Factors affecting the price of feeder cattle in New York

Transcription

1 Factors affecting the price of feeder cattle in New York Michael J. Baker, Matthew LeRoux, Todd Schmit, Gordana Jacimovski January 31, 2013 Cornell University As the New York dairy industry continues to move to land more suited for row crop production, there is a growing amount of land available for grazing ruminants (2011). With the national cow herd inventory at the lowest level since the 1950 s, there appears to be an economic opportunity to build the state s beef cow herd. That being said, producers interested in expanding their herds need objective data on the prices that affect the price of feeder cattle to make develop a business plan which reduces income risk. Several authors have described the factors that affect the price of feeder cattle (Ward, Ratcliff et al. 2005; Troxel and Barham 2007). The Agricultural Marketing Service of USDA has developed three general value determining characteristics - frame size, thickness and thriftiness which can be used to describe feeder cattle (2000). Schultz, et al., (2009) developed a decision making model for evaluating the factors which are under producer control that affect the price of feeder cattle in Kansas and Missouri. However, these authors state that as the data is unique to Kansas and Missouri, caution must be used in interpreting the results in other states. As similar data does not exist for New York feeder cattle, producers don t have this important information that can be used to guide their production and management decisions. States with larger beef cattle populations have price collecting services supported by the USDA Agricultural Marketing Service and can be found at New York however does not have an objective method of collecting data on the price paid for feeder cattle. This objective of this study was to

2 determine the genetic, management and physical factors that affect the price of feeder cattle in New York. A technician was trained to collect market data from special feeder calf sales at Finger Lakes Livestock Exchange, Canandaigua, NY. Data was collected Fall 2011 (6 sales), Spring 2012 (3 sales) and Fall 2012 (7 sales). Data recorded included time, number of head, lot weight, sex, color, pre-conditioned or not, presence of horns, body condition score, frame, thriftiness, uniformity of breed, muscle and weight, color, buyer and price. Data was collected on 3,227 lots comprising 7,893 head. At each sale there was average of 218 lots, 540 cattle and 52 buyers (Table 1). Table 1. Summary statistics Variable Average SD Minimum Maximum Lots Cattle Buyers The greatest number of lots and cattle occurred later in the fall marketing season, which is an artifact of New York s spring calving herd. While data was collected on dairy and beef breeds, only beef breed data is reported. Summary statistics is shown in Table 2. The average price over the 16 sales was $1.18/lb with a very large range indicating the extreme range in quality. A challenge to marketing feeder cattle in New York is the small lot size (2.5 head) and that over 50% of the lots were single head lots. These increases Table 2. Summary statistics, beef breeds only Variable Mean SD Minimum Maximum Price, $/lb Average weight, lb Lot size, #hd Single head lots, % 50.5 Preconditioned, % 41.6

3 Steers, % 39.4 Heifers, % 41.6 Bulls, % 18.7 the cost of procuring tractor trailer loads of cattle. Encouraging was the fact that over 41% of the cattle sold were sold with some degree of pre-conditioning. The definition of pre-conditioning is not standard, but many of the lots were announced with what vaccinations had been administered. This increases buyer confidence in health status of the cattle. The distribution of weights is shown in Figure 1. The bulk of the cattle (46%) weighed between lbs and is typical of the distribution expected in a spring calving herd. Figure 1 Distribution of average weight (lb/hd), 3227 lots Price received for feeder cattle can be impacted by genetics and management. Breed is the first genetic factor evaluated. Using Hereford as the base, premiums and discounts were computed (Table 3). Over half (56.7%) of the lots evaluated were Angus. All effects were significant and resulted in a premium to the Hereford breed of $7.0/cwt. to $12.2/cwt. Table 3. Genetic factors affecting price of feeder cattle 1 Characteristic Price differential, $/cwt 2 % of pens Color Black 12.2* 56.7 Red 8.0* 12.0

4 Hereford Base 15.9 Brown 6.9* 2.0 White 10.3* 2.6 Mixed 7.0* Model 2 2 Indicates statistical difference from base P < 0.05 The effect of muscling is shown in Table 4. Light muscled cattle, which only made up 6% of the pens were discounted nearly $16/cwt while heavy muscled cattle received a premium of $5.9/cwt over those with medium muscling. Table 4. Genetic factors affecting price of feeder cattle 1 Characteristic Price differential, $/cwt 2 % of pens Muscle Medium Base 74.0 Heavy 5.9* 20.0 Light -15.9* Model 2 2 Indicates statistical difference from base P < 0.05 The influence that management has on the value of feeder cattle is shown in table 5. These data confirm that buyers discount horned cattle, those in thin body condition and considered unthrifty. Fortunately, the percent of cattle that fit in to those categories were low, which demonstrates that the quality of New York feeder cattle marketed is quite high. As stated before the percent of cattle with some level of pre-conditioning was 41.6% and buyers were willing to pay an additional $7.1/cwt for cattle that gave them some assurance of health. Table 5. Management factors affecting price of feeder cattle 1 Characteristic Price differential, $/cwt 2 % of pens No horns Base 95.6 Horns -11.4* 4.4 Body condition Average Base 99.7 Thin -28.9* 0.3 Thrifty

5 Thrifty Base 94.5 Unthrifty -26.2* 5.5 Health Non-precondition Base 58.4 Precondition 7.1* Model 2 2 Indicates statistical difference from base P < 0.05 Researchers have documented an increase in price as the number of cattle in the lot increases (Schulz, Dhuyvetter et al. 2009). While the largest lot size recorded in these sales was only 14 head, the same relationship was observed (Figure 2). Buyers appear to be interested in larger lots, perhaps to decrease time allotted to procurement and/or larger lots may decrease the risk of health issues due to lower rates of co-mingling from several owners Price, $/lb No. head Figure 2 Influence of lot size on price of feeder cattle Compared to steers the average difference in price was $10/cwt. However the discount to steers declined as the cattle got heavier. The relationship between weight and price was calculated. Referred to as a slide for every 100 increase in weight steers were discounted $5.5/cwt. The slide for heifers was $3.8/cwt.

6 The price received for New York Feeder cattle was compared to Cattle Fax data collected on 550 weight steers averaged across the US (Figure 3). The average difference in price between the Cattle Fax reported prices and those in this study is $0.28/lb. It should be noted that the Cattle Fax data represents large lots of relatively uniform feeder cattle, so the price differential may be somewhat exaggerated. However there is an obvious difference in price. Part of the difference can be attributed to proximity to major feeding centers, therefore freight may account for $0.10/lb of the difference. Understanding what makes up the remaining $0.18/lb will be important if New York beef producers are to remain competitive. It is interesting to note that while there exists a difference in price, New York feeder prices followed the same trend line as did those in the Cattle Fax data set Price, $/lb Sale date CattleFax 550 lb steers New York lb steers Figure 3 Price of New York lb steers and CattleFax reported 550 lb steers Conclusions. When beef producers are making breeding and management decisions, this study documents some of the factors that they should consider to increase the price received for

7 feeder cattle. Based on the average weight steer, additional revenue per head for breed ($40- $70), muscling ($32) and preconditioning ($38) is possible. On the other hand selling horned, un-castrated, unthrifty and thin body condition cattle can result in discounts up to $158/head. Other factors that the New York beef industry needs to address are the number of cattle offered at a sale, the size of each sale lot, and increasing the overall uniformity, especially in weight. Citations (2000). United States standards for the grades of feeder cattle. USDA. (2011). Green grass, green jobs. Increasing Livestock Production on underutilized grasslands in NYS. D. Welch. Ithaca, NY, Cornell Small Farms Program Workteam on Grasslands Utilization Schulz, L., K. Dhuyvetter, et al. (2009). Factors affecting feeder cattle prices in Kansas and Missouri, Departments of Agricultural Economics and Animal Science and Industry, Kansas State University. Troxel, T. R. and B. L. Barham (2007). "Comparing the 2000 and 2005 factors affecting the selling price of feeder cattle sold at Arkansas livestock auctions." Journal of Animal Science 85(12): Ward, C., C. D. Ratcliff, et al. (2005). "Buyer preferences for feeder calf traits." Oklahoma Agricultural Experiment Station AGEC-602.