of domestic lean manufacturing beef (90CL) averaged $346.86 per cwt, up 25.7% on the same week last year and another new all-time record high.
The first four days last week saw the Choice cutout decline by $4.77 per cwt while the Select cutout declined by $6.27 per cwt. Beef cutout values should begin to stage some seasonal price recovery, says Gottschalk. The next price target for the Choice cutout is a weekly average of $317-318 per cwt. Initial price support is $295 per cwt. A violation of the support at $295 should serve as a demand alert to the industry. Cutout values should advance not decline in the current timeframe, he says.
AUSTRALIA MIGHT HAVE PROCESSING DEFICIT
THE U.S. beef industry continues to grapple with over-capacity at the processing level as beef cattle numbers continue to fall. Australia appears to be grappling with the opposite issue, of having more cattle than can be processed in a timely manner. As weekly rates of slaughter across Australia begin to climb again after the Easter break, the question is again arising: Do processors have the manpower to keep up with this year’s supply, and if not, what happens to cattle prices? Leading news outlet Beef Central posed these questions last week.
The questions are being pondered as the industry approaches its traditional peak turnoff and slaughter period for the year, says Beef Central. Short processing weeks due to holidays and rain disruptions aside, there has been a sharp rise in adult cattle slaughter this year since the week ending February 9. National Livestock Reporting Service data shows that the eight full working weeks since then averaged almost 131,000 head, up around 20,000 head compared with the same period last year. Despite some big setbacks due to weather (JBS Dinmore in Queensland and several others lost a day’s kill due to weather related supply challenges), the seven-day kill the week before last lifted again to above 131,000 head. The same week last year accounted for only 83,000 (albeit Easter affected) and the year before that 96,000 head, says Beef Central.
Adding to the larger kills, the female slaughter ratio (the percentage of females in the overall kill) has exceeded 47% for each of the past four weeks, says Beef Central. It went as high as 50% two weeks ago. Forty seven percent is regarded as the tipping point between herd expansion and contraction. The results from early first-round pregnancy testing, together with cash flow pressures, may have contributed to the recent climb in female slaughter, with empties (unpregnant cows) being tipped into the market, one processor told Beef Central. Rising prices for frozen manufacturing beef in export markets was another factor in the rise in cow slaughter, he said.
Speaking during a Wagyu conference in Cairns, Queensland, independent analyst Simon Quilty told the audience that under his calculations, the processing sector needs to find enough labor to process 142,000 cattle a week during busy times this year in order to see the industry through. He used a chart complied from Global Agritrends forecasts that capacity this year was 109,000 head per week and would need to increase 30% to 142,000 head per week. In 2025, capacity would be 93,000 head per week and would need to increased 30% to 121,000 head per week.
It has been challenging over the past two to three years to find enough labor, said Quilty. Fortunately, there has been an increase in the number of offshore visa holders working in Australia, rising from 49,500 in the middle of COVID to around 68,000 today. But not all of those visa holders are working in meat processing, he said.
Plant Is Certified Carbon Neutral
Meanwhile, Beef Central reports that Kilcoy Global Foods’ grain-fed beef processing facility north of Brisbane has become the first and only large-scale beef plant in Australia, and potentially the world, to reach certified carbon neutral status. Through a series of enormous alternate energy investments made over the past three or four years, the Kilcoy plant, under the operating entity Kilcoy Pastoral Co, in December received official Carbon Neutral certification through Climate Active. Climate Active is an Australian government program that supports national climate policy by driving voluntary climate action by Australian businesses.
Some participants in other parts of the Australian red meat supply chain have already claimed carbon neutrality in their production systems, says Beef Central. But Kilcoy’s achievement is the first in the Australian meat processing sector. Web searches by Beef Central failed to find any evidence of similar claims in processing overseas. By their very nature, meat processing facilities are energy-hungry, requiring large volumes of electricity for motors, conveyors, refrigeration and lighting, as well as steam, hot water and other energy-dense production requirements. Kilcoy’s achievement of credible carbon neutral certification presents some exciting possibilities to add product claims in the company’s high quality grain-fed and Wagyu beef brands sold around the world, although the company says it has no immediate plans to do this, says Beef Central.
JBS WILL DOUBLE A BEEF PLANT
JBS SA, already the world’s largest beef producer, will invest $29.2M (150 million reais) to double the slaughter capacity of its Campo Grande II beef plant in the state of Mato Grosso do Sul to 4400 cattle per day. Its announcement on April 12 came after the plant in March received the green light to export to China and was made during a visit to the plant by Brazil President Luiz Inacio Lula da Silva. JBS said the expansion should be completed within a year and would make Campo Grande II one of the firm’s three largest plants in the world and Latin America’s largest beef plant. It will also double the plant’s work force to 4600 people.
JBS’s expansion plan came as reports said that global beef prices are falling, harming the Brazilian industry. In March, Brazil, the world’s leading exporter of the product, shipped beef at $4158 per metric ton (mt), down 4.5% from $4356 per mt a year earlier, beef industry group Abrafrigo reported on April 15. The average price encompassed both processed and raw beef. According to Abrafrigo, the first quarter saw average prices reach $4033 per mt, down 10.7% from $4520 per mt a year ago. Whole year prices of beef exported from Brazil had already fall by 23% in 2023 compared to 2022, from $5582 per mt to $4276 per mt, said Abrafrigo.
Brazil nevertheless has hit record highs in the volume of its beef exports, said Abrafrigo. Exports this March totaled 206,000 mt, up 27% year-on-year, grossing $857M, up 21%. In the first quarter, 672,300 mt were exported, up 35%, and grossed $2.7 billion, 20% more than in the first quarter of 2023. According to Abrafrigo, China was the top buyer of Brazilian beef in the first quarter at 41.1%, followed by the U.S and the United Arab Emirates. The Arab country imported 41,100 mt, up 275.4% in volume, grossing a revenue of $88.5M for Brazil, up 270.1%, said Abrafrigo.
USDA DEFENDS CATTLE REPORT MOVE
USDA Chief Economist Seth Meyer defends the decision of USDA’s National Agricultural Statistics Service (NASS) to eliminate its July Cattle Report and other reports. His defense came at the Commodity Futures Trading Commission’s 2024 Agricultural Commodity Futures Conference. Arlan Suderman, chief commodities economist at the StoneX Group, said NASS’s decision to cancel the July cattle report was a real disappointment and that his clients’ feedback was rapid and sharp.
His clients had been reading the USDA budget online and came to the conclusion that USDA could have found money to continue the cattle report rather than some of the other activities in which it is engaged, said Suderman. Traders around the world rely on USDA statistics and there is a sense of betrayal about this decision, he said. Suderman made his comments during a panel discussion titled “New Frontiers in Data and Information to Inform Futures Market Participants,” as reported by the web site The Fence Post.
Meyer said he thinks it is incredibly unfortunate that USDA will not have a mid-year cattle report in the midst of a contraction in the cattle cycle and record highs in the fed cattle market. He also said he did not like what NASS had to do but explained that NASS was given a certain amount of money and had to make cuts somewhere. In its announcement, NASS said the decision to discontinue surveys and reports was not made lightly but was necessary given appropriated budget levels.
As CW reported in its April 15, 2024 issue, the National Cattlemen’s Beef Assn (NCBA) criticized NASS’s decision to cancel the July Cattle Report and discontinue the County Estimates for Crops and Livestock, among other changes. These reports provide critical data and the decision to end them is completely misguided, said NCBA. It is disingenuous for the same agency which touts its commitment to transparency in livestock markets to arbitrarily cease publication of reports which provide just that, said NCBA’s Ethan Lane. NCBA called on USDA-NASS to immediately reverse its decision.