The latest CPC-IRI Forecast of the Niño/Southern Oscillation has increased the probability of being in a Niña season through summer and fall (Graph 1). La Niña patterns typically bring drought to the Southern Plains. The risk of continuing to suffer the consequences of being in a drought is increasing day after day. The chance of a third consecutive Niña, is rising. The sooner we get prepared for it, the higher our chances of successfully implementing a drought management plan, saving costs, and having a solid business in the future.
Graph 1. CPC-IRI Official Probabilistic ENSO Forecast.
Most cow-calf production is highly dependent on rainfall. With very high input and feeding costs, a drought management plan should incorporate more than one strategy to lessen adverse economic impacts. It should also consider future restocking strategies given the business’s financial position, long-term profitability, cash-flow, years to rebuild your livestock equity lost during drought, and other productive variables such as forage productivity, genetics, or leasing alternatives.
Our model analyzed the impact of integrating drought management practices to mitigate losses and reduce risk (https://vernon.tamu.edu/extension-projects/d3-agricultural-economics/). Integrating these proactive and reactive strategies such as early weaning, early culling, pre-stocking hay, destocking, and restocking strategies has a significantly higher economic and financial impact than each strategy. These strategies resulted in a $426 saving per breeding cow unit (BCU) during year one.
Other pro-active strategies like USDA’s Pasture, Rangeland, and Forage Insurance (PRF) are essential tools that can be implemented in many cases. PRF showed a positive net benefit in many cases, but most importantly, it generated significant payments in drought years when it was needed most.
Unfortunately, droughts always have a negative effect on our companies. Waiting for it to rain to solve problems has not always been the best solution. These types of tools will help you prepare your operation given your production data, financial position, experience, and future expectations.
Last week’s Crop Progress Report from USDA provided the first data point on 2022 pasture and range conditions. Like other crops, the Crop Progress Report shows the percent of pasture in very poor, poor, fair, good, and excellent condition. According to the report, 29% of pasture is in very poor condition. Combined, 56% of pasture is in very poor or poor condition. Last year, 47% of pasture was in very poor or poor condition. Clearly, on a national basis, pasture conditions are worse than a year ago.
There is a high degree of variability in range and pasture conditions across states. In the Southeast, for example, conditions are comparable to the previous 5-year average, with 10% of pasture in poor or very poor condition (AL 4%; AR 13%; FL 22%; GA 13%; KY 6%; LA 8%; MS 8%; TN 7%). In the Southern Plains, conditions are noticeably worse, with 57% of pasture rated as poor or very poor (KS 41%; OK 39%; TX 74%), a 79% increase compared to last year. Compared to last year, conditions in the West have improved, with 39% of pasture rated as poor or very poor, down 24% compared to last year.
Forage availability and forage production costs will be two of the most significant factors determining the trajectory of U.S. cattle inventories through 2023. So far, in 2022, we have already started to see the effects of deteriorating pasture conditions. Feedlot inventories continue to set records, partially a result of drought pressure. Beef cow slaughter is averaging 17% higher year over year. The next few months will be crucial to monitor.
In recent years, Southeastern producers have asked whether testing for Persistently Infected (PI) Bovine Viral Diarrhea (BVD) virus generates a premium for feeder cattle. The answer likely depends on certain factors. For example, if a group of feeder cattle is born and raised on the same ranch (home-raised), and the producer has a good vaccination program, then the producer might not PI test them before marketing. The risk of PI’s is likely much lower for cattle coming from a closed herd. Co-mingled cattle are likely to have a higher risk of being PI-positive. Backgrounding and stocker operations commonly source calves from multiple cow-calf operations and multiple groups at auctions. However, co-mingled calves are perceived by buyers to be of higher risk than single-owner calves. So, sellers can use PI testing as a marketing tool to lower the risk perception of the cattle they are selling.
A recent University of Tennessee study examined price determinants at the Lower Middle Tennessee Cattle Association (LMTCA) Video Board Sale from 2015-2020. Figure 1 contains the annual percentage of PI tested lots sold for a for this sale. This trend has been seen in other value added sales throughout the Southeast.
Figure 1. Annual Percentage of PI Tested Lots Sold
PI tested lots were found to generate a $1.19/cwt premium. These lots included cattle that sold from North Carolina, Alabama, and Tennessee. While there were home raised lots that were tested, majority of the tested lots were co-mingled lots. On average, cattle weighed 820 pounds in the study, generating a potential premium just under $10 per head. The cost of PI-testing varies by location, volume, and test type. In general, the test costs around $4-8 per head. However, it is important to note the test cost mentioned here does not include additional time spent, facilities utilized working cattle for testing purposes, or revenue loss from the proper disposal of cattle that test positive.
While there are some costs and risks associated with testing for PI-BVD, selling a “PI tested” lot does generate a premium. It does this by letting the buyer know that the cattle are guaranteed PI free and healthy, which mitigates risk for the buyer. These advantages are especially beneficial for co-mingled lots.
Lamb prices have reached record highs over the past 18 months. One reason is growing lamb demand. Today’s figure is Google searches for phrases including or similar to “How to Cook Lamb.” Internet traffic on this topic has steadily increased since 2004. But, in general, searches for instructions on how to cook lamb have risen steadily, with sharp growth occurring since the pandemic.
Why the growth post-pandemic? Lamb was already growing in popularity, as evidenced by the search history in the chart above. Generational changes in tastes and preferences, as well as diversifying demographics led to sustained, though small growth in lamb consumption through the mid-2010s. Restaurants like Zoe’s Kitchen that offer Mediterranean cuisine and other restaurants like Arby’s began to increase lamb offerings on menus. But the real jump in consumption came during the pandemic, when the price of other protein products skyrocketed and those products became harder to find due to supply chain issues. Though lamb remains a relatively expensive protein product, the increase in the price of beef, pork, and chicken meant that lamb became relatively more accessible. Combined with more time at home, many consumers seemed willing to try cooking new meals – including lamb.
Finally, today’s chart illustrates the significance of holidays to the lamb market. The left-hand red line represents search traffic for how to cook lamb around Christmas in 2019, and the right-hand red line represents search traffic for how to cook lamb around Easter in 2020. Search traffic spikes each year around Christmas and a set of spring holidays which include Easter, Passover, and Ramadan. The spring period is an incredibly important season for lamb demand, which is why we focus on it around this time each year. Fun fact, the top searched phrase for how to cook lamb over the last two years was, “How to cook lamb in an instant pot?”.
The culling of beef cows was a major reason why the size of the beef herd decreased during 2021 as beef cow slaughter was up by almost 9% from 2020 levels. A frustrating calf market and drought in much of the US led to herd reductions as a lot of cows were sent to market. Year-over-year, the increase amounted to almost 300 thousand cows, which was roughly 1% of the US beef cow herd.
While calf prices have been higher in the first three months of 2022, a large portion of the US remains in significant drought. Most significantly for the cattle sector, drought moved into the Southern Plains during the fall of 2021 and has seemed to intensify over the last several months. The chart below shows beef cow slaughter for 2022 (blue line), which has been running well ahead of 2021 (dotted line). Year-to-date, beef cow slaughter has been over 16% higher, but it is worth noting the very low slaughter week last year as a result of the February 2021 ice storm. But, even taking that week out of the comparison, harvest levels are still more than 13% higher so far this year.
Beef heifer retention was lower coming into 2022, which suggests continued contraction in beef cow numbers. It is still early in the year, but beef cow slaughter through the first few weeks of March points to another year of heavy culling. The combination of dry weather and strong cull cow prices is likely to keep cows moving and encourage producers to pull the trigger a little sooner on those cows as they approach the end of their productive lives. This is definitely something to watch as we move through the current year.
Dairy industry participants have had several tough years over the past decade as it relates to milk and milk product prices. However, the end of 2021 and the beginning of 2022 have been positive from a price received standpoint. With the U.S. all milk price sitting close to $25 per hundredweight, this is the highest all milk price since September and October of 2014. The price support is not coming from any one product. Rather, it is being supported by most dairy products as butter, cheese, dry milk and whey are demonstrating strength in the current market. Class IV milk prices are setting records while Class III milk prices are only $2 below the record.
Understanding that milk prices are not the only factor in profitability, the immediate concern in today’s dairy industry is feed price. The price of most feedstuffs has increased along with inputs for feed to be produced in 2022 including hay, silage, and grain. The national milk-to-feed price ratio sits just over $2 per hundredweight, which is considerably stronger than 2021 and represents a strong margin given the booming milk price. The same milk-to-feed ratio when milk is only $15 per hundredweight is not nearly as lucrative as the margins experienced when milk is hitting $25 per hundredweight. However, if the ratio shrinks with milk price remaining elevated then that results in a poor return on investment and increased financial risk. Dairy producers may find it advantageous to lock in milk and feed prices with this many dollars on the line.
Source: Livestock Marketing Information Center