Howard County Ag. Day: Beef Cow Economics

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1 Howard County Ag. Day: Beef Cow Economics Coordinated by: Presented by: October 10, 2013 Big Spring, TX Tommy Yeater, Howard County CEA AG Bill Thompson, Extension Economist, San Angelo, TX

2 Today s Agenda Cow/Calf Economics Cost of production Price outlook Rainfall Insurance Annual Forage Very similar to PRF Insurance

3 centralagricultural economics/

4 centralagricultural economics/

5 centralagricultural economics/

6 Cow/Calf Producer Beef Cattle Economics Stockers/ Backgrounders Feedlots Packers Retail Market Feed Fixed costs Weather (see feed) Labor (see fixed costs) Asset Management Operation: $3,190/Cow Cost basis $7,687/Cow Market value Return on Assets (ROA) All are margin operations Absolutely necessary to get: product to consumers and $ to Cow/calf producers All must make a profit to remain in business General Economy: Unemployment Personal income Inflation Interest Rates etc. etc. Competing Proteins Consumer Preferences Diets Animal rights/welfare Food Borne Illness

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8 Cow/Calf Producer Beef Cattle Economics Stockers/ Backgrounders Feedlots Packers Retail Market Feed Fixed costs Weather (see feed) Labor (see fixed costs) Asset Management Operation: $3,190/Cow Cost basis $7,687/Cow Market value Return on Assets (ROA) All are margin operations Absolutely necessary to get: product to consumers and $ to Cow/calf producers All must make a profit to remain in business General Economy: Unemployment Personal income Inflation Interest Rates etc. etc. Competing Proteins Consumer Preferences Diets Animal rights/welfare Food Borne Illness Competition Retailers

9 Calf Markets Competition among feedlots Per Capita Beef Supplies Export Demand (Mexico and Japan) Effects of Corn markets

10 450 lb Steer Prices $210 $200 $190 $180 Price ($/Cwt. $170 $160 $150 $140 $130 $120 $ Yr AVG 10 Yr Avg Cattle Fax Data

11 750 lb Steer Prices $165 $155 $145 Price ($/Cwt. $135 $125 $115 $105 $ Yr AVG 10 Yr Avg Cattle Fax Data

12 Calf Prices Both 12 and 13 well above long term averages See the impact of corn on both markets

13 Calf Prices Cow herd is likely smallest in post WWII era. Small herd, Small calf crop Supply per capita small This will shrink further if/when actual expansion takes place Mil. Head JANUARY 1 BEEF COW INVENTORY U.S., Annual We need every bit of these price levels

14 Projections for Planning Purposes Only -- Not to be Used without Updating 2014 Estimated Costs and Returns per Breeding Female Cow-Calf Native Pasture Cows West Central Extension District - 7 Breeding Females 100 Quantity Enterprise REVENUE Head Per Head Units $/Unit Total Total Weaned Steer Calf CWT $ $ $43, Weaned Heifer Calf CWT $ $ $25, Cull Cow CWT $73.50 $99.23 $9, Cull Bull CWT $76.50 $13.77 $1, Total Revenue $ $80,850.50

15 Enterprise VARIABLE COSTS Quantity Units $/Unit Total Total Production Costs Miscellaneous Supplies 5 Head $3.00 $15.00 $1, Predator Control - Cattle 1 Head $3.85 $3.85 $ Brush Control 30 Acre $1.00 $30.00 $3, PRF Rainfall Ins 30 Acre $0.85 $25.50 $2, Marketing Expense 1.00 Head $21.53 $21.53 $2, Feed Salt & Minerals 49.2 Pounds $0.55 $26.91 $2, Hay 0.3 Ton $ $49.50 $4, Range Cubes 1.2 CWT $19.40 $23.28 $2, Vet. Medicine 1 Head $18.88 $18.88 $1, Fuel 1.0 Head $67.80 $67.80 $6, Lube (As a % of fuel) 10.0% Percent $67.80 $6.78 $ Repairs 1 Head $66.92 $66.92 $6, Labor 0.40 Hours $15.00 $6.00 $ Utilities 1.00 Head $24.00 $24.00 $2, Interest on Credit Line 4.00% $12.87 $1, Total Variable Costs $ $39, Planned Returns Above Variable Costs: $ $40, Average Steer-Heifer Breakeven Price to Cover Variable Costs $75.57 CWT

16 Enterprise FIXED COSTS Quantity Units $/Unit Total Total Depreciation - Equipment 1 Head $67.18 $67.18 $6, Depreciation - Livestock 1 Head $13.20 $13.20 $1, Equipment Investment $2, dollars 3.75% $ $11, Native Pasture Rent 30 Acres $4.00 $ $12, Total Fixed Costs $ $31, Total Costs $ $71, Planned Returns to Management, Risk, and Profit: $96.90 $9, Average Steer-Heifer Breakeven Price to Cover Total Costs $ CWT

17 Break Even Sensitivity Analysis Weaning % Gross Sales per Cow Lbs Produced per Cow Break Even Calf Pay weight Break Even Price to Cover Total Cost 91% $ $ % $ $ % $ $ % $ $ % $ $173.07

18 Questions So Far?

19 Cow/Calf Producer Beef Cattle Economics Stockers/ Backgrounders Feedlots Packers Retail Market Feed Fixed costs Weather (see feed) Labor (see fixed costs) Asset Management Operation: $3,190/Cow Cost basis $7,687/Cow Market value Return on Assets (ROA) All are margin operations Absolutely necessary to get: product to consumers and $ to Cow/calf producers All must make a profit to remain in business General Economy: Unemployment Personal income Inflation Interest Rates etc. etc. Competing Proteins Consumer Preferences Diets Animal rights/welfare Food Borne Illness

20 BOXED BEEF CUTOUT VALUE Choice Lbs. Carcass, Weekly $ Per Cwt Avg JAN APR JUL OCT Livestock Marketing Information Center Data Source: USDA-AMS C-P-62 09/30/13

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27 Comments?

28 RI Annual Forage

29 All Counties in Texas are in the Pilot Program for the RI Annual Forage Insurance Program

30 Lot s of Resources Available Your Insurance Agent Publications Decision Aids AgForce, Inc Grid Locator

31 Annual Forage Annual plants seeded on planted acreage for forage or fodder Acres that are currently over seeded into permanent pastures are covered by PRF, so these annual forages are not covered here. For those plowed or cultivated acres not established in permanent forages.

32 Annual Forage Include but are not limited to: Winter small grains, such as wheat, oats, rye, triticale, or blends with other annuals like ryegrass, turnip seed, etc. Spring plantings of sudan, haygrazer, millett, others and blends There is no distinction between summer or winter annuals

33 One Crop Year and Two Growing Seasons Sep 1, 2013 Growing Season 1 (GS1) Mar 31, 2014 The Annual Forage Crop Year is September 1, 2013 through September 30, 2014 Growing Season 2 (GS2) Mar 1, 2014 Sep 30, 2014

34 Annual Forage Growing Seasons Both Growing Seasons are 7 months long with six available two month intervals to choose from

35 Growing Season 1 Sep 1, 2013 Growing Season 1 (GS1) Sep-Oct (I9) Oct-Nov (I10) Nov-Dec (I11) Dec-Jan (I12) Jan-Feb (I1) Mar 31, 2014 Feb-Mar (I2)

36 Growing Season 2 Mar 1, 2014 Growing Season 2 (GS2) Mar-Apr (I3) Apr-May (I4) May-Jun (I5) Jun-Jul (I6) Jul-Aug (I7) Sep 30, 2014 Aug-Sep (I8)

37 Each Growing Season has its own Sales Application Sales Closing Date Planted on or after Date Planted on or before Date Acreage Report Acreage Report Date; However, both growing seasons have one Premium Billing date, August 30, 2014

38 Texas Growing Season Dates Dates Growing Season 1 Growing Season 2 Sales Closing July, 15, 2013 December 15, 2013 Early on or after planting date July 15,2013 December 15, 2013 Later on or before planting date December 15, 2013 July 15, 2014 Acreage Reporting date 1) W TX & Panhandle, December 15, 2013 Rest of Texas, January 15, 2014 July 15, 2014

39 A Jones County Stocker/Small Grain Grazing Example 1,000 acres in Grid # County Value (from RMA) = $108.26/ac My pasture is better than yours => Protection Factor I choose = 150% Coverage Level = 90% My Protection Level per acre = $146.15/ac

40 A Jones County Stocker/Small Grain Grazing Example Grid 15421

41 A Jones County Stocker/Small Grain Grazing Example County Base Value Determined value by RMA USDA Same value for the entire county District Values, Texas has 16 districts Far East Texas: $ Far West Texas: $ The same for both growing seasons

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43 A Jones County Stocker/Small Grain Grazing Example Protection Factor Allows you to adjust your County Base Value by a factor of between 60% to 150% You adjust this to fit your operation i.e., my Jones County ground has had a better fertilizer program than average.

44 A Jones County Stocker/Small Grain Grazing Example Coverage Level Just like any other insurance product This is your deductible How much you are willing to forgo prior to you really needing insurance assistance Choose from 70% to 90% in 5 % increments Subsidized by the government 70% 75% 80% 85% 90% 59% 59% 55% 55% 51%

45 A Jones County Stocker/Small Grain Grazing Example 1,000 acres in Grid # County Value (from RMA) = $108.26/a My pasture is better than yours => Protection Factor I choose = 150% Coverage Level = 90% My Protection Level per acre = $146.15/a Total Coverage = $146,151

46 A Jones County Stocker/Small Grain Grazing Example When do you need the rain most to protect my $146,151? Six 2 month intervals Chose at least three Cannot have the same month twice Cannot have more than 40% in any interval Sep/Oct Oct/Nov Nov/Dec Dec/Jan Jan/Feb Feb/Mar

47 Six 2 Month Intervals Sep/Oct Oct/Nov Nov/Dec Dec/Jan Jan/Feb Feb/Mar Sep/Oct Oct/Nov

48 A Jones County Stocker/Small Grain Grazing Example When do you need the rain for the pasture for the stockers? 2 month intervals Chose at least three Of the total value, I put: 33% in Sep/Oct 0% in Oct/Nov 33% in Nov/Dec 0% in Dec/Jan 34% in Jan/Feb 0% in Feb/Mar

49 A Jones County Stocker/Small Grain Grazing Example Would I have gotten a payment in 2012/13? If the rainfall falls below your coverage level (90% in example) during any of the 2 month intervals selected, you receive a payment equal to the difference between the amount of rainfall received in that interval (in percentage of long term rainfall) and your coverage level.

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51 Jones Co. Example: GS1,2013

52 Pretty near normal moisture to plant on, little moisture during the growing season. In this example, you are paid $50,880 ($50.88/a) for reduced gains from your stocker cattle.

53 Historical Per Acre Net Returns: Growing Season 1 Jones County Grid: Coverage Level: 90% Productivity Factor: 150% $80.00 $60.00 $40.00 $20.00 $/Ac $0.00 -$ $40.00 Positive returns 52% Average Indemnity $ 9.52 Year

54 Historical Per Acre Net Returns: Growing Season 2 Jones County Grid: Coverage Level: 90% Productivity Factor: 150% $ $ $80.00 $60.00 $40.00 $/Ac $20.00 $0.00 -$ $40.00 Positive returns 55% Average Indemnity $ 8.10 Year

55 Other Specifics Cannot insure wheat under both a yield protection policy and annual forage policy in the same crop year. When an indemnity is owed, it will not be issued prior to the applicable Acreage Report Date (12/15/13 in Jones County)

56 Acreage Reporting Acreage Report must include for each growing season: Share Intended Use Annual forage commodity Planting Date Grid ID FSA Farm, Tract, Field Number

57 What about the 2 nd Growing Season? Works the same except March 1, 2014 through September 30, 2014 Insurance for summer annuals Haygrazer

58 Why? Subsidized by the Government 51% to 59% of the premium is paid by the government. Very few production risk management tools have existed in the past for livestock producers. Administration Fee

59 Finding Help Crop Insurance Agent (best bet) Risk Management Agency Look for Annual Forage Rainfall Index ( vi/annualforage.html) Everything you need to know about it is there.

60 Give me a call or an Bill Thompson Texas A&M AgriLife Extension Economist San Angelo, TX w