By Matthew Diersen
The dry conditions in the western U.S. continue to bring long-run uncertainty to cattle price prospects. Feed costs tied to grain prices have increased steadily over the past six months, largely tied to strong export markets for corn and soybeans. A look at hay prices suggests that market has been responding differently. The NASS U.S. hay price for January 2021 of $157 per ton was up $2 per ton from January 2020. In the southwest, the prices in January were lower in Arizona, California and Colorado and higher in New Mexico compared to a year earlier. In the northwest, the price changes have been mixed (or not showing an obvious pattern). Across the plains states the prices were higher (except for a slight decrease in South Dakota), suggesting the area is the place to monitor prices moving forward should demand from the west increase further.
The next comprehensive measure of hay demand will be the May 1 (ending) stocks estimates released in mid-May. At the national level, the May 1 stocks projection by the LMIC is 19.5 million tons. That would be a slight reduction from the 2020 level, but greater than in 2018 and 2019, with prices inversely related to stocks levels. The LMIC model is annual and based on multiple factors to arrive at their projection. As an alternative, use or disappearance can be isolated by season, focusing on fall and winter disappearance. Fall disappearance is old crop plus production less December 1 stocks. In 2020 that was 63.2 million tons in the U.S. and slightly above the typical amount used given the available supply. Thus, fall disappearance was a little high. December 1 stocks, as a result, were at 84.0 million tons, down slightly from 2019. Winter use last year was generally low relative to the December 1, 2019 stocks level. Winter use tends to be 75 percent of December 1 stocks plus a few million tons. That implies a typical winter use of 66.6 million tons for 2020/2021, implying May 1 stocks of only 17.4 million tons. Actual May 1 stocks below that amount would indicate strong demand, a tenuous ending stocks situation, and sharply higher price expectations.
Another less familiar metric to follow related to the feed situation would be indemnities tied to Pasture, Rangeland, and Forage (PRF) insurance. The first insurance interval, January-February, just ended so indemnities are expected soon in affected areas with coverage. For calendar year 2021 there are 201 million acres insured nationally, compared to 160 million acres insured in 2020. Over half of those acres are in Nevada, Texas, Arizona and New Mexico. During 2020 there were large indemnity payments in those and neighboring states. Both 85% and 90% coverage levels are common with PRF insurance. While the growth in acres insured was large, pasture remains a relatively less-insured crop. If PRF is not utilized, producers may be covering pasture with Noninsured Crop Disaster Assistance Program (NAP) coverage. However the acres protected under that program are not transparent. A final related metric would be eligibility maps covering the Livestock Forage Program (LFP), where payments are tied to drought monitor severity and currently show the extent of on-going pasture stress in the southwest U.S.Source : osu.edu