Marketing Updates Newsletter - Livestock Update

Dairy Farmer
10 Apr 2020

The United States Department of Agriculture’s World Agricultural Supply and Demand Estimates (WASDE) reports don’t typically see a ton of changes.  However, with the COVID-19 outbreak there’s been significant altering of food supply chains that is having dramatic effects on meat and dairy markets.  

There’s a lot to say about livestock markets right now, and at the hope of not getting to far in the weeds, I’m going to try to keep this to a very simple commentary and a summary of changes in price projection for the month. 


Meat

Here are a few takeaways across the meat industry:

  1. COVID-19 and its quick arrival did not alter production plans for animals currently being processed.  The sheer number of available animals, at least for this report, is unchanged.
  2. What has changed is eating habits, and to some extent, the stockpiling of food as people went under stay-at-home orders.  Previously, around half of the U.S. ate out regularly.  THAT IS A DIFFERENT FOOD SUPPLY CHAIN.  It is not a simple flip of the switch to change things over.  It is different cuts, different packaging, different transportation.  For instance, 50% lean trim was the number one selling beef product - and it was the main ingredient in fast food burgers.  People eating at home don’t typically eat 50% lean trim. Instead, they usually eat 80% or 90% lean.  Different process, different product, different package.  Food service is also more focused on higher end, more expensive cuts which aren’t the same as the kind of product that people would choose to stockpile at home.  The same is also very true for bacon.  Most of the nation’s bacon consumption was in a food service setting.  People love bacon, but they don’t usually stockpile it.  That’s why some plants are having to send pork bellies to rendering plants right now.  They are not set up to package and process the same way.  
  3. As of late you have seen weights for steers and hogs fall.  That seems counter intuitive, but the lack of profitability and concerns about getting animals processed in case a plant shuts down has likely pulled some ahead.  We are starting to see some slowdowns, first at a JBS plant in Pennsylvania but more locally two processors in Iowa have gone dark due to COVID outbreaks.  The Smithfield plant in South Dakota is going to go on a three-day shutdown for deep cleaning after an outbreak.  JBS in Greeley, Colorado and Grand Island, Nebraska are operating at half capacity. IBP also has two plants at 50%, and the rest at 60%.  There are a few different reasons, but all caused by COVID adjustments.  
  4. Hard to say just yet, but pork, as a total value of product, is likely going to be hurt the worst. This is reflected in the price changes released by the USDA. 

 

   2019 Estimate  2020 Estimate  Change From March
Steers $/cwt   $116.78  $111.08 -$3.17/cwt 
Hogs $/cwt  $47.95  $40.13  -$7.62
Broilers cents/lb  $0.886  $0.739  -$0.089
Turkeys cents/lb  $0.892  $1.0134  $0.031

 

Dairy

The summary for the meat section for the most part applies to dairy as well.  There isn’t a good way for dairies to store milk like grain farmers have for grain.  It’s a perishable food product.  Once processed, it has a shelf life but you still have to get to that point.  The cancellation by schools, restaurants, etc. creates more problems for dairy because it IS more perishable, at least in some forms.  That’s a really basic look at the problem. 

Dairy producers are coming off a few rough years. They very likely have less equity to work with. The USDA is expecting exports to decline and I have heard talk that the government could step in as a buyer for some of the food support programs (government cheese).  We’ll continue to watch and see how this unfolds.  I do want to note that Europe’s attempt to do the same several years ago resulted in a prolonged issue on the global market that makes people leery.  I don’t believe that we are going to see anything to that extent.  However, I would also add that while the impact of this was brutal due to the lack of storability and the huge initial impact to demand, the ability for this market to turn itself from a demand and processing standpoint is much quicker. Below are the summaries of price projections for dairy productions: 

   2019 Estimate 2020 Estimate Change from March
Cheese (per lb)  $1.76  $1.38 -$0.38
Butter (per lb)  $2.24  $1.43 -$0.41
Nonfat dry milk
(per lb)
 $1.04  $0.96 -$0.22
Dry whey (per lb)  $0.38  $0.35 -$0.01
Class III (cwt)  $16.96 $12.75 -$3.90
Class IV (cwt)  $16.30 $12.15 -$3.60
All milk (cwt)  $18.60 $14.35  -$3.90

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Katie Miller
Written By: Katie Tangen
Marketing Education Specialist