Production systems in the U.S. can be quite variable based on the differences in climates, soils, and other regional factors. Even with the differences in resources, the final product can be remarkably similar. Having spent the better part of the past month in Australia and New Zealand, an up close glimpse of their production realities has been afforded. Climatic and soil differences are very apparent between the three countries resulting in production systems that are different from the U.S. However, producers in all three countries face strikingly similar issues in terms of markets and risk.

One of the most obvious similarities across the three countries has been the presence of drought resulting in herd liquidation. This certainly has not been a desirable experience for producers in any country, but historic price levels in all three countries are now the result as world demand for protein is on an upswing. Drought conditions continue to be a factor in all three countries right now and foreign markets are an important outlet. The U.S. has benefitted from Australian and New Zealand liquidation with increased imports of lean ground beef which has helped moderate the rise in consumer beef prices domestically.

Even with the increased U.S. imports of beef, U.S. beef exports have accounted for approximately 10% of U.S. production in recent years. However, the importance of exports is greater in Australia and New Zealand. Due to the distance to major consumer markets in Australia, the price of cattle in the state of Queensland is very much tied to the export markets. Their exports markets are not just the U.S., but Asia and the Middle East. New Zealand is in a similar position due to the small size of its domestic population and is especially true for its dairy production. As is often the case with exports, shipments are heavily influenced by cost of production and New Zealand has one of the lowest costs of production for dairy products. A shift from sheep and beef to dairy resulted from this comparative advantage over the past couple of decades.

Another similarity present in all three countries is concern over the age of farmers and how to bring the next generation of farmers into the business. Laws in each country prevent there from being a one size fits all solution to this problem. Approaches to this issue are varied as the cultures are similar but very distinct in all three countries. For example, the native Maori in New Zealand have a sizable landholding in the country, but don’t believe in interest. As a result, they don’t use debt and have a very long term view of how to manage. Returns are important but don’t follow the typical U.S. business model. Additionally, the use of share milking in New Zealand is prevalent which allows younger individuals an opportunity to earn money to put towards farming while gaining important experience.

Finally, consumers are an ever present factor in all three countries. Like the U.S., consumers in Australia and New Zealand can be several generations removed from the farm resulting in misunderstandings about what truly occurs on an agricultural operation. Individuals involved in production agriculture is also small relative to the entire population resulting in changing consumer demographics that want to be catered to in terms of the attributes of food purchased. Tied into more consumers without direct experience on farms is the increased environmental regulations. Australia and New Zealand may be slightly ahead of the U.S. in this regards and may provide a glimpse of the future with regards to environmental regulations faced by U.S. producers.

Regardless of the part of the world that one finds themselves in, agriculture will almost certainly be found. It may look and feel different, but many issues faced by U.S. producers are present in other countries.

February USDA NASS Cattle on Feed Report summary:                                   Pre-Report Estimates

                                                     1,000 head                % of Prior Year                         Avg.                       Range

Placed in January                         1,787                                   88.7                                  86.3                  83.0 – 92.0            

Marketed in January                  1,625                                   90.9                                  91.2                  90.5 – 94.0

On Feed February 1                 10,711                                 100.3                               100.0                 99.5 – 100.5
This month’s report was largely in line with the pre-report expectations. Placements this year were measured against an abnormally large surge last year tied to the Pacific Coast drought. Compared to the five year average for January, placements were 5% smaller. Placements were down for every weight category by at least 14% except the over 800 pound category (up 3%). Total number of feedlots during 2014 were down slightly from 2013 as there were slightly fewer 1,000+ capacity feedlots.. Total estimated capacity of feedlots with at least 1,000 head is 16.9 million in 2015, down 100,000 from 2014.

Corn futures were lower on the week with information released by USDA at its Ag Outlook Forum being viewed as neutral by the market. Investors continue to decrease their net long holdings while lower crude prices are keeping pressure on ethanol prices.

Live cattle futures were lower on the week as concern over meat demand continues to be on the forefront of traders’ minds. Trading was lower on Tuesday and Friday which offset the gains seen during the other days as cash sales were lower than expected. Feeder cattle futures were pressured lower from the losses in live cattle futures.

Cash fed cattle trade was light to moderate during the week.  Live prices were $159/cwt to $160/cwt, about a $3/cwt decline from the previous week. Dressed sales ranged from $253/cwt to $258/cwt, with most sales at $254/cwt.

*Prices are for Medium and Large 1-2 Steers
**Mississippi prices are for midpoint of 400-500 and 500-600 pound steers
Note zero values in table represent no reported sales for that weight group.
Source: USDA AMS

Table 1.  Futures Prices

 

Live

 

Feeder

 

 

 

Month

Cattle

Change*

Cattle

Change*

Corn

Change*

February

 $      156.70

-3.30

 

 

 

 

March

 

 

 $     199.18

-4.67

385 1/4

-2   

April

 $      148.53

-4.70

 $     198.35

-4.90

 

 

May

 

 

 $     197.83

-4.70

393   

-2 1/4

June

 $      141.88

-4.15

 

 

 

 

July

 

 

 

 

400 1/2

-2 1/4

August

 $      140.80

-3.20

 $     201.00

-3.97

 

 

September

 

 

 $     200.38

-4.13

407 1/2

-1 3/4

October

 $      143.45

-2.88

 $     199.10

-3.93

 

 

November

 

 

 $     197.53

-4.22

 

 

December

 $      144.05

-2.70

 

 

416 1/4

-1 1/4

January

 

 

 $     193.73

-4.35

 

 

Source: DTN
* Change is from the previous Friday’s close

Table 2.  State and National Market Information
Source: USDA Agricultural Marketing Service, USDA National Agricultural Statistics Service and Livestock Marketing Information Center
1 Note the placements numbers are lagged by one week prior to publishing.