Southern Ag Today

Author: Justin Benavidez

  • A Very (Very) Early Look at Post-Drought Herd Rebuilding

    A Very (Very) Early Look at Post-Drought Herd Rebuilding

    The average of various ENSO (El Niño and the Southern Oscillation) models suggest a trend out of La Niña conditions and toward neutral conditions through the spring and into El Niño territory by the May-June-July quarter. Where La Niña typically brings drought to the Southern Plains and other parts of the South, neutral to El Niño conditions are associated with average and above average rainfall. The combination of increasing calf values and the potential for improved rainfall through the summer has some ranchers considering restocking strategies from drought-induced culling. 

    We’re still very early in the decision-making process of whether to grow a herd and in some cases, there may not be replacement cows available that naturally fit your environment. However, it’s worth beginning to think about what cows are a financial fit for your operation so that you can take advantage of opportunities and avoid overpriced replacements when the market takes off. 

    Let’s take a look at various replacements offered around Texas in the month of December. Using Texas A&M AgriLife Extension’s Cow Bid Price estimator, forecast of price, and forecasts of expected cow costs for the area we’ve estimated Net Present Value (NPV) of the investment in these replacements and what a rough break-even bid would be. 

    We can see several trends in the data. First, the ratio of number of calves produced by the cow to price paid for the cow is a critical component. The Table below looks at 2 cows that differ by stage of pregnancy, weight, purchase price, and number of calves expected to produce over her remaining life.  The number of calves to produce in her expected life is key, but don’t forget her value as a cull cow.  Often the cull cow value is a major part of the cow’s income producing life.  It’s also important to note that though the last cow on the list is the cheapest, in this case, she represents a negative NPV. However, were she roughly $100 less expensive she would net a profit in the next year and likely generate additional cash flow as a cull. 

    There are thousands of combinations and considerations when making the decision to restock a herd. The key is to use your data to evaluate your own business. There is the potential that the $1,100 cow is a steal, but in other cases, she could steal from you, and if we return to the $3,000 replacement market the need to run the numbers will become all the more important. 

    Author: Justin Benavidez

    Assistant Professor and Extension Economist

    justin.benavidez@ag.tamu.edu

    Benavidez, Justin. “A Very (Very) Early Look at Post-Drought Herd Rebuilding.” Southern Ag Today 3(2.2). January 10, 2023. Permalink

  • Using Seasonal Precipitation Outlook Maps in PRF Planning

    Using Seasonal Precipitation Outlook Maps in PRF Planning

    The deadline for Pasture, Rangeland, and Forage (PRF) signup on December 1st is coming up quickly. Whether you’ve had plenty of rain this year or are in a severe drought, it’s worth visiting with your crop insurance agent to review your PRF coverage. You may know PRF by its other name, ‘rainfall insurance’, a good name for a product that insures you against lower precipitation. You can find details on PRF’s structure, coverage options, premiums, and more here.

    A key component of PRF coverage is selecting the correct interval(s), two-month periods through the year for which you will establish coverage against lower-than-average rainfall. There are many ways to choose the appropriate intervals and the share of coverage you intend to allocate to each. One tool is the National Oceanic and Atmospheric Administration’s (NOAA’s) Seasonal Color Outlook Maps. 

    These maps express expectations for precipitation in terms of the chance that precipitation is above or below historic normal for the period; they aren’t necessarily indications of how much more or less precipitation to expect. For example, the map below represents expectations for the January to March quarter of 2023. You can see that forecasts for all of Texas and Florida, along with portions of coastal states from Louisiana, up to North Carolina, suggest a 33-50% chance of precipitation being ‘Below Normal’ for these months. The same forecasts for parts of Kentucky, Arkansas, and Tennessee suggest a 33-40% chance of ‘Above Normal’ precipitation. Other maps detailing later 2023 forecast similar expectations through the April-May-June period, when La Nina conditions are forecast to break and ‘Normal’ precipitation conditions are expected to return to the south. 

    Using these maps together across a year may be a good place to start picking intervals to allocate coverage. Though these maps can’t necessarily tell you what share of precipitation to insure, they can indicate the intervals more likely than others to see ‘Below Normal’ precipitation, precisely the metric indemnities from PRF are based. Consider southeastern Georgia. The map below suggests a 50% chance of ‘Below Normal’ precipitation from January to March. Corresponding maps on NOAA’s website show Equal Chances (corresponding to roughly ‘Normal’ precipitation) beginning in March and holding throughout the year. Keeping in mind that PRF indemnities are based on actual rainfall compared to historical averages, these maps suggest that a producer may consider weighting a greater share of their coverage to the first quarter of 2023 compared to the last three quarters of 2023. 

    There are plenty of other considerations to make when allocating coverage. This is just one simple tool to consider when assessing your options. You can find the NOAA Seasonal Precipitation Outlook maps here, and if you have more questions on PRF coverage, visit your USDA certified crop insurance provider or your local Extension faculty about your options. 

    Author: Justin Benavidez

    Assistant Professor – Management Economist, District 1

    justin.benavidez@ag.tamu.edu

    Benavidez, Justin. “Using Seasonal Precipitation Outlook Maps in PRF Planning.” Southern Ag Today 2(47.3). November 16, 2022. Permalink

  • Adding Value to Feeder Calves

    Adding Value to Feeder Calves

    As spring-born calves across the country reach the end of their stay at their farm or ranch of origin, it is important to consider management options like implanting, weaning, castrating bull calves, and dehorning that add value on sale day. Each choice requires an investment of time, facilities, and some education, but when used appropriately, each option tends to yield a positive return on investment, ROI. 

    Whether you have weaned or are in the post-weaning phase, implanting calves has one of, if not the highest ROI of any production tool in the business. Implants contain growth stimulants that increase muscle growth and result in higher weaning weights and sale weights. Consider a popular implant priced at $40.78 for 24 doses or $1.70 per dose. The product is marketed to increase weaning weight by 20-35 lbs. That means each additional pound costs roughly $0.06 to produce, and today those additional pounds are worth anywhere from $1.70 to $2.15/lb. Some producers will reach out to us and suggest they are missing the premium for NHTC calves if they implant; if you are not in a verified, likely audited program that produces calves bound for either the EU or Whole Foods, those calves are unlikely to see any premiums at sale, and they are implanted the minute they set foot in the feed lot. Remember, even if you’ve already weaned calves, implants can be utilized post-weaning.

    On that note, weaning is another management choice that adds significant value to calves at sale. However, the investment in weaning is certainly greater than that required when implanting. The table below reports sale values for weaned steer calves and their un-weaned peers in different weight ranges. With only one exception, the value of weaned calves exceeds that of un-weaned calves. In one case, the premium for weaned calves was 20 cents per pound or roughly $94 per head. The average difference in weaned and un-weaned calf prices varies by weight class but averages $8.33 per hundredweight across the report. This sample suggests that weaning increases the value of each calf by roughly 4.6%. 

    Medium & Large #1 and #2 Steer Values for the week of 10/3/2022 – 10/7/2022 ($/CWT)

    Dehorning and castrating bull calves both add value as well. Data on each management decision is reported less frequently through AMS, but expect both management choices to yield a positive ROI. A few data points from Texas collected over the last month suggest a $0.19 per pound discount for bulls compared to steers and a $0.03 per pound discount for horned calves. 

    Consider the aggregate difference in a few management decisions presented here. Last week at the Oklahoma National Stockyards, a weaned steer calf that was implanted and sold at a weight of 450 lbs. brought roughly $787.50. A similar quality un-weaned bull calf that was un-implanted and therefore weighed only 420 lbs. may have brought only $627.80; a total discount of $159 per head compared to the calf from the producer that applied some management tools. 

    We want to keep animal welfare at the forefront of our decision-making, even before financial gains, so always read and follow the product label. It is also true that the misapplication of these tools can result in a financial loss. If implanting calves, castrating bulls, dehorning, or weaning is new to your business, be sure to reach out to your county Extension agent, Extension Animal Science Specialists, or at least experienced producers you trust. The experience and knowledge these groups will bring to your operation will help prevent a financial misstep and will help you maintain the well-being of your cattle. 

    Benavidez, Justin. “Adding Value to Feeder Calves“. Southern Ag Today 2(43.3). October 19, 2022. Permalink

  • Negotiated Fed Cattle Sales Decline in 2022

    Negotiated Fed Cattle Sales Decline in 2022

    Since the 2019 fire at the Tyson plant in Holcomb, Kansas a lot of attention has been given to the volume of fed cattle traded through different transaction types, largely due to concerns over price discovery. 

    Fed cattle sales are categorized into two types; negotiated and non-negotiated sales. Negotiated transactions are sales made in the cash or spot market, and include negotiated cash sales and negotiated grid sales. Non-negotiated transactions are sales in which at least the base price is not negotiated in the time immediately preceding the transaction. Non-negotiated transaction types include formula sales, forward contract sales, and grid sales. 

    A major difference between the two is that negotiated sales contribute to price discovery, while non-negotiated sales do not. Price discovery is the result of an interaction (bid and ask) between buyers and sellers. The base price for a non-negotiated sale is often based on negotiated prices in the time period immediately preceding the sale, but the sales themselves do not contribute to price discovery. 

    Negotiated trade volumes as a share of total trades have declined in 2022 when compared to both 2021 and the previous five year average, regardless of region. Though negotiated trade as a share of total trade remains high in regions like Iowa-Minnesota and low in regions like Texas-Oklahoma-New Mexico, the share of total transactions that are negotiated has dropped across the board. Interestingly, this trend is not coupled with lower fed cattle prices, as slaughter cattle prices have remained higher than 2021 and the previous five year average through 2022, and have been relatively stable.  

    Benavidez, Justin. “Negotiated Fed Cattle Sales Decline in 2022“. Southern Ag Today 2(42.2). October 11, 2022. Permalink

  • Economic Culling Criteria

    Economic Culling Criteria

    Low feed resources during winter are the primary driver of culling, but the widespread drought that is slowly expanding into the deep South is also driving historic beef cow liquidation. As we approach prime culling season (September through December) and continue to cull to manage through drought conditions, it is important to be strategic, and to keep the economics of culling in mind rather than heading to the sale with whatever was easy to load that day. 

    Remember that profit per head is simply; 

    Profit per head = Total Revenue per head minus Total Cost per head

    Any traits or performance issues that make a cow cost more or generate less revenue should be factored into keeping or culling her. Knowing the details of a cow’s performance when culling is a prime example of the need for good, cow level records. It’s also important to remember that culling can serve as an opportunity; if done strategically, culling can reshape the genetic profile of your herd and increase its profitability over time. 

    What are the factors influencing a cow’s revenue generation? The number one factor is her ability to wean a live calf. If she has ever failed to wean a live calf, she is already behind in terms of paying for herself and statistically is more likely than the remainder of the herd to fail to wean a live calf again. These cows should be near, if not at the top of the list for culling. Beyond raising a live calf to weaning weight, matching the appropriate calving season, stage in productive life, and progeny traits like low weaning weight can all influence revenue and should be considered when culling. 

    Cull cows can also generate revenue through their own sale. Cull cow values are at historic highs. Combined with the expectation of high feed costs through the upcoming winter, some marginal cows may even be worth consideration for ‘another career,’ as my animal science colleague likes to say. 

    Finally, don’t forget to factor in individual cow’s costs. Cows that need assistance during calving, cows that have structural or confirmation issues that might impact their ability to breed, and cows with temperament problems should all warrant consideration come time to go to town. 

    Benavidez, Justin. “Economic Culling Criteria“. Southern Ag Today 2(36.3). August 31, 2022. Permalink