Cow/Calf Expansion Considerations

Transcription

1 Louisiana Cattle Market Update Friday, October 26 th, 2012 Ross Pruitt, Dep a rtment of Agric ultura l Ec onomic s a nd Agrib usiness LSU Ag Center Cow/Calf Expansion Considerations The October Cattle on Feed report from USDA NASS was the second report in a row with total cattle on feed below year ago levels. This trend is likely to continue for the foreseeable future due to declining calf crops over the past few years and high costs of gain which will encourage the use of forage as a relatively cheaper substitute to expensive grains. USDA s initial estimate for the 2012 calf crop is 34.5 million head which is approximately 800,000 fewer calves than last year. With early estimates of beef cows to start 2013 at 29.3 to 29.5 million (400,000 to 600,000 lower than the beginning of this year) combined with larger than year ago dairy cow slaughter, the 2013 calf crop should be less than 34 million calves. Fewer calves and cows result in higher prices with the strength of demand beef impacting how high those prices go. The graph below for replacement females at the Oklahoma City Stockyards shows that prices have been moving higher, but have been limited by pasture conditions. Prices at private sales have been higher, but do reflect a different set of buyers and possibly genetic potential of replacement females. As producers continue to consider the potential returns associated with expansion, there are some additional points to remember. The cost to expand in terms of purchasing replacement females (or developing your own) will be higher but calf prices will be higher to help offset the increased investment cost. As the costs and returns are penciled out, producers should not forget that the salvage or cull value of replacement females needs to be raised. This has the potential to change the decision on whether to invest in a replacement female as the days of culls bringing $35 to $45/cwt are gone. There are fewer cows out there which is supportive of overall prices as well as tight supplies of lean beef trim. The supplies of lean beef trim tightened as a result of consumer rejection of lean finely textured beef. Prices for lean ground beef trimmings have held steady above $200/cwt for most of the year. The other point to consider is managing costs. Producers have more control over their cost structure than the price received when cattle are sold. Thorough analysis and understanding of the costs of production will highlight areas where the operation can save money. Over the productive life of a female, for every dollar in reduction of annual cow costs a $4 to $5 increase in the value of the female occurs. That is an important point when the rise in costs more often than not exceeds the increase in revenues.

2 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Dollars per Head Week Ending Friday, October 26, 2012 MONTHLY OKLAHOMA CITY REPLACEMENT FEMALE PRICES $1,700 $1,500 $1,300 $1,100 $900 Bred Cows Cow Pairs Bred Heifers $700 Source: USDA AMS, compiled by Livestock Marketing Information Center Corn futures moved lower on the week due to lack of fresh market news and bearish export demand. Pressure from outside markets during the week also contributed to corn futures moving lower. Live cattle futures were lower on the week. Support from the October Cattle on Feed report was present on Monday, but eroded on Tuesday. Outside markets and resistance in the boxed beef cutout contributed to the decline in live cattle futures. The price of boxed beef has risen in the past month, but its inability to close about $200/cwt is of concern, but not surprising given the overall state of the economy and relatively cheaper chicken and pork. Although feedlot marketings have been lower than a year for the past two months, dressed weights are 15 to 20 pounds heavier than a year ago, offsetting reduced marketings. The long term outlook for live cattle futures is higher, but these factors are limiting the upside in nearby contracts. Feeder cattle futures were lower on the week from spillover weakness in the live cattle pit. Cash fed cattle trade moderate on moderate demand this week. Prices on a live basis were anywhere from $0.50/cwt lower than last week (Texas) to $1 to $1.50/cwt higher (Iowa and Nebraska). Cash prices in Iowa were $126 to $126.50/cwt, $127/cwt in Kansas and Texas, and $127 to $128/cwt in Colorado and Nebraska. Dressed prices ranged from $196/cwt in Iowa to $202/cwt in Kansas.

3 $/Cwt $/Cwt Week Ending Friday, October 26, 2012 Feeder Steer Prices* $200 $150 $100 $50 $ lbs lbs lbs $ $ $ $ $ $ $ $ $ *Prices are for Medium and Large 1-2 Steers **Mississippi prices are for midpoint of and steers Note zero values in table represent no reported sales for that weight group. Source: USDA AMS Mississippi Cull Cow Prices $80 $75 $70 $65 $60 Breaking Boning Lean This Week $74.00 $77.00 $68.00 Last Week $71.00 $75.00 $67.00 This Week Last Week Source: USDA AMS

4 Week Ending Friday, October 26, 2012 Table 1. Futures Prices Live Feeder Month Cattle Change* Cattle Change* Corn Change* October $ November $ December $ /4-23 3/4 January $ February $ March $ /4-19 3/4 April $ $ May $ /4 June $ July 729 3/4-16 August $ $ September $ /2-5 Source: DTN * Change is from the previous Friday s close

5 Week Ending Friday, October 26, 2012 Table 2. State and National Market Information Commodity This Week Last Week Last Year 5 Area Fed Steer Price Live $ $ $ Dressed $ $ $ Oklahoma City Feeder Cattle Prices cwt Med and Large #1 $ $ $ cwt Med and Large #1 $ $ $ Boxed Beef Cutout Values (weekly average) lb Choice cutout $ $ $ lb Select cutout $ $ $ U.S. Pork Cutout Value $ $ $ Georgia Dock Broilers $ $ $ Georgia B/S Breasts $ $ $ Georgia Leg Quarters $ $ $ Meat production (million lbs) Beef Pork Slaughter (1,000 head) Cattle Hogs 2,379 2,388 2,308 Broilers/Fryers 153, , ,831 Average Dressed Weight Cattle Hogs /20/ /13/ /22/2011 Poultry Placements (in thousands) 1 LA Broiler Egg Sets 3,298 3,304 3,349 US Broiler Egg Sets 177, , ,537 LA Broiler Chick Placements 2,700 2,845 2,807 US Broiler Chick Placements 154, , ,134 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.