It’s Turkey Time!

It’s Turkey Time!

It’s the season to think about turkey prices as the birds will start showing up in our grocery store meat cases in the next couple of weeks.  Last year, at this time, turkey prices were record high.  Prices have set new record highs this year leading up to Thanksgiving. 

Wholesale, frozen, 8-16 pound, national average whole hen prices hit $1.80 per pound in the third week of October 2022.  They were $1.41 per pound in October 2021.  Turkey prices normally peak around the end of September to the 1st of October.  Fresh turkeys hit $1.93 compared to $1.47 last year.

The most important factor in high prices is reduced turkey production.  High Pathogenic Avian Infuenza (HPAI) has hit the turkey industry hard.  Production this year is 4.7 percent below last year.  Turkey production has increased dramatically in recent weeks as the industry tries to boost supplies in time for Thanksgiving.  Last week’s production was 8 percent above the same week the year before.  Turkeys are typically put into cold storage for sales in the Fall.  September cold storage stocks of turkey were about 5 percent below a year ago.  The second major factor in high turkey prices are high feed costs.  High corn and soybean prices have pressured profits for turkey producers leading to lower production.  Like all other businesses, transportation costs, labor, and other costs of getting turkeys to market are higher contributing to higher turkey prices. 

While higher wholesale prices will likely translate to higher retail prices, stores often use turkeys as part of Thanksgiving marketing specials.  Grocery stores should have plenty of turkeys on hand.  But, smaller restaurants and other users have struggled getting supplies for most of this year.  

Photo by Randy Fath on Unsplash

Anderson, David . “It’s Turkey Time!“. Southern Ag Today 2(44.2). October 25, 2022. Permalink

Growth in Forward Delivery Beef Sales

Growth in Forward Delivery Beef Sales

In 2022, beef production has been higher than last year. An indication of beef demand can be seen in wholesale beef prices. Anderson (2022) highlighted how the wholesale price of primals translate to the retail consumer. In addition to the boxed beef cutout value report, beef sales in the wholesale market can provide insights into current and future market demand for increased beef production this year. 

            Beef sales are reported by four types or methods: negotiated cash sale with the beef being delivered in 0-21 days, negotiated cash sale with the beef delivery in 22+ days, formula, and forward contract. For definition, a negotiated sale can have a delivery window of either 21 or less days or 22+ days. This means that the contracted beef will be delivered from the packer to the buyer in either 21 or less days or in 22 or more days. Prior to the mid-2000s, most beef was sold using negotiated cash sales. After the mid-2000s, formula based sales became the predominant way beef was sold in the wholesale market. Although volume of negotiated sales has decreased since 2002, the decrease depends on the type of delivery window of the sale. The trends and data discussed below use sales data from the weekly comprehensive cutout report.  Figure 1 displays the total number of weekly load sales for the four transaction methods:  negotiated cash sale with the beef being delivered in 0-21 days, negotiated cash sale with the beef delivery in 22+ days, formula, and forward contract. 

            As indicated in figure 1, negotiated sales with delivery in 21 days or less (blue line) has trended downward since 2010, while negotiated sales with delivery in 22+ days (yellow line), and formula sales (orange line) has trended upwards in volume during the same time frame. Forward contract volumes have remained relatively unchanged. Thus, the net loss seen in negotiated beef sales is attributable to the decrease in negotiated sales with delivery in 21 or less days. 

Compared to this week a year ago, volume of negotiated sales with delivery of 0-21 and 22+ days are down by 18% and 7%, respectively. But, through September of this year, volume of negotiated sales with delivery of 0-21 and 22+ days are down by 2%, and up 6%, respectively. The increase use of negotiated cash sales with deferred delivery could be an indicator of risk management by wholesale market participants with an expectation of future price movement.

Figure 1. Weekly Beef Sales by Transaction Method, Number of Loads

Source: Livestock Marketing Information Center

Reference:

Anderson, David. “Wholesale Beef Prices“. Southern Ag Today 2(38.2). September 13, 2022. Permalink


Martinez, Charley. “Growth in Forward Delivery Beef Sales“. Southern Ag Today 2(43.2). October 18, 2022. Permalink

Beef Photo by Jason Leung on Unsplash

Negotiated Fed Cattle Sales Decline in 2022

Negotiated Fed Cattle Sales Decline in 2022

Since the 2019 fire at the Tyson plant in Holcomb, Kansas a lot of attention has been given to the volume of fed cattle traded through different transaction types, largely due to concerns over price discovery. 

Fed cattle sales are categorized into two types; negotiated and non-negotiated sales. Negotiated transactions are sales made in the cash or spot market, and include negotiated cash sales and negotiated grid sales. Non-negotiated transactions are sales in which at least the base price is not negotiated in the time immediately preceding the transaction. Non-negotiated transaction types include formula sales, forward contract sales, and grid sales. 

A major difference between the two is that negotiated sales contribute to price discovery, while non-negotiated sales do not. Price discovery is the result of an interaction (bid and ask) between buyers and sellers. The base price for a non-negotiated sale is often based on negotiated prices in the time period immediately preceding the sale, but the sales themselves do not contribute to price discovery. 

Negotiated trade volumes as a share of total trades have declined in 2022 when compared to both 2021 and the previous five year average, regardless of region. Though negotiated trade as a share of total trade remains high in regions like Iowa-Minnesota and low in regions like Texas-Oklahoma-New Mexico, the share of total transactions that are negotiated has dropped across the board. Interestingly, this trend is not coupled with lower fed cattle prices, as slaughter cattle prices have remained higher than 2021 and the previous five year average through 2022, and have been relatively stable.  

Benavidez, Justin. “Negotiated Fed Cattle Sales Decline in 2022“. Southern Ag Today 2(42.2). October 11, 2022. Permalink

Value of Bred Heifers in 2023

Value of Bred Heifers in 2023

Most livestock marketing and management discussions over the past six to nine months have focused on the drought, high feed prices, and increased cow and heifer slaughter. These discussions generally pertain to what cattle producers need to do in the immediate future. However, these same discussion points have longer term implications that should be discussed. Given that heifer slaughter year-to-date is nearly 5 percent higher than 2021 and that beef cow slaughter is more than 13 percent higher than 2021, there will certainly be opportunities in the bred heifer market as soon as drought subsides and cattle producers move into herd expansion mode.

The million-dollar question is when should a person take the risk to try to meet this expected future demand for breeding females? There is no way to know, but one can have an idea of what bred heifers should be worth in the future. Based on research in Tennessee, bred heifer and weanling heifer (550 lb) values are highly correlated. Historically speaking, bred heifers sold in May to calve in the fall have been worth 2.5 times the value of a 550 pound heifer while bred heifers sold in November to calve in the spring have been worth 2.8 times the value of a 550 pound heifer sold at the same time. Thus, if feeder cattle futures are any indication of what can be expected for bred heifers in 2023, bred heifer values may be worth $2,400 to $2,600 per head. Producers should be asking themselves if there is an opportunity to breed and market bred heifers in 2023. It is certainly a big risk, but there is still money to be made if bred heifer values do not reach $2,400.

Figure 1. Bred heifer price ($/head) and feeder cattle price ($/cwt) for 500- to 600- pound heifers at the time of the May and November bred heifer sale from 2008 to 2017. (Boyer et al., 2020)

Boyer, C.N., A.P. Griffith, J. Thompson, J. Rhinehart, K.H. Burdine, and K. Laurent. 2020. Bred Heifer Price Determinants in the Southeast. Journal of Applied Farm Economics 3(2): Article 2. doi:10.7771/2331-9151.1042.

Griffith, Andrew. “Value of Bred Heifers in 2023“. Southern Ag Today 2(41.2). October 4, 2022. Permalink

Drought Continues to Impact Cattle Flow

Drought Continues to Impact Cattle Flow

The latest USDA Cattle on Feed report was released on Friday and showed drought conditions continued to impact cattle movement into feedlots during August. Dry weather and poor pasture conditions in some areas have likely led to producers selling cattle sooner than normal. Placements into feedlots during August were up slightly over year-ago levels but were driven by lighter weight cattle. 

Placements of cattle weighing less than 700 pounds were about five percent higher than in August 2021 while placements of cattle weighing more than 700 pounds were about two percent lower than a year ago. Looking at Texas where drought conditions have been severe, August placements of cattle weighing less than 700 pounds were nearly 12 percent higher than a year ago while total placements were up 9 percent.  

The late summer months are seasonally the lowest cattle on feed months, and it appears August will be the low for 2022. Feedlot inventory on September 1st was estimated at 11.3 million head which is up slightly from August 1st and also up slightly from a year ago. Feedlot inventories will grow in the fall months but by how much is the big question. The increased placements of lighter cattle over the summer suggest there will be fewer placements during the fall months than usual. It is likely that some cattle that would have normally been placed in September through November were already placed into feedlots during the summer. Early indications for wheat pasture in the Southern Plains look disastrous unless some sustained rainfall comes soon.  Poor wheat pasture establishment will reduce stocker calf demand this Fall but may send more to feedlots at lighter weights.

Maples, Josh. “Drought Continues to Impact Cattle Flow“. Southern Ag Today 2(40.2). September 27, 2022. Permalink

Livestock Feed Price Implications for Fall

Livestock Feed Price Implications for Fall

As we move into fall, we have a pretty good feel for the size of the 2022 corn crop. Acreage is down significantly from last year and yield estimates were reduced recently to 172.5 per acre. Barring a major shock on the demand side, feed prices are going to be a challenge for cattle operations this winter.

Perhaps the most important thing to remember is that cost of gain and value of gain are correlated. Feedlots prefer to place heavier feeder cattle when feed prices are high, so the price discount on higher weights gets smaller. This narrowing of price slides increases the value of additional pounds when feeder cattle are sold. Opportunities can still exist in high feed price markets depending on cattle price dynamics. Producers may find that opportunities to grow feeders still exist, especially if they can efficiently make use of alternative feeds. Along those same lines, producers need to make sure they distinguish between cost of feed and cost of gain. Cost per ton of feed really does not tell me much unless I know something about that feed’s ability to put weight on cattle. 

Finally, there are also implications for fall grazing. A quick glance at the drought monitor reveals how much variation exists across the country. While grazing costs have increased recently as well, they have not increased as much as purchased feed. So fall pasture is likely the most attractive feed that can utilize to add pounds. The current market also increases incentives to incorporate rotational grazing or strip grazing to increase the utilization of those forages.

Burdine, Kenny. “Livestock Feed Price Implications for Fall“. Southern Ag Today 2(39.2). September 20, 2022. Permalink