Author: Charley Martinez

In 2022, beef production has been higher than last year. An indication of beef demand can be seen in wholesale beef prices. Anderson (2022) highlighted how the wholesale price of primals translate to the retail consumer. In addition to the boxed beef cutout value report, beef sales in the wholesale market can provide insights into current and future market demand for increased beef production this year. 

            Beef sales are reported by four types or methods: negotiated cash sale with the beef being delivered in 0-21 days, negotiated cash sale with the beef delivery in 22+ days, formula, and forward contract. For definition, a negotiated sale can have a delivery window of either 21 or less days or 22+ days. This means that the contracted beef will be delivered from the packer to the buyer in either 21 or less days or in 22 or more days. Prior to the mid-2000s, most beef was sold using negotiated cash sales. After the mid-2000s, formula based sales became the predominant way beef was sold in the wholesale market. Although volume of negotiated sales has decreased since 2002, the decrease depends on the type of delivery window of the sale. The trends and data discussed below use sales data from the weekly comprehensive cutout report.  Figure 1 displays the total number of weekly load sales for the four transaction methods:  negotiated cash sale with the beef being delivered in 0-21 days, negotiated cash sale with the beef delivery in 22+ days, formula, and forward contract. 

            As indicated in figure 1, negotiated sales with delivery in 21 days or less (blue line) has trended downward since 2010, while negotiated sales with delivery in 22+ days (yellow line), and formula sales (orange line) has trended upwards in volume during the same time frame. Forward contract volumes have remained relatively unchanged. Thus, the net loss seen in negotiated beef sales is attributable to the decrease in negotiated sales with delivery in 21 or less days. 

Compared to this week a year ago, volume of negotiated sales with delivery of 0-21 and 22+ days are down by 18% and 7%, respectively. But, through September of this year, volume of negotiated sales with delivery of 0-21 and 22+ days are down by 2%, and up 6%, respectively. The increase use of negotiated cash sales with deferred delivery could be an indicator of risk management by wholesale market participants with an expectation of future price movement.

Figure 1. Weekly Beef Sales by Transaction Method, Number of Loads

Reference:

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

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Martinez, Charley. “Growth in Forward Delivery Beef Sales“. Southern Ag Today 2(43.2). October 18, 2022. Permalink

Beef Photo by Jason Leung on Unsplash

In drought-stricken areas, cattle producers are having to sell more cattle than normal because of the lack of grass and increased costs of production. While some producers are selling feeder calves earlier than they wanted, the number of cull cows going to the market creates multiple ways to look at the situation. This article covers the current cull cow market and some potential management strategies to think about moving forward. 

            Figure 1 contains the weekly slaughter cow prices for Southern Plains auctions (current drought-stricken areas). The red line represents the 5-year average from 2016-2020, and illustrates the normal seasonal pattern observed in cull cow markets. The dotted line represents the weekly prices for 2021. Prices in 2021 were below the average from January-June, and then stayed relatively true to seasonal expectations. So far in 2022, prices have been frequently above the 5-year average and 2021 prices. This has created higher salvage value for cattle that had to be culled this year. But prices are starting to trend down due to the increased cull cow supply entering the market. The downward trend is expected based on seasonal patterns, but the decrease will likely continue. In the coming weeks, drought and production costs are going to be major drivers of slaughter cow supply as the market tries to find a floor. 

            From a management strategy, producers often start with older cows first. After the older cows, producers get pickier on reasons to cull (bad feet, other non-ideal characteristics). These types of cows have probably been culled already, which leaves the producer with management decisions (cull bred females? Cull yearling females?, etc.). To help with that decision, identify inefficient females. If they are bred, analyze the females calving cycle. If they are yearling females, look at their pedigree, and identify any maternal reproduction issues. If a producer has already culled based on age, bad feet and other physical traits, and reproduction, then look for alternative marketing strategies such as selling females to another producer in a region that isn’t in drought. If a producer has superior genetically based cattle, they probably won’t find enough salvage value from sale barn prices and having a marketing strategy to find more value could be useful for not only increased salvage value, but also for cash flow reasons. 

Martinez, Charley . “Between a Rock and a Dry Place: Culling Decisions“. Southern Ag Today 2(30.2). July 19, 2022. Permalink

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. 

Martinez, Charley. “Should Feeder Calves be PI Tested?”. Southern Ag Today 2(19.2). May 3, 2022. Permalink