The decade ending in 2010 will likely be recognized as the last decade during which the beef industry experienced defined cyclical changes in beef cow inventories and prices (the traditional beef cattle cycle).
Between 1998 and 2002, the beef cow herd was reduced by 700,000 head. In contrast, during the previous five years (1993 to 1997), the U.S. beef cow herd experienced a 2-million head swing. Beef cow inventories prior to 1993 had greater swings yet.
Instead, since 2003, the U.S. beef cow herd has continued to shrink; from 33 million to 30.9 million. In spite of this, U.S. beef production was only reduced by 700 million pounds between 2003 and 2010.
Considering the current economic situation, this is not a bad place for the industry to be. Indeed, since 2005, fed cattle prices have been at or above $90/cwt with the exception of 2009. During January through July of 2011, fed cattle prices averaged $114/cwt; almost $18/cwt greater than the average fed cattle price in 2010.
What does this all mean to cow-calf operators when marketing the 2011 calf crop? Unless an extremely catastrophic economic, disease or global security issue arises, feeder cattle prices will remain elevated for feeder calves marketed this fall and likely into next spring.
The intense drought affecting many southern states including Texas, Oklahoma, New Mexico, Kansas, and Louisiana will likely have a lasting impact on the supply of feeder calves. At the present time, the impact of the drought on the region’s nearly 10 million beef cows is not clear yet. Texas AgriLife Extension Service economists reported up to $2 billion in livestock losses. This figure may represent a potential loss of up to 1 million beef cows.
On the other hand, a survey conducted by BEEF magazine in early 2011 revealed interest by cow-calf operators to expand their herds; over 50 percent of respondents declared intentions to expand in 2011, mainly by retaining heifers. The net effect of either of these two scenarios is pressure on the feeder calf supply.
A moderating factor in this analysis is the impact of corn price on feeder calf prices. Greater feeding costs resulting from higher corn prices typically impact feeder calf prices negatively. However, when comparing futures market behavior of the October 2011 feeder calf contract against the September 2011 corn contract, since January, increases in corn grain price quotes have not impacted feeder calf price quotes negatively with the exception of a few days early in June.
Where the limit is for corn price to begin to affect feeder price is not known. Smaller-than-expected corn crop production estimates by USDA early in August will certainly test this limit.
In spite of a bullish market for feeder calf prices, cow-calf operators are strongly encouraged to evaluate their marketing plan for their calf crop. Positive news about feeder cattle prices is not an excuse to be negligent in developing a marketing plan. Seasonal trends still exist in feeder calf prices with lowest prices obtained for calves sold in November.
Similarly, calves that do not conform to conventional market requirements such as: intact male, lame, blind, or unthrifty calves or those with horns or frozen ears will continue to be discounted severely. Calves sold as singles or even in groups of fewer than six head will likely be discounted. Therefore, the first step in preparing for marketing is to cull calves that will be discounted or to present for sale groups of calves that will result in sale drafts of six or more taking into consideration sorting for sex, size and color.
Without attempting to offend anyone, cow-calf operators must also recognize that certain breed or coat colors are perceived to be of lower value by cattle buyers. Whether there is sufficient scientific background to support this perception or not is immaterial; what matters is whether the customer (cattle buyer and/or feedyard operator are actively seeking them out or not).
For instance, a recent report revealed that Hereford X Charolais, spotted or striped feeder cattle received the lowest price. Indeed, efforts to improve genetics by cow-calf operators of breeds typically discounted at the sale barn need to be rewarded by an alternative marketing arrangement: partial or full retained ownership or direct marketing to feedyard operators that value the breed and the efforts.
A discussion on marketing calves would not be complete without consideration to age and source verification, use of implants and/or preconditioning. Previous evaluations of premiums received for source-verified, “natural” or preconditioned feeder cattle are heavily region-dependent. Thus, considering costs and expected returns for either of these value-added features may be more appropriate.
Evaluations of gain response by pre-weaning calves to implants place the average improvement on rate of gain at 0.10 lb/head/day. On a minimum of 80 days, implants would return an additional 8 lb at sale or $12/head. At a cost of less than $1 for the implant, and $2 for labor, a modest estimate of $12 gross return comes at a cost of $3 for a 400 percent return on investment. Thus, not implanting calves would have to return at least $9/head or $1.80/cwt.
Source verification costs are highly variable, but may start at as little as $3/hd. A recent review of premiums received by source-verified feeder cattle weighing less than 650 lb demonstrated a price advantage of $1.30/cwt or $6.50 for a 500-lb calf.
Lastly, preconditioning premiums realized in field studies for calves that are vaccinated and weaned for 30 days range from $2 to $6/cwt. Adding no weight to gain post-weaning, this represents an additional $10 to $30/head.
On the other hand, in today’s high-grain prices, cost of gain for feed will likely average $1 to $2/head/day for a minimum cost of $30 to $60 to feed a calf for a month after weaning.
This analysis for preconditioning does not mean that preparing calves for a healthy future using the appropriate vaccination at weaning is not desirable or profitable. Discounts for non-vaccinated calves range from $2 to $4/cwt.
Thus, not vaccinating calves at weaning, even though they are not pre-conditioned, may have an impact of $10 to $20/head, while most vaccination programs cost less than $10/head.
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