Value of Bred Heifers in 2023

Value of Bred Heifers in 2023

Most livestock marketing and management discussions over the past six to nine months have focused on the drought, high feed prices, and increased cow and heifer slaughter. These discussions generally pertain to what cattle producers need to do in the immediate future. However, these same discussion points have longer term implications that should be discussed. Given that heifer slaughter year-to-date is nearly 5 percent higher than 2021 and that beef cow slaughter is more than 13 percent higher than 2021, there will certainly be opportunities in the bred heifer market as soon as drought subsides and cattle producers move into herd expansion mode.

The million-dollar question is when should a person take the risk to try to meet this expected future demand for breeding females? There is no way to know, but one can have an idea of what bred heifers should be worth in the future. Based on research in Tennessee, bred heifer and weanling heifer (550 lb) values are highly correlated. Historically speaking, bred heifers sold in May to calve in the fall have been worth 2.5 times the value of a 550 pound heifer while bred heifers sold in November to calve in the spring have been worth 2.8 times the value of a 550 pound heifer sold at the same time. Thus, if feeder cattle futures are any indication of what can be expected for bred heifers in 2023, bred heifer values may be worth $2,400 to $2,600 per head. Producers should be asking themselves if there is an opportunity to breed and market bred heifers in 2023. It is certainly a big risk, but there is still money to be made if bred heifer values do not reach $2,400.

Figure 1. Bred heifer price ($/head) and feeder cattle price ($/cwt) for 500- to 600- pound heifers at the time of the May and November bred heifer sale from 2008 to 2017. (Boyer et al., 2020)

Boyer, C.N., A.P. Griffith, J. Thompson, J. Rhinehart, K.H. Burdine, and K. Laurent. 2020. Bred Heifer Price Determinants in the Southeast. Journal of Applied Farm Economics 3(2): Article 2. doi:10.7771/2331-9151.1042.

Griffith, Andrew. “Value of Bred Heifers in 2023“. Southern Ag Today 2(41.2). October 4, 2022. Permalink

Drought Continues to Impact Cattle Flow

Drought Continues to Impact Cattle Flow

The latest USDA Cattle on Feed report was released on Friday and showed drought conditions continued to impact cattle movement into feedlots during August. Dry weather and poor pasture conditions in some areas have likely led to producers selling cattle sooner than normal. Placements into feedlots during August were up slightly over year-ago levels but were driven by lighter weight cattle. 

Placements of cattle weighing less than 700 pounds were about five percent higher than in August 2021 while placements of cattle weighing more than 700 pounds were about two percent lower than a year ago. Looking at Texas where drought conditions have been severe, August placements of cattle weighing less than 700 pounds were nearly 12 percent higher than a year ago while total placements were up 9 percent.  

The late summer months are seasonally the lowest cattle on feed months, and it appears August will be the low for 2022. Feedlot inventory on September 1st was estimated at 11.3 million head which is up slightly from August 1st and also up slightly from a year ago. Feedlot inventories will grow in the fall months but by how much is the big question. The increased placements of lighter cattle over the summer suggest there will be fewer placements during the fall months than usual. It is likely that some cattle that would have normally been placed in September through November were already placed into feedlots during the summer. Early indications for wheat pasture in the Southern Plains look disastrous unless some sustained rainfall comes soon.  Poor wheat pasture establishment will reduce stocker calf demand this Fall but may send more to feedlots at lighter weights.

Maples, Josh. “Drought Continues to Impact Cattle Flow“. Southern Ag Today 2(40.2). September 27, 2022. Permalink

Livestock Feed Price Implications for Fall

Livestock Feed Price Implications for Fall

As we move into fall, we have a pretty good feel for the size of the 2022 corn crop. Acreage is down significantly from last year and yield estimates were reduced recently to 172.5 per acre. Barring a major shock on the demand side, feed prices are going to be a challenge for cattle operations this winter.

Perhaps the most important thing to remember is that cost of gain and value of gain are correlated. Feedlots prefer to place heavier feeder cattle when feed prices are high, so the price discount on higher weights gets smaller. This narrowing of price slides increases the value of additional pounds when feeder cattle are sold. Opportunities can still exist in high feed price markets depending on cattle price dynamics. Producers may find that opportunities to grow feeders still exist, especially if they can efficiently make use of alternative feeds. Along those same lines, producers need to make sure they distinguish between cost of feed and cost of gain. Cost per ton of feed really does not tell me much unless I know something about that feed’s ability to put weight on cattle. 

Finally, there are also implications for fall grazing. A quick glance at the drought monitor reveals how much variation exists across the country. While grazing costs have increased recently as well, they have not increased as much as purchased feed. So fall pasture is likely the most attractive feed that can utilize to add pounds. The current market also increases incentives to incorporate rotational grazing or strip grazing to increase the utilization of those forages.

Burdine, Kenny. “Livestock Feed Price Implications for Fall“. Southern Ag Today 2(39.2). September 20, 2022. Permalink

Wholesale Beef Prices

Wholesale Beef Prices

On livestock market Tuesdays, the authors normally highlight events in livestock markets.  Today we are looking beyond the farmgate to examine wholesale beef prices (we’ll look at pork, poultry, and dairy products in future SATs).  The boxed beef cutout is the value of the primal cuts making up a carcass.  The cutout is below last year across all USDA quality grades.  Digging a little deeper into individual cut prices paints a pretty interesting picture of beef prices this year and provides some price evidence of changing consumers.

We can think of the middle meats of a beef carcass as the expensive, high value cuts – the steaks from the loin and the rib.  The end meats are the chuck and round and are, generally, lower valued.  With consumers facing higher costs and budget pressures we might expect them to buy fewer steaks and more ground beef.  The wholesale price data tends to support that idea.

Wholesale ribeye prices have been below last year’s prices since the end of January.  Last week ribeyes averaged $9.40 per pound compared to $14.51 per pound the same week last year.  Ribeyes, traditionally, tend to peak late in the year as a holiday item and have been increasing over the last several weeks.  It’s likely that they will continue to trend higher as an alternative to high priced turkeys.  

Strip steaks normally peak in value during early grilling season.  That peak was a little later this year at $8.81 per pound back in July.  They have since dropped sharply to $6.48 last week, below last year’s $7.67 per pound in the same week.  Tenderloins last week were 26 percent lower than this point a year ago.  

In contrast, 90 and 50 percent lean boneless beef prices have remained above a year ago until just recently.  Even in the face of large cow slaughter, lean beef prices have remained relatively high. 

Wholesale beef price data certainly suggest consumers, through retailers, have likely shifted around a bit, buying fewer steaks and more ground beef.  It’s also likely that the overall demand for beef has remained quite good.  We continue to produce large amounts of beef and retail prices have not begun to decline.  All in all, this is not bad news for calf and cattle prices this fall.

Anderson, David. “Wholesale Beef Prices“. Southern Ag Today 2(38.2). September 13, 2022. Permalink

Cow Slaughter in the South

Cow Slaughter in the South

There has been a lot written about beef cow culling this year due to drought and high costs and most of that has focused nationally.  This article looks at cow slaughter in the South.  Federally inspected beef and dairy cow slaughter is reported regionally.  The two regions that cover most of the South are regions 4 and 6.  Region 4 is comprised of 8 states including Alabama, Florida, Georgia, Kentucky, Mississippi, North and South Carolina, and Tennessee.  Region 6 includes Louisiana, Arkansas, Texas, Oklahoma, and New Mexico (a little further afield than the traditional South).  These two regions only leave out Virginia, which is in region 3.  

Region 6, the Southern region most affected by drought, has culled 668,000 beef cows this year, up 31 percent from last year (157,000 head).  Beef cow slaughter in region 4 is up 55,000 head, or 18 percent, over 2021.  In 2022, these states contained 44 percent of the nation’s beef cows.  Dairy cow slaughter in both regions is slightly below last year.  

A comparison of cow culling this year to that of 2011, during the last major drought in Texas and other parts of region 6, indicates that 8,000 more beef cows have been culled this year than in 2011.  About 24,000 more beef cows have been culled in region 4 this year than in 2011.  Both regions began 2022 with fewer cows than they had at the beginning of 2011. 

Significant rainfall in parts of Texas over the last couple of weeks may curtail culling in the near future.  Watch beef cow culling over the next 6 weeks heading into, seasonally, the largest cow culling weeks of the year nationally in October and November.

Anderson, David. “Cow Slaughter in the South“. Southern Ag Today 2(37.2). September 6, 2022. Permalink

Livestock Risk Protection Cost is Lower

Livestock Risk Protection Cost is Lower

Livestock Risk Protection insurance (LRP) is a price insurance policy livestock producers can purchase to reduce price risk and losses, but LRP is not widely used by cattle producers. Several reasons could explain why few producers have not used LRP in the past, but the cost of LRP is a big reason. In 2019 and 2020, the LRP premium subsidy rate was increased to reduce the insurance premium cost to producers. The premium subsidy increased to 20% from 13% of the total premium cost in 2019. Then, in 2020, a tiered subsidy rate was set. Subsidy rates became 35% for coverage between 95–100%, 40% for coverage between 90–94.99%, 45% for coverage between 85–89.99%, 50% for coverage between 80–84.99%, and 55% for coverage between 70–79.99%. We recently published research analyzing the impact of the premium subsidy rate increase on feeder and fed cattle LRP costs. We found producers’ premiums for feeder cattle LRP policies were reduced between $1.41-$1.90 per cwt and $0.95-$1.56 per cwt for fed cattle LRP policies with the new subsidy rate. The figure shows the range of cost savings based on coverage level. These changes also increased the chances a LRP policy would pay an indemnity greater than the premium. In the past, indemnity payments would rarely be higher than the premium cost. These policy changes significantly reduced LRP cost, which might make LRP a more viable risk management tool for producers. 

Figure 1. Reduction in Producer Premiums for Feeder and Fed Cattle LRP policies from Recent Subsidy Rate Increases

Citation 

Boyer, C.N., and A.P. Griffith. In press. “Increasing Livestock Risk Protection Subsidies Impact on Producer Premiums” Agricultural Finance Review Available at: https://www.emerald.com/insight/content/doi/10.1108/AFR-05-2022-0066/full/html#:~:text=The%20increased%20subsidy%20in%202019,is%20lower%20to%20start%20with.

Boyer, C.N., and A.P. Griffith. In press. “Subsidy Rate Changes on Livestock Risk Protection for Feeder Cattle” Journal of Agricultural and Resource Economics Available at: https://ideas.repec.org/a/ags/jlaare/316752.html

Boyer, Chris, and Andrew Griffith. “Livestock Risk Protection Cost is Lower“. Southern Ag Today 2(36.2). August 30, 2022. Permalink

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