Weighing The Market

Wes Ishmael, Southern Livestock Standard

April 16, 2024

Avian Influenza adds market uncertainty

Supply fundamentals remain bullish despite recent pressure on Cattle Futures tied to Highly Pathogenic Avian Influenza (HPAI) in dairy cattle (see below).

Cattle price expectations continued to rise in March as cattle numbers decline.

Compared to the previous month, USDA’s Economic Research Service (ERS) increased the forecast feeder steer price (750-800 lbs., Oklahoma City) by $5 for the remainder of year in the March Livestock, Dairy and Poultry Outlook.

Based on lower projected corn prices and higher expected fed cattle prices, ERS increased the feeder steer price to $239/cwt. in the first quarter, $2247 in the second quarter, $261 in the third quarter and $267 in the fourth quarter for an annual average price of $253.50.

Likewise, compared to the previous month, ERS increased the forecast weighted average five-area direct fed steer price for the remainder of this year, in the March World Agricultural Supply and Demand Estimates.

Compared to the previous month, ERS increased projected prices $3 in the first quarter to $179/cwt., $3 in the second quarter to $183, $2 in the third quarter to $182 and $2 in the fourth quarter to $186. ERS increased the forecast annual average price $3 to $183. Prices were forecast higher on recent prices and firm demand for fed cattle.

Rocks on the trail

With that said, lingering high numbers of cattle on feed and more placements than expected applied price pressure heading into April. 

More days on feed, increased feeder cattle imports from Mexico and pulling cattle forward are among the factors underpinning persistently high feedlot inventories despite declining cattle numbers overall, according to Derrell Peel, Extension livestock marketing specialist at Oklahoma State University.

“One of the primary reasons that feedlot inventories have remained as high as they have so far is the continued placement and feeding of heifers,” according to Peel. “At some point, increased heifer retention will lead to more pronounced decreases in feedlot inventories, perhaps to levels similar to the 2014 low.”

Confirmation of HPAI in dairy cattle added uncertainty and rocked Cattle futures at the beginning of April. As of April 5, the virus was confirmed in dairy herds in six states: Kansas, Idaho, Michigan, New Mexico, Ohio and Texas.

Soon after the first confirmation in dairy cattle, the Texas Department of State Health Services (DSHS) reported the first human case of novel avian influenza A(H5N1) in the state.

“The patient became ill following contact with dairy cows presumed to be infected with avian influenza,” according to a DSHS statement. “The patient’s primary symptom was conjunctivitis. Avian influenza A(H5N1) viruses have only rarely been transmitted from person to person. As such, the risk to the general public is believed to be low; however, people with close contact with affected animals suspected of having avian influenza A(H5N1) have a higher risk of infection.”

There continues to be no concern about the safety of the commercial milk supply because products are pasteurized before entering the market, according to a statement from the Animal and Plant Health Inspection Services (APHIS).

“Dairies are required to send only milk from healthy animals into processing for human consumption; milk from impacted animals is being diverted or destroyed so that it does not enter the human food supply,” according to the AHIS statement. “In addition, pasteurization has continually proven to inactivate bacteria and viruses, like influenza, in milk. Pasteurization is required for any milk entering interstate commerce for human consumption.”

Analysts with the Livestock Marketing Information Center (LMIC) noted public perception is currently the primary concern.

“So far, no trading partners have backed away from U.S. dairy products as a whole but consumers may have a different view,” LMIC analysts say in a recent Livestock Monitor. “Public perception will also hinge on how the disease spreads within dairy herds and if virus mutations reach a level of public concern.”

Fundamentals remain strong

Even so, the same bullish price story remains based on supply fundamentals. Cattle prices are expected to strengthen this year and next, according to the recently released annual agricultural market baseline outlook from the Food and Agricultural Policy Research Institute at the University of Missouri (FAPRI). The outlook provides projections through 2033.

More specifically, FAPRI projects the five-area direct fed steer price at $178.57/cwt. this year, $184.59 next year and peaking in 2026 at $185.38. Prices then decline to $154.76 in 2033.

As for calves, basis 600-650-pound steers selling at Oklahoma City, prices are projected at $270.70/cwt. this year, $284.74 next year and peaking in 2026 at $286.19. Prices then decline to $224.71 in 2033.

Net returns per beef cows are projected to be $387.30 this year, $469.07 next year and $479.92 in 2026 and $426.31 in 2027. From there, returns decline to $218.71 in 2031 and the declining further to $182.06 in 2033.

However, FAPRI projects lower commodity prices overall.

The FAPRI outlook provides projections for agricultural and biofuel markets and serves as a point of reference for evaluating alternative scenarios for food and agricultural policy. It offers a summary of 10-year “baseline” projections for several economic indicators. 

Among other FAPRI outlook findings…

•Lower prices for farm inputs, such as fertilizer, partially offset lower prices but don’t offer enough relief to avoid declines in farmers’ net returns.

•Livestock producers can expect reduced feed costs due to lower corn and soybean prices, offsetting price and demand challenges faced in this sector.

            However, Cattle prices have been strengthened by drought and other factors and an upward trend is projected for 2024 and 2025.

•For consumers, food price inflation slowed in last year, and FAPRI’s report suggests that this trend could continue in 2024. The consumer price index for food is anticipated increase 2.1% in 2024, with the lion’s share of the increase coming from food away from home.

Southern Livestock

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