Dates to Remember:
January 2011
22 7:30 a.m. to noon: Beef Show and Sale of Market Animals, Vermilion Parish Junior Livestock Show, Cecil McCrory Exhibit Building, Abbeville, La.
22 Angus Association Bull Sale, Dean Lee, LSU at Alexandria, Alexandria, La.
28-30 Acadiana District Livestock Show, Blackham Coliseum, Lafayette, La.
Cattle Market Supports Expansion
The smallest cattle numbers in 70 years have produced record high fed cattle, cull cow and cull bull prices. February fed cattle futures are at $1.07 per poiund and there have been reports of cull cattle selling for 70 cents or more. Yes, it is a good time to own cattle. As with all good things, though, there is at least one "but" and in this positive but complex market there is more than one.
The most influential factor is the corn market. Because of ethanol and a hungry, wealthy China, corn markets are also the highest in memory. March corn futures are at $6.12 per bushel. Even with record high fed cattle prices, the corn price has our weanling calves discounted in relation to what they are worth when ready for the packing plant. Weanling or stocker calf prices were doing well in late summer 2010 with 500 pound calves bringing $1.10 to $1.25 a pound but as corn prices rallied calf prices dropped. In October 2010, local markets were offering 85 cents a pound for 500 pound calves. The price rebounded by mid-to late November; however, for many, the damage was done. Five hundred pound calves are bringing $1.25 a pound in the southeast and have been since November 2010. This discount for lighter calves is not nearly as evident in the feeder cattle market. Feeder cattle (700-800 pound calves) futures are trading at $1.23 per pound for March 2011 delivery. In Oklahoma City, 700-800 pound steers were bringing $1.19 per pound. It’s easy to see that if you sold light calves at 85 cents in October 2010 you lost much of the value you could have gotten had you held your calves and sold them at 700 pounds for $1.19 per pound. This is only this year but the same type of price spreads have been occurring for the last five years and as long as the corn market is volatile and high we will probably continue to see a discounting of our weanling calves in relation to what they’re worth at slaughter.
If we are to take full advantage of these record high cattle prices we need to shift our production practices from cow-calf to cow-calf and stocker. Keeping our calves on ryegrass over the winter and selling them at 700-800 pounds instead of 400-500 has never made more sense. It will take more land or fewer brood cows but it should be the most profitable alternative. Marketing these heavier calves is critical to capturing their value. Trucking to Oklahoma City and use of satellite video sales should be considered. If you have fewer than 60 head of catlle, talk to your local stockyard operators for marketing advice and opportunities.
We must be flexible in our decision making. If corn gets back to $4.00 a bushel and fed cattle stay high, 500 pound calves may be bringing $1.30 in the fall of 2011. If so, it is probably best to sell at that time. However, if 500 pound calves are bringing near fed cattle price,s then they are at a tremendous discount and holding the calves would be best.
Yes, it is a good time to be in the cattle business and this opportunity should last several years, but we have to be willing to make adjustments if we are to capture our share of the pie.
Contact Andrew Granger at 337-898-4335 or e-mail if you need help in planning a stocker operation or for more information on cattle or pastures.
Louisiana Cattle Market Update
Submitted Friday, Jan, 7, 2011, by Ross Pruitt, Department of Agricultural Economics and Agribusiness, Louisiana State University AgCenter.
As livestock and poultry products get closer to the final consumer, the degree of coordination between buyer and seller increases. This ensures that the product received by the consumer meets the buyer’s specifications which may include percent leanness, portion size and time of delivery. This enhances demand for livestock and poultry products and, ultimately, the initial producer’s bottom line since their product is more valuable.
Animal performance data can be lost between links of the supply chain due to the lack of coordination, but price signals are not lost in the supply chain. These price signals help communicate the products desired in subsequent links of the supply chain to the cow/calf producer. Communication through price signals is normally easy to understand such as with the current situation in feeder cattle futures. Concerns about tight supplies are driving prices up to provide incentives for female retention to stabilize and then expand the U.S. beef herd. That’s the more long term view with the shorter term view being that feedlots are being aggressive in bidding patterns to keep overhead costs per head as low as possible due to excess feeding capacity. How long this will continue is unknown since it could be late 2011, at the earliest, before grain supplies are sufficient to drive feedstuff prices down from current levels. In the meantime, risk averse individuals may want to cash in now.
With that as the backdrop, cash feeder cattle sales are not seeing the discount between heavy and light weight feeders that was occurring in July of last year. This reflects the increased cost of corn and market preferences for gain being achieved through forages. Dry conditions are hampering winter grazing activities and strong wheat prices are providing incentives for wheat producers to minimize yield losses suffered through extended winter wheat grazing.
So what does this mean for the typical Louisiana cow/calf producer? The changes occurring in the feeder and stocker parts of the cattle supply chain will send price signals back to Louisiana that may result in the producer making changes to their operational strategies to enhance and ensure profitability. Situations such as droughts, flood, snow, or ice may cause disruptions to the market and changes in price, but much of the underlying supply and demand fundamentals take months, if not years to develop. Supply responses in agriculture production take time to occur and the current level of prices will fluctuate but will stay at near historical highs for the next few years to ensure that adequate levels of production are maintained.
The March corn contract finished below $6 per bushel for the first time in three weeks as a stronger dollar pushed all commodities lower on Friday. There are still concerns about dry conditions impacting the Argentinean corn crop, but with some needed rain and improved weather outlook, this is placing some downward pressure on corn prices. Lower export sales than were expected also helped corn move lower for the week. Next Wednesday sees the release of the January World Agricultural Supply and Demand Estimates and the market is positioning itself in advance of that report and the quarterly grain stocks report.
Live and feeder cattle futures were lower on the week. The stronger dollar helped push prices down as well as annual adjustments to investment portfolios by index funds. With packer margins thought to be negative, packers may become less aggressive in the next few weeks to slow beef production to help bolster wholesale prices. Feeder cattle were lower due to the live cattle market being lower even though corn was lower on the week.
Live cattle trade on Monday through Wednesday was cited as light to moderate by USDA. Most of the sales were 50 cents to $1.00 lower this week which helped pull futures down. Live sales were as low as $105 in Kansas and Nebraska up to $106.50 in Texas, Colorado and Oklahoma. Dressed sales ranged from $167.50 in Kansas to $169 in Nebraska.
News from NCBA
For hundreds of years, men and women in the United States have produced beef both as a profession and as a way to feed their families. Times have changed though, and as the industry has adapted and advanced, so have our priorities. Looking forward in 2011, NCBA is focused on expanding trade opportunities for U.S. beef; supporting science-based environmental practices and policies; working on improvements to transportation policies affecting U.S. cattlemen and women and ensuring a competitive marketplace for U.S. cattle; and protecting the health of cattle and consumers.
Cattle producers don't want a government handout, and they don't want Washington telling them how to do their jobs. With the 112th Congress underway, NCBA looks forward to working with the more than 100 new members as well as the returning members on our priorities and to hold the Administration accountable for their actions over the past two years.
It's inevitable that there will be bumps along the way. Animal rights activists aren't going away, but we don't answer to them. Some of the regulatory issues of 2010, including the proposed GIPSA rule and EPA's dust regulation, will continue in 2011. But NCBA is ready to take to the halls of Capitol Hill to work with members of Congress and support policy proposals to ensure U.S. cattlemen and women are able to do their jobs and that future generations have the opportunity to produce cattle to feed a global population. What could possibly be more sustainable than that?
The Future of the Cattle Industry
While the current market is good and should be good for the next several years, it is not time to be satisfied with current production practices. In fact, we must be willing to respond to market signals if we are to stay competitive. Costs for fuel, fertilizer and feed have and will keep our costs of producing calves high and if we are to maintain our profit margin then we’ll need to capture as much value from our calves as possible.
There is an article by Darell Mark, Economist from the University of Nebraska in the marketing newsletter In the Cattle Market. In the article, Cattle Market Top Ten List for 2011, Dr. Mark points out several issues that will affect profitability in 2011 and beyond. Those that could affect us, but are mostly overlooked, are value-based marketing, animal rights, export growth and loss of infrastructure.
Many consumers want to know more about where their food comes from and how it was raised. This is especially important in export markets that require age, source and hormone restrictions governing US Beef imports. Domestically, there are several programs which are trying to take advantage of this demand trend. All Natural, Grass Fed and Certified Angus, to name a few, programs allow for product and price differences. Programs like these will probably be increasingly used in our market place and qualifying for them will offer improved prices.
Since the loss of export markets due to the Mad Cow Disease scare in 2003, we have regained nearly all of export volume. For the first ten months of 2010 exports were 17 percent higher than 2009 levels. Exports are expected to increase as we go forward. World demand for protein will increase as economic conditions improve and Asia’s economy continues to grow. U.S. Beef is favored by most markets in the world. With this increase in export demand and very low cattle numbers prices should remain high for several years.
For the last couple of years, the animal rights agenda was aggressively advanced by anti-agricultural groups. However, by the end of 2010, it appears that efforts by agricultural interest groups and producers have been successful at educating consumers about animal welfare. We need to continue these public information efforts through support of our beef check-off and involvement in agriculture organizations. We all need to tell our story, which is an appealing one. And we need to follow all animal care and welfare guidelines. Showing our cattle respect, providing a quality environment through proper nutrition and health programs and using proper handling techniques are not only important for public perception but will increase profits.
With the smallest national herd in sixty years, are we in danger of losing packers, feedlots and other important infrastructure. Although beef production has remained fairly high due to heavier carcass weights and cow slaughter, this herd size may cause feedlots and packers to close. These businesses have been operating at less than capacity for the last few years. It remains to be seen how long they can continue to operate at these less efficient levels. Losing these firms will hurt the whole industry through less competition.
Success in this complex beef industry depends on our ability to change with changing times. I encourage you to be aware of the demands of our market and the demands of the public. How you respond will determine your level of success.
It is the policy of the Louisiana Cooperative Extension Service that no person shall be subjected to discrimination on the grounds of race, color, national origin, gender, religion, age, or disability.