Market Outlook - February 2018
The numbers show that traditional feedlots across the U.S. made economic profits of about $61.00 per head in 2017. The year started strong with profits in the first seven months, but finish weak with losses in the last five months. The 2017 of $61.00 per head profit followed the a $122 loss in 2016 and a $307.00 per head loss in 2015, which was the biggest annual loss in our data set which go back into the 1970’s. With breakeven prices for colored cattle the five 5 months of 2018 being in the $124-130/cwt range, it appears we may not see many economically profitable months in 2018.
However, feedlots in Michigan feed largely holstein steers, which don’t always follow the same drummer as colored cattle and certainly didn’t in 2017. While we don’t have data on Michigan holstein steer prices, there is some evidence that feedlots feeding holsteins did better than colored cattle in 2015 and 2016, relatively cheaper feeders, and strong basis’ really helped out. Unfortunately the Holstein basis fell apart in 2017, so if you didn’t have a basis or forward cash contract, you received significantly less than colored cattle. From 2010-2016 the price difference between choice beef steers and choice Holstein steers was $10-13, but average close to $26 in 2017.
After cow calf returns on average were positive for a sixth year in a row in 2015, then annual returns in 2016 averaged minus $20.91, but rebounded in 2017 to $69.08. In 2014 cow-calf returns over cash cost, including pasture rent, at $530.00 per cow, was the highest in our records going back into the 1970’s. And while dropping off to $301 per cow in 2015, which was still the second highest. At this point we are looking for returns to be about breakeven in 2018 and 2019.
January 1, 2018 Cattle Inventory Report, released January 31, for the fourth year in a row showed an increase, after seven years of decline. The Cattle Inventory Report is the one cattle report each year that includes all the states and all the cattle from all sizes of operations. The U.S. had 94.4 million head of cattle and calves as of January 1, 1% above 2017, but remember, 2013 was the smallest inventory since 1951. USDA estimated the total U.S. cowherd, including dairy, at 41.1 million head, up 1.0% from a year ago. Beef cows were reported at 31.7 million head, 2.0% larger than a year ago. Milk Cows at 9.4 million head were up 1% as well. USDA reported the 2017 calf crop at 35.81 million head, 2.0% larger than 2016.
Beef cow replacements on January 1, 2018 were 6.13 million head, down 4.0% from last year. The number of beef cow replacement heifers expected to calve in 2017 at 3.77 million head down 5.0%. Does this mean the end of the beef herd expansion after 4 years? Maybe? But the combination of the beef cow herd and replacements may lead to a slightly larger calf crop again in 2018, but less than 1%. While the kept replacement number is down, it is still a relatively high percent of the beef herd inventory.
As of January 1, 2018, the calculated available supply of feeder cattle outside feedlots was 26.11 million head, down 2.0% from January 1, 2017. This calculation is made by adding all the calves under 500 pounds together with the all the steers over 500 pounds and the heifers not kept as replacements, and then subtracting off all the cattle on feed. The lower supply of feeder cattle, despite a larger calf crop and fewer kept for replacements, can be explained by the the much higher number of cattle on feed.
Cattle on Feed in all feedlots January 1 were 14.0 million head, up 7.0% relative to last January 1. This was made up of 11.5 million head in feedlots of 1000 head, up 8%, which make up 82% of the total. And 2.5 million head in feedlots under 1000 head, up only 2%, and make up 18% of the total. The higher feedlot numbers were in the western cornbelt and in the larger cattle feeding states. Nebraska was up 12%, Texas was up 7%, Kansas was up 7%, and Iowa was up 9%. Illinois, Indiana, Michigan, and Ohio cattle on feed were all down.
The Monthly January 1 Cattle on Feed Report for Feedlots over 1000 head, released January 26, showed cattle on feed up 8%. The calculations above were derived from the total U.S. cattle on feed, 14 million, found in the inventory report, subtracting off the 11.5 million in over 1000 head feedlots, found in the monthly report, with the remainder being in under 1000 head feedlots.
Placements in feedlots during December totaled 1.80 million head, 1 percent above 2016. Net placements were 1.73 million head. During December, placements of cattle and calves weighing less than 600 pounds were 470,000 head, 600-699 pounds were 410,000 head, 700-799 pounds were 445,000 head, 800-899 pounds were 279,000 head, 900-999 pounds were 100,000 head, and 1,000 pounds and greater were 95,000 head. Marketings of fed cattle during December totaled 1.75 million head, 1 percent below 2016.
All cattle and calves in Michigan on January 1, 2018, were at 1,160,000 head, down 20,000 head, 2.0%. All cows that had calved were at 530,000 head, down 3.0%. Beef cows were down 15.0%, at 102,000 head, after being up 11% last year. Dairy cows numbers were 428,000, up 1.0%. Beef cow replacements were down 21,000 head, 4.0%, at 24,000, while dairy cow replacements were up 6,000 head, 3.5%, at 176,000 head. Michigan’s 2017 calf crop was 410,000, unchanged from last year. The survey does not distinguish between beef and dairy calves. Michigan had 140,000 cattle on feed January 1, down 3.0%, from last year and 17% from two years ago.
The other side of the story is demand, both domestic and exports. At this point demand for beef seems relatively good, helped by strong exports. But this is in the face of not only larger supplies of beef per capita being available in 2018, but also larger supplies of pork and poultry.
The following estimates for U.S. cattle production and prices are made in conjunction with the Livestock Marketing Information Center, which I belong to. It is a group supported by Universities to provide efficiencies, ie, less duplication of work by folks such as myself. U.S. commercial beef production is expected to be up 4.8% for 2018, as slaughter is expected to be up 3.6% with dressed weights being up 1.1% after being down 1.4% in 2017. Steer prices are expected to average in the $115-117 per cwt. range for 2018, down 4.5%, after averaging $121.52 for 2017. The 7-800# feeder steers are expected to average $142-146 per cwt. in 2018, down from $148.17 for 2017, with 5-600# feeder calves averaging $160-166 per cwt in 2018, versus $166.00 in 2017.
In the first quarter of 2018, commercial beef production is expected to be up 3.7%. Steer prices are expected to average $120-122 per cwt., with feeder steers averaging $148-151 per cwt., and feeder calves averaging $168-172 per cwt. In the second quarter, production is expected to be up 6.3%, with steer prices averaging $121-124 per cwt., feeder steers averaging $145-149 per cwt., and feeder calves averaging $166-171 per cwt.
In the third quarter, beef production is expected to be up 35.1%, with steer prices averaging $107-111, feeder steers averaging $138-143, and feeder calves averaging $157-163. In the fourth quarter, beef production is expected to be up 3.9%, with steer prices averaging $110-115, feeder prices averaging $136-142, and feeder calves averaging $149-158, all per cwt.
Originally published in Michigan Farm Bureau's Michigan Farm News