Southern Ag Today

Author: Hannah Baker

  • Seasonal Price Trends & Inventory

    Seasonal Price Trends & Inventory

    The summer and fall months are when a majority of producers are selling spring-born calves or yearlings from last fall. Due to the increase in supply of calves, prices typically decline during these months as demand from feedlot buyers is more easily met than in the spring. In Florida and nationwide, we started seeing this decline in prices a little earlier (April), which is partly due to the market responding to the outbreak of HPAI H5N1 in dairies, earlier trader’s recession fears, and more fed beef production than last year. However, prices still remained well above 2023 levels. Going into the summer months, as mentioned in a previous SAT article, prices followed the seasonal trend of declining in the summer and fall.

                Figure 1 shows the average monthly price index for 450-500 lb steers in Florida from 2018-2022. This figure is simply a visual to show how we know the current dip in prices is normal for this time of year. The price index (blue line) shows the relationship between each month’s average price and the annual average price. When the price index is above 100%, that means prices in that month, on average, are higher than the annual average, such as in the spring. When the price index is below 100%, that means prices in that month, on average, are lower than the annual average, such as in the fall.   

                Now, Figure 1 only represents 2018-2022, not 2023 when prices were transitioning from a low point to a high point. Figure 2 shows how this transition period did not follow the typical seasonality trend (orange line). Prices continued rising into 2024, but then began falling as previously mentioned and much like we saw in 2015. However, the difference to notice between 2024 and 2015 is inventory levels and the rate of expansion (Figure 3). In 2015, expansion had already started when prices were at the levels we are seeing today. There was no incentive for prices to climb back up after the typical dip in the fall. In the current market, we have not started expanding and have already hit new record-high calf prices. This indicates that while we are experiencing the effects of seasonality this year, it is not expected that we are headed for a continuous low level of cattle prices for quite some time.  

    Figure 1. Average Monthly Price Index for Florida Steer Calves

    Figure 2. Average Monthly Prices for Steer Calves

    Figure 3. Beef Cow Inventory and Monthly Calf Prices

    Baker, Hannah. “Seasonal Price Trends & Inventory.” Southern Ag Today 4(40.2). October 1, 2024. Permalink

  • The Now and Later of Feedlot Inventories

    The Now and Later of Feedlot Inventories

    USDA released the latest monthly cattle on feed report on Friday, the 22nd after anticipation about how much higher February placements would be compared to January placements. February placements (cattle entering the feedlot) were 10 percent higher than a year ago and 5.5 percent higher than cattle placed in January 2024. Several factors played a role in this increase such as harsh winter conditions early in the year making for unfavorable pen conditions for cattle in January, an extra day in February due to it being a leap year, and record high cattle prices incentivizing producers to sell cattle. 

    Prices for 450-500 pound steers in Florida are 46.8 percent higher than a year ago and prices for heifers of the same weight are 41 percent higher. Recent high calf prices have encouraged selling heifers, expecially by those with hay bills to pay from feeding through much of last year.  But, the growing expectation of even higher prices to come will encourage holding heifers to expand cow herds. 

    However, the increase in cattle on feed, specifically heifers, is a short-term situation. Heifers and cull cows entering feedlots and packing plants are directly contributing to beef production now, rather than being bred so they could indirectly contribute to beef production through their offspring later. The result is that cattle supplies will become even more limited than they are now and will affect long-term beef production in the coming years. This outcome can already be seen by calculating feeder cattle supply (the number of calves outside of feedlots) from the Cattle Inventory report using the following formula: (number of heifers not intented for replacement (other) + steers >500 pounds + calves <500 pounds) – cattle on feed. As of January 2024, feeder cattle supplies total at 24.2 million head, down 9 percent since the last herd peak in 2019 and the smallest since 1972 according to available data. Feedlots will soon not be able to continue maintaining current inventory levels. 

    Baker, Hannah. “The Now and Later of Feedlot Inventories.” Southern Ag Today 4(14.2). April 2, 2024. Permalink

  • What Should I Do With My Heifers?

    What Should I Do With My Heifers?

    A common question asked each year by cattle producers is, “What should I do with my heifers? Should I raise them as replacements or sell them as weaned heifers?” This question is especially relevant in today’s market of high prices and the inevitability that expansion will have to start at some point. The answer involves penciling out the expenses and deciding which option best suits an operation in the current market. Costs of developing heifers include the current value of weaned heifers (opportunity cost), variable expenses, breeding costs, fixed expenses, and absorption costs. The Replacement Heifer Calculator discussed in this article aims to serve as a guide in organizing each of these costs and can be used as an estimation tool to calculate what it may cost to develop heifers on a specific operation and if it is economical to do so.  The calculator includes several key cost concepts, including:

    1. The opportunity cost of selling weaned heifers must be recognized. “What revenue will be forfeited if I decide to raise these heifers rather than selling them now?” Understanding the opportunity costs allows for comparisons at the end of the estimation process to see which option is the most economical for an operation. 
    2. Variable expenses (feed, medications, and pasture management) and fixed expenses (land rent, labor, and interest) are important for calculating what each heifer needs so that she will be 60-65% of her mature body weight at the time of breeding. A way to remember what costs will go into these sections is to ask: “What is needed for the health and nutrition of the heifer?” Variable expenses will vary across operations and from year to year due to fluctuating input costs. Fixed costs should remain roughly the same year to year but will vary across different operations. Interest is included to account for the time between the opportunity to sell them as weaned heifers until they are developed. 
    3. Breeding costs are just that: “What is it going to cost to breed each heifer?” Whether you are using bulls or artificial insemination (AI), there are costs associated with both. Using natural service involves the costs of purchasing and maintaining the bull or bulls. Annual cost is determined using the following formula: ((purchase cost – useful years in the herd)/value at culling). A bull’s maintenance cost is his total variable costs, similar to a heifer’s variable cost: “What are the costs associated with maintaining the health of a bull?” The annual bull cost plus the maintenance cost divided by the number of heifers he will be expected to breed is his total cost. This total cost is then multiplied by the number of bulls needed, and then divided by total number of heifers to calculate the breeding cost of each heifer.
    4. Absorption costs represent the cost of developing open heifers.  These costs are absorbed by the bred heifers that remain in the operation.  However, absorbed costs can be offset by the revenue from selling those developed, open heifers. The cost to develop all heifers is multiplied by the number of open heifers and then divided by the number of bred heifers to assign additional development cost to each bred heifer (cost absorbed). The revenue received by the sale of open heifers is then divided by the number of bred heifers to offset the additional development cost (revenue absorbed). All totals from each section can now be summed to estimate the cost of developing heifers. 

    As an example, current prices for weaned heifers in Florida have been well above $2.00 per lb. since April 2023 and are continuing to rise. Prices for replacement cattle, open or bred, can be expected to follow the same trend in Florida as the demand for and value of replacement cattle increases when expansion begins to occur. Understanding the full cost to develop heifers allows you to compare that cost to selling heifers at weaning and buying bred replacements.  If the price of bred heifers is greater than the total cost to develop bred heifers, a potentially profitable investment has been made in your heifers. Of course, also important to the decision is your strategy for genetic development, which must be weighed against the value of weaned heifers, development costs, and the cost of purchased replacements. These decisions are all about the goals and risk management strategies of each operation. According to the example in Table 1, the total cost to develop 100 heifers is $172,250 or $1,722.5/hd.  However, after considering the revenue of selling 10 open culls, the net development cost is reduced to a total of $150,650 or $1,673.89/hd for each of the remaining 90 bred heifers. The current value of young, bred replacement cattle with an average weight of 1,100 pounds is $1.54 per lb. or roughly $1,700/hd in Florida. Using the results of the example, you would save approximately $27/hd or a total of $2,430 if you raised your replacements (90) rather than buying them. Even though the price you would have received for selling weaned heifers is higher than the cost of development, the long-term outcome in this scenario suggests that the cost of development was worth the investment. With the value of female cattle expected to rise in the coming months due to inevitable expansion, raising your own replacements to rebuild your herd may be a more economical decision. Expenses can be overwhelming when looked at as a short-term lump sum. So, it is important to look at them as long-term investments when possible. To download the Replacement Heifer Cost Estimation Tool click here. The file will be located under ‘calculators’. 

    Table 1. Raising Replacement Heifers in Florida

    Baker, Hannah. “What Should I Do With My Heifers?” Southern Ag Today 4(1.3). January 3, 2024. Permalink