Livestock

Cash fed cattle prices were completed early this week, with prices in the North at $120 to $123 per cwt. live and $121 in the South. Dressed prices were quotes at $191 to $194. That's $5 per cwt. lower than last week on a live basis, and $8 to $10 per cwt. lower dressed. Those prices represent the largest weekly decline of the year, and erase much of the profits feedyards have found in closeouts this year. Feedyard margins last week were positive by about $125 per head, but lower cash prices this week will put margins around $50 per head. Increasing beef supplies and larger numbers of cattle on feed mean the market's leverage has clearly shifted away from feedlots. Packers remain in a solid position as the Choice beef cutout remained at $221.62 on Wednesday, down about $1.50 from last Friday. Still packers saw profits in excess of $150 per head last week, according to the Sterling Beef Profit Tracker, and lower cash prices for cattle this week should boost those margins. The industry knew beef production would increase this year, but recent data suggests the supplies could become burdensome in the very near future. Drought in the wheat pasture grazing region of the High Plains pushed cattle to feedyards early, resulting in a 9% increase in cattle on feed, and a 7% increase in placements. That's the largest placement of cattle on feed during February in nearly a dozen years. That comes at a time when USDA says beef production during January and February was already up 5.2% compared with last year, and it was the largest increase for those two months in 10 years. Today there are nearly a million more cattle on feed than last year. Adding to beef supplies, carcass weights through the first 10 weeks of this year are 2.3 pounds higher than last year and 15 pounds higher than the 5-year-average. Softer cash fed cattle prices and unattractive projected feeding margins on replacement cattle will weaken demand for feeder cattle. That's unwelcome news as the feeder cattle and calf market has already retreated 3% to 5% during March. For grazing programs, this year is likely to hold significant marketing challenges.

Frozen stocks of meat and poultry products show some diverging trends, especially when considered in the context of increasing U.S. production levels. In January and February, according to the latest Livestock Slaughter report from USDA's National Agricultural Statistics Service (NASS), U.S. output of beef was up 5.2% year-over-year. Beef production was the largest for those two months since 2008. January-February U.S. pork output this year increased 5.0% from a year ago and was record-large for that time frame. Chicken output also was record-large for those two months and rose 3.4% year-over-year. Even with large production levels, the U.S. frozen beef stock amount (per NASS monthly Cold Storage report) at the end of February was below a year earlier. As of February 28th, beef in cold storage dropped 8.4% year-over-year, reaching the lowest amount for that date since 2014. Frozen pork tonnage increased compared to the low level of a year ago, but remained below the prior 5-year average. Further, at the end of February, pork tonnage was the second lowest since 2011. Chicken in cold storage exceeded 900 million pounds for the first time in any month and posted a year-over-year jump of 15.2%. Red meat, especially beef, continues to move briskly through the marketing chain. But, chicken has struggled in that regard.

For the first time since 2006 the U.S. Department of Agriculture's Cattle on Feed report showed a year-over-year increase of 9%. The total inventory for 1,000 or more head feedlots was 11.72 million head on March 1, 2018. Last year there were 10.77 million cattle on feed at the same time. With one million more head in feedlots since last year it led to an increase of 9% in the inventory. The last report to show the same kind of growth was for October 2006. The report 11.5 years ago had similar numbers with 11.38 million head in feedlots on Oct. 1, 2006, an increase of 9% from the previous year's 10.49 million. In 2006, there were five non-consecutive months that reported increases of 8% or more. In 2018, the first three months and December 2017 all saw the feedlot inventory increase by 8% or more. For March 2018, Arizona leads the country in feedlot inventory increases with 18% more cattle reported, followed by California at 17%, Washington at 14%, Iowa at 12%, Texas at 10% and Nebraska at 10%. The top five states with the highest overall feedlot inventory were: Nebraska 2,690,000 head Texas 2,680,000 head Kansas 2,350,000 head Colorado 950,000 head Iowa 730,000 head In the most recent Cattle on Feed report February feeder placements rose 7% from the same time last year with 1.82 million entering yards. Placements were led by 700-799 lb. cattle at 537,000 head, followed by 800-899 lb. cattle at 420,000 head. California had the highest percentage climb in placements at 26% since last year. Fed cattle marketings for February were up 2% from 2017 at a total of 1.68 million head. Other disappearance totaled 57,000 head during February, 2% above 2017. As reported by Reuters, the live cattle futures market fell to a four month low prior to the report's release. April live cattle closed 2.100 cents per pound lower at 116.050 cents, and June ended 2.200 cents lower at 106.200. March feeders ended 1.825 cents per pound lower at 135.700 cents.

As of Feb. 1, 2018, the USDA's Cattle on Feed report showed there are 11.6 million head cattle and calves on feed, 8 percent higher than Feb. 2017 levels. The cattle herd has been growing with help from cheap feed, and Joe Vaclavik, president of Standard Grain, believes a tipping point could soon be on the way. The next two weeks, he told U.S. Farm Report host Tyne Morgan, will be "tight" in cash cattle. "The futures are telling you that things are going to loosen up after that, and once we get into June, July, August, we're really going to have a much better supply base to work with and we're going to be dealing with much lower prices," he said. This story isn't anything unique. Producers have heard this before, and prices have improved. "Is this the time where this wall of beef comes back to bite us?" said Vaclavik. "That's the million-dollar question. The futures say yes, but it's not guaranteed."

The sale of the world's largest cattle feeder has been finalized for approximately $200 million. Pinnacle Asset Management, L.P. and JBS USA announced the acquisition of Five Rivers Cattle Feeding was completed on March 16. Five Rivers will continue to supply cattle to JBS USA beef processing plants as part of a long-term agreement in conjunction with the sale agreement. The sale of Five Rivers was originally made public on Jan. 17, but was pending approval from JBS, Pinnacle Asset Management and a U.S. regulatory review. With all of those parameters met the deal has been finalized. Five Rivers Cattle Feeding is the largest cattle feeder in the world with an estimated total feeding capacity of 980,000 head of cattle. The feeding operation traces its roots back to the 1920s with the Monfort family and now has yards in Arizona, Colorado, Idaho, Kansas, Oklahoma and Texas. There are 11 feedlots total. Pinnacle Asset Management was founded in 2003 and is a New York-based asset management firm focused on global commodity markets. Pinnacle Asset Management is retaining the current management team from Five Rivers which includes CEO Mike Thoren, helping make the transition more seamless. "This is an exciting milestone in Five Rivers' long history and a testament to the more than 600 skilled professionals who comprise the Five Rivers team," Thoren says. Thoren adds that he is pleased to be continuing the relationship with JBS as the beef packer will be supplied by Five Rivers. Jason M. Kellman, Managing Partner and Chief Investment Officer of Pinnacle Asset Management, is happy the transaction has been completed and believes there are "significant opportunities for growth" at Five Rivers. "We look forward to working closely with Mike and his talented team to build upon Five River's position as the leading cattle feeding operation in the world. Additionally, this transaction furthers Pinnacle's mission to develop a diversified, global, physical commodity platform," Kellman says. Joradan Levi, managing member of Arcadia Asset Management and co-founder of the Fed Cattle Exchange, is also excited to partner with Pinnacle, Ospraie Management and Five Rivers. "Five Rivers has bright future and on behalf of Arcadia, we are proud to be involved with this tremendous business," Levi says. JBS's sale of Five Rivers Cattle Feeding is part of a divestment program that was announced last summer. The divestment of $1.8 billion from JBS S.A. holdings started after the Batista brothers, majority owners JBS's holding company J&F Investimentos, were assessed a leniency fine. The fine of $3.2 billion was for their involvement in a bribery scheme with Brazilian government officials and politicians. Following the bribery scandal Wesley and Joesley Batista were both formally accused of insider trading by Brazilian police. The bothers allegedly made illegal trades prior to arranging a plea deal for their admission to bribery. As part of the divestment plan JBS also sold off Five Rivers Cattle Feeding in Canada which included a 75,000 head feedlot and sold for nearly $40 million. This is the second major shakeup to a large U.S. packer-feedlot operation in the past year. In April 2017, Cargill sold its two remaining feedlots to Green Plains Inc. With the sale of Five Rivers finalized it means that none of the three largest beef packers (JBS, Tyson Foods and Cargill) have ownership of a cattle feeding operation.

Import data for all of 2017 shows that, consistent with past years, the U.S. is a relatively small importer of meat and dairy products. USDA import forecasts for 2018 show an extension of this tendency. In 2017, U.S. beef imports were 11.3% of total domestic disappearance. In 2018, forecasts for U.S. beef imports leave the ratio nearly unchanged (11%). The U.S. imports mostly lean beef from Australia, mainly for final use as hamburger and as an input to processed and prepared food products. For pork, imports accounted for 5.3% of disappearance last year. Based on forecasts, that ratio is expected to be somewhat smaller this year, 4.8%, due largely to increased domestic production. Most imported pork comes from Canada and the EU. Imports from Poland, in particular, have accelerated recently. Compared with beef, pork, and dairy products, lamb is exceptional in that imports typically account for more than half of domestic disappearance. Most U.S. lamb imports originate from Oceania. In 2017, imports made up about 64% of disappearance; this year, the ratio is expected to be slightly larger at 64.3%. For imported dairy products “most of which come from the EU and New Zealand”imports comprised about 2.9% of U.S. disappearance last year, on a milk-fat milk equivalent basis. The ratio of imports to disappearance based on dairy trade forecasts, is mostly unchanged for 2018, at 2.7%.

The Kansas Legislature wants to make it easier for large-volume poultry companies to operate within the Sunflower State. The Kansas State House of Representative approved by a 2-1 margin a bill that would allow farmers who use dry manure processing systems to raise up to one-third of a million birds per poultry farm before they would need a state health permit. The bill was previously passed by the Kansas Senate. Lawmakers hope the measure will make it easier for companies such as Tyson foods to operate within the state. Last year Tyson proposed a new facility near Tonganoxie in the northeast part of the state, but later cancelled those plans after protests from Tonganoxie residents. Tyson later announced plans to build that facility in Tennessee, but the company is reportedly still considering its options in Kansas. "We in Kansas take considerable pride in the fact that our farmers feed an ever-increasing share of the world's population, improving the quality of life thereof," said Rep. Les Mason (R-McPherson) in a written statement. "We also have become accustomed to being able to walk into our corner store and find a nearly limitless supply of food, fiber and protein to feed and nourish our own families. It's unrealistic to believe that either of those is sustainable if we limit the means of production." The bill now goes to Kansas' governor for his signature.

The January report from the U.S. Meat Export Federation (USMEF) showed Japan is maintaining a large appetite for U.S. beef products with January exports increasing 7 percent from 2017 volume levels and 19 percent in value. Japan is expected to lift its additional safeguard tariffs on U.S. frozen beef shipment the end of march, dropping the 50 percent tariff to 38.5 percent. This decrease is expected to make the U.S. more competitive with other countries, but it isn't as low as Australia's tariff with the island nation. "We feel we can deal with that tariff gap as it is right now, but we certainly don't want to experience the 50 percent tariff again," said Joe Schuele, communications director of the USMEF. Last week, Ted McKinney, USDA undersecretary, visited Japan and said the Japanese were eluding to removing the tariffs. "They're honorable people, and I'd be very disappointed if it didn't get lifted," he said.

The U.S. Department of Agriculture National Agricultural Statistics Service (NASS) reports U.S. and Canadian hog inventories were up by 2% for all hogs and pigs in December 2017, at a total of 87.6 million head. This is 2% higher than a year earlier and 6% higher than 2015. At 7.45 million head, the U.S. and Canadian breeding herd inventory was up 1% from a year earlier as well. Market hog inventory for the two countries was 80.1 million head, up 3% from last year and up 6% from 2015, NASS reported. The semi-annual pig crop, at 80.8 million head, was up 2 percent from 2016 and up 5 percent from 2015. Sows farrowing during this period totaled 7.47 million head, up 2 percent from last year and up 3 percent from 2015. U.S. Inventories Growing The U.S. inventory of all hogs and pigs was 73.2 million head on December 1 of last year, which was up 2% from December 1, 2016 but down slightly from the previous quarter on September 1, 2017. The breeding inventory, at 6.18 million head, was up 1% from last year, and up 1% from the previous quarter. Market hog inventory, at 67.1 million head, was up 2% from last year. The pig crop, at 33.4 million head, was up 3% from 2016 and up 8% from 2015. Canada is Higher, Too It appears the industry is growing at a slighter faster pace north of the border. Canadian inventory of all hogs and pigs on January 1, 2018 was 14.3 million head. This is 3% higher than January 1, 2017 and up 5% from January 1, 2016. The breeding inventory, at 1.27 million head, was up 1% from last year and up 3% from 2016. Canadian market hog inventory, at 13.1 million head, was up 3% from last year and up 5% from 2016. The semi-annual pig crop, at 14.3 million head, was up 1% from 2017 but down 3% from 2016. Sows farrowing during this period totaled 1.26 million head, up 3% from last year. New packing plants will help handle the additional volume of pigs in both countries, but export markets will be pivotal in maintaining profitability for pig farmers.