Southern Ag Today

Author: Charley Martinez

  • Heifers on Feed and Feedlot Demographics

    Heifers on Feed and Feedlot Demographics

    Last Friday, the USDA released its monthly cattle on feed (COF) report. While some COF categories/numbers are reported consistently each month, the USDA also sprinkles in unique quarterly and annual numbers in these monthly reports. Last week’s report included two items that were unique, “Cattle on Feed by Class on 1,000+ Capacity Feedlots and Quarter – States and United States: 2023”, and “Feedlots, Inventory, and Marketings by Size of Feedlot – United States: 2022 and 2023”. 

    The Cattle on Feed by Class on 1,000+ Capacity Feedlots and Quarter data offers insights that are more in-depth than January 1 estimates. It shows the quarterly estimations of heifers and heifer calves, by major fed cattle state, by quarter. On October 1, 2023, there was a total of 4.64 million females on feed. Two weeks ago, Southern Ag Today highlighted the reduced number of heifers being retained as replacements (Griffith, 2024). Figure 1 contains the number of heifers on feed for each quarter of 2023, by state. In Oklahoma, the reports indicate that females on feed were decreasing until the last quarter (October 1). In Texas, quarter 2 (April 1), peaked in terms of number of females in all fed states but also with most females on feed in 2023, then maintained throughout the last two quarters of the year. The number of heifers on feed are historically large.  While the January 1, 2024, number of heifers on feed are not reported by state, more heifers were reported on feed on January 1, 2024 (4.735 million head) compared to January 1, 2023 (4.66 million head). 

    Figure 1. Heifer and Heifer Calves on Feed by Class on 1,000+ Capacity Feedlots and Quarter (Source: USDA)

    Figure 2 contains the number of feedlots by head capacity (over 1,000 head) in 2022 and 2023.  The cattle on feed report only includes feedlots with 1,000 or more head on feed.  The February cattle on feed report and the annual cattle inventory report provide some insight into the number of head on feed in smaller feedyards.  Feedlots with fewer that 1,000 head decreased in number from 24,000 in 2022 to 23,000 in 2023.  While those smaller yards had a few more head on feed than the year before, their total marketings in 2023 declined 4.5 percent in 2023 compared to 2022.  

    Figure 2. Feedlots by Size of Feedlot – United States: 2022 and 2023 (Source: USDA)

    The total number of feedlots decreased from 26,093 in 2022, to 25,103 in 2023.  Tighter feeder cattle supplies might be expected to reduce the number of feedyards.  The feedlots with capacities of 1,000-1,999, 8,000-15,999, 16,000-23,999, and 32,000-49,999 increased in total numbers compared to the previous year. Whereas feedlots with capacities of 2,000-3,999, 24,000-31,999, and 50,000 and over decreased in total numbers compared to the prior year. 

    Tighter feeder cattle supplies, made even tighter by herd expansion, over the next few years will likely stress feedlots numbers. Although the long-term trend of feeding a larger percentage of total cattle for longer periods of time will help.

    Martinez, Charley. “Heifers on Feed and Feedlot Demographics.” Southern Ag Today 4(9.2). February 27, 2024. Permalink

  • A Check in on Boxed Beef Cutout Value

    A Check in on Boxed Beef Cutout Value

    At conferences, field days, and producer meetings throughout the Spring and Summer, many producers have often asked, “When will this market bust, and start a downward trend?” Answering this one question isn’t simple. There are various factors that impact the prices across the beef supply chain. One indicator of future price trends throughout the beef supply chain is the Boxed Beef Cutout Value. The boxed beef cutout represents the estimated gross value of a beef carcass based on prices paid for individual beef items (primal cuts) derived from a beef carcass. Essentially, as consumers pay for beef items derived primal cuts (i.e. steaks from the rib primal) in conjunction with expected seasonal demand, retailers, and food service entities purchase primals or boxes of specific cuts that translate into the price and value seen in the boxed beef value.  

    Figure 1 displays the weekly Choice boxed beef cutout value. The red line denotes the 5-year average from 2017-2021, the dotted blue line is last year’s (2022) weekly values, and the orange dashed line this year’s weekly values up through 8/25/2023. Through 2023, the cutout value has been above last year and the 5-year average. The low of $265.82/cwt was in early February. Since then, the weekly value trended up and peaked at $339.93/cwt in mid-June. Through the rest of the summer, the cutout decreased in value from the peak but has remained between $300-$320/cwt. The 5-year trend and 2022 cutout values remained relatively steady during the remaining months of the calendar year. If 2023 follows trend, then the value is expected to remain above the previous year and the 5-year average. 

    Other factors impact this value, such as fed cattle supply, which are currently tight given the most recent cattle on feed report. The amount of beef grading Prime, Choice, and Select affects relative supplies of each grade even though total beef supplies are tighter.  Given that the national herd is still currently in liquidation mode, fed cattle supply is going to get even tighter over the next couple of years. When looking at the boxed beef value, there are few market signals indicating that it will be decreasing anytime soon, so when answering the question at the beginning of this article, my answer is, “not any time soon”. 

    Figure 1. Weekly Boxed Beef Cutout Value

    Data Source: USDA-AMS, Livestock Marketing Information Center

    Martinez, Charley. “A Check-in on Boxed Beef Cutout Value.” Southern Ag Today 3(36.2). September 5, 2023. Permalink

  • Current Non-Real Estate Farm Debt

    Current Non-Real Estate Farm Debt

    As mentioned in previous Southern Ag Today (SAT) articles (Martinez and Ferguson 2022), monitoring Non-Real Estate Farm Debt provides insight into debt health. Last year had periods of drought and increased input prices for producers. At the time of this article, planting is complete, producers are bailing hay, input prices have come down, and cattle prices are the highest since 2015. But, through the first quarter of 2023, there are mixed signals from the most recent call reports. As a refresher, every commercial bank in the U.S. submits quarterly Reports of Condition and Income which are known as call reports. Within these call reports are totals of agricultural loans and the status (on time or late) of the loans. Figure 1 displays the total loan volume (yellow line) and total loan volume for all three late type volumes (30-89 days late, 90+ days late, non-Accrual) for the last nine quarters. The totals are for all the Southern Ag Today States. 

                Through the first quarter of 2023, non-accrual (blue line) loans continued to decrease, which is positive, and loans that are 90+ days late (grey line) remained relatively the same. Total loans (yellow line) are down from the previous quarter, which is expected due to seasonality trends. But total loan debt is up 4.8% compared to a year ago, which could be due to the effects of input price increases in 2022. The most concerning statistic is the loans that are 30-89 days late (orange line). Debt that is 30-89 days late is up 5.2% from a year ago, and the highest since Q1 of 2021.  Q1 is seasonally the highest quarter for 30-89 days late loans, but given that it’s up from a year ago, this loan type will provide an indication of debt health moving forward in the next round of call reports that come in a few months. 

                From a sky high view, the call reports indicate that there are some possible caution signals for debt in the SAT states. However, total non-current debt is approximately 1%, which is still relatively low. The next two quarters will provide answers if the signals are false alarms or true signals of concern. In the coming months, it is crucial that producers are mindful of their working capital and continue the positive production and risk management strategies they have implemented thus far. 

    Figure 1. Non-Real Estate Farm Debt from 2021 Q1- 2023 Q1

    Source: Federal Financial Institutions Examination Council

    References

    Martinez, Charley, and Haylee Ferguson. “Current Non-Real Estate Farm Debt“. Southern Ag Today 2(30.3). July 20, 2022. Permalink

    Martinez, Charley. “Current Non-Real Estate Farm Debt.” Southern Ag Today 3(23.3). June 7, 2023. Permalink

  • Beef Price Spread Relationship with Processing Capacity Utilization

    Beef Price Spread Relationship with Processing Capacity Utilization

    When US cattle slaughter facilities temporarily shut down during COVID-19, the live cattle to wholesale boxed beef price spread, which is the difference between the value of live cattle price and wholesale boxed beef value, reached record highs. The processing disruptions caused the fed cattle price to decline and beef price to increase. The price spread had a similar, but less extreme, reaction when beef processing capacity was temporarily shut down after the Tyson beef-packing plant fire in August 2019. These events led to questions regarding the interaction of the number of cattle slaughtered nationally each week and the price spread. Now that cattle numbers are declining and packing capacity is increasing questions about capacity utilization and the price spread remain.  

    In a recent article, my co-authors and I investigate the dynamic relationship between industry-level weekly (Monday through Friday) and Saturday operational slaughter capacity utilization with the live cattle to box beef price spread. Below are the highlights of the journal publication and our estimates of weekly and Saturday slaughter capacity utilization. 

    Key results from our study:

    • We find bidirectional causality between weekly slaughter capacity utilization, Saturday slaughter capacity utilization, and the live cattle to box beef price spread over the entire study period (2010-2021). In plain English, this means that the number of cattle processed on Saturdays affects the price spread and vice versa.  However, additional analysis indicates these causal relationships don’t always occur.
    • An increase in the price spread in the previous week positively impacts the number of cattle processed nationally on Saturday in most weeks.  That result makes a lot of intuitive economic sense because the larger spread implies more profits which is the market signal to produce more beef.  This might suggest Saturday slaughter is more than a “catch up” day of processing but could also be a strategy to increase slaughter when the price spread is increasing.
    • This study does not find statistical evidence to support the notion that weekly, or Saturday slaughter capacity utilization is used by the beef packers to control the price spread.

    Figure 1. Weekly (Monday through Friday) and Saturday Operational Cattle Slaughter Capacity Utilization from 2010 to 2021 in the United States

    Paper Citation

    Martinez, C., Li, P., Boyer, C. N., Yu, T. E., & Maples, J. G. (2023). Beef price spread relationship with processing capacity utilization. Journal of the Agricultural and Applied Economics Association.https://onlinelibrary.wiley.com/doi/full/10.1002/jaa2.48

    Martinez, Charles, Pengzhen Li, Christopher N. Boyer, T. Edward Yu, and Joshua G. Maples. “Beef Price Spread Relationship with Processing Capacity Utilization.” Southern Ag Today 3(10.2). March 7, 2023. Permalink

  • Managing for Foundation Traits in Beef Cows

    Managing for Foundation Traits in Beef Cows

    The beginning of the year marks the start of female and bull buying decisions for producers in the southern states. Whether a producer is selecting for Continental, British, American, or a combo of the three, this publication serves as a reminder of the foundation traits to manage for this buying season. Foundation Traits refer to Stayability, Fertility, Structural Soundness, Udder Quality, Disposition, Adaptability and Maintenance, and Index Selection. Selecting cattle based on these traits can increase the likelihood of the operation being profitable in the short and long term. Below is a description of three of these traits. 

    Stayability: a cow’s ability to remain in the herd past its “break-even” point is determined by multiple traits. The all-encompassing phenotype that is recorded by many breed associations is called Stayability (STAY). Stayability measures the likelihood that a bull’s daughters will remain in the herd long enough (typically 6 years old) to recoup their development and maintenance costs if they breed on time.

    Fertility: In concert with Stayability, maintaining fertile females and keeping daughters out of bulls that are fertile is critical to the herd’s profitability. Failing to rebreed is the most common reason cows are culled from herds. That said, a surprising number of cows
    get a second chance when open. The extra feed and variable costs required to maintain that cow will hinder the profitability of the operation if it stays in the herd. When a cow misses a calf, it does not become profitable until year 7 or 8, depending upon calf prices. If a cow misses twice, it does not become profitable until year 11. Thus, while it is possible for cows that miss a calf to be profitable, it takes more years to realize that profit, which makes fertility a critical financial driver. 

    Structural Soundness: Cattle must have good feet and leg structure to graze, travel, and breed, and the discomfort of poor feet and leg structure reduces the time they spend grazing or drinking. Besides directly impacting performance, it creates animal welfare issues. Hoof trimming and other management interventions may prolong an unsound cow’s productive life, but these are likely to incur costs and significant additional labor. Figure 1 displays scores for foot, claw, and side leg. 

    Figure 1. Phenotype scoring scales for foot angle (top), claw set (middle), and side leg profile (bottom). A score of 5 is the most desirable for all three scores.

    Image courtesy American Simmental Association

    The impacts of foundation traits on cowherds reach far beyond making a producer’s life easier. Many of these traits have direct costs that impact the bottom line, while others add labor. This additional labor often is confused with convenience, but its actual financial cost is often undervalued or completely ignored. A producer’s time is worth something! Depending upon a producer’s breeding and calving seasons, the cost of spending additional time or incurring additional variable costs affects the operation’s profitability and efficiency. A more in-depth description of the foundation traits can be found here.

    Martinez, Charley, Troy Rowan, and Justin Rhinehart. “Managing for Foundation Traits in Beef Cows.” Southern Ag Today 3(2.3). January 11, 2023. Permalink