Livestock Takeaways from USDA’s Grain Stocks Report

Livestock Markets Post USDA Report 070620

Grain markets started the week with concerns of continued hot and dry weather. The concern pushed soybean futures toward 4-month highs. The weekly USDA Crop Progress Report showed U.S. soybeans rated “good to excellent” condition held unchanged at 71% with 10 states improving and seven states declining.

However, grain markets did react to the acreage adjustments by USDA. USDA called for a surprising 92 million acres of corn versus the near 97 million acres it expected back in March.

“[The number is] implying a 5-million-acre drop,” says Rich Nelson, chief strategist with Allendale. “This was the second largest drop on this June report since 1980. It even surpassed [the drop in] 1995 of 3 million acres. Definitely, a good surprise to the trade.”

Nelson says there is some information to take away to livestock producers.

“Producers already told USDA they planned six months straight ahead of lower than last year farrowings,” says Nelson. “This may actually exaggerate the decline in pork production seen for 2021.”

Nelson believes there are a lot of questions as to how aggressive cattle feeders will be marketing animals once the backlog is cleared up as well.

“[There’s] a big question for us on the cattle-feeder side. Will higher grain prices encourage them to still hold onto these animals?”

USDA’s last Cattle on Feed report showed cattle and calves on feed for the slaughter market in the United States for feedlots with capacity of 1,000 or more head totaled 11.7 million head on June 1, 2020. The inventory was slightly below June 1, 2019. This is the second highest June 1 inventory since the series began in 1996.

Placements in feedlots during May totaled 2.04 million head, 1% below 2019. Marketings of fed cattle during May totaled 1.50 million head, 28 percent below 2019. Marketings were the lowest for May since the series began in 1996.

A lot of attention was placed on whether stocks would decrease due to corn used for feed during the last report.

“We can subtract out what we know from the corn balance sheet to get that feed residual component,” says Ben Brown, an agricultural professor with The Ohio State University. “Given all the challenges we had on the livestock side the past couple months [and] moving animals through processing facilities, a lot of attention is placed on that feed residual category.

Brown says once you do the math, the feed residual use is a lot lower than what most people were expecting.

“I think this will have implications for corn use to the marketing year as we look ahead,” Brown says.

Listen to the analysis here.