It is fall roundup time, and cattle feeders are paying ever-higher prices for placements in the face of a bumper crop of corn, coupled with the smallest calf crop coming to market in at least five decades.
As of July 1, the U.S. All Cattle and Calf Inventory (beef and dairy) was 95 million head — down 3 percent from last year and the lowest since 1973. There were fewer cattle of all classes, except a 1 percent increase in milk cow numbers.
Interestingly, dairy replacement heifer numbers were down 5 percent while beef replacement heifers were down 2 percent. We saw the USDA grapple with dairy herd numbers in its October monthly Milk Production Report, revising below its earlier estimates the final number of cows on farms during the July through September period. Still, third quarter milk production totals 51 billion pounds — up 3.5 percent from the July-September period a year ago.
With fewer heifers available to retain, dairy and beef producers are holding on to their cows. This has reduced cow slaughter to levels far below rates of the past two years. Fast food restaurants are being criticized for importing lean ground beef from Australia and New Zealand, but there’s simply not enough lean cull cow beef available in the U.S. to meet the demand. In fact, total U.S. beef inventories are 26 percent below a year ago.
Even the leanest grades of cull cows have continued to bring average prices of $1 per pound ($100 per 100-lb. liveweight) on auction markets in the eastern states. Top quality culls average $118 and Choice fat steers average in the $165 range.
While the beef market is surging higher well into October, the dairy complex is on a downward slide after hitting all-time record highs in September. Butter prices had crested at $3.06/lb., then slid over $1/lb. during the first two weeks of October, hitting $2.03/lb. on the CME Group spot cash market in Chicago on Oct. 21. Milk powder prices also plummeted to $1.31/lb. after straining for the elusive $1.40 mark through August and September.
CME cheese prices, on the other hand, moved erratically higher in October after stagnating in butter’s market-topping shadow all summer. The spot Cheddar market on the CME is split as of mid-October: 40-lb. blocks rallied to $2.32/lb., while 500-lb. commercial barrel cheese moved lower to $2.03.
Butter’s fall from lofty heights was somewhat predictable. At $2.03/lb., it is still a good price by historical standards — and remains above the world price.
In that $1 to 1.50/lb. difference between U.S. and global butter prices during August — 20 percent more butter imports found their home here than a year ago, according to the USDA Foreign Agriculture Service (FAS) reports. At the same time, U.S. butter exports fell 59 percent below year ago during August. This was due not just to the higher U.S. price in comparison to the world price, but also a lack of stored butter inventory available to export in the first place.
Butter churns are beginning to ramp up in early October as more cream becomes available. The January through August butter production was 2.3 percent lower than the same period a year ago, according to USDA. A combination of better weather and better forage has cows “milking like crazy” in the Northeast and Midwest this fall — helping to push per-cow output to its highest levels since 2003. Components are also improving, which should increase near term butter and cheese yields.
Meanwhile, some retailers balked at the high September wholesale butter prices and put off their holiday supply purchases to see if lower prices materialized, according to USDA Dairy Market News reports.
Retail butter is topping $4 per pound on its way to $5 as grocers have taken particular notice to their wholesale costs in September averaging $2.97/lb. As they prepare the in-store holiday promotion circulars 6 to 8 weeks in advance for printing, they are realizing the promotion ploy of drawing large holiday shopping orders by offering butter as a 2-for and buy-one-get-one-free (BOGO) is going to cost them dearly this year. We shall soon see how strong the new-found consumer demand stays for butter, if they are asked to pay the full retail price. Or will grocers continue the tradition of filling the dairy case with ample supplies of butter for pre-holiday “BOGOing”?
According to USDA Dairy Market News, U.S. cheese output is also starting to trend higher and imports year-to-date through August are up 29 percent from the same period a year ago.
The important economic indicator putting legs on the bold beef market and feet under the unsteady dairy market is the fact that the nation’s cattle herd continues to number below expectations.
U.S. milk prices advanced $1/cwt for the Sept-October period compared with the June-July high-point. The September All-Milk price hit $25 with protein at $3.50/lb. and butterfat $3.25/lb. Near term Class III milk contracts on the CME futures markets were also averaging $1 higher in mid-October compared with mid-July; however, the first nine months of 2015 contracts lost $1 in that same comparison.
Comparing October 2014 to July 2014 prices, dairy replacements are running $300 per head higher. Fed steers are steady, and feeder cattle are a good $25 higher on a per-100-lb. liveweight basis. Cull dairy cows are $5 higher, and Return-to-farm Holstein bull calves are a whopping $75 per head higher. Beef breed heifer replacements (bred) are $500 per head higher.
October Class I ‘mover’ – $24.19
Sept. All-Milk Price – $25
Sept. Protein – $3.50
Sept. Butterfat – $3.25
CME Group Exchange: Average of October-December 2014 futures contracts as of Oct. 21
Class III – $21.67
Class IV – $19.25
CME Group Exchange: Average of Jan.-Sept. 2015 futures contracts as of Oct. 21
Class III – $17.28
Class IV – $16.94
About the Author: Sherry Bunting is a member of North American Agriculture Journalists. She can be reached at firstname.lastname@example.org .