Category: Livestock Marketing

Dairy farmers in the Southeast, Appalachian, and Florida Federal Milk Marketing #7 (FMMO #7) orders are ultimately paid on the amount of skim milk and butterfat they produce. Growing demand for dairy products like cheese and butter have increased butterfat values and their impact on milk prices over time.  For some perspective, Figure 1 contains the historical Uniform Butterfat Price for the Southeast Federal Milk Marketing Order from 2000 to 2024. There has been significant volatility, and the impact of COVID is pretty clear, but the general upward trend is evident – butterfat has become increasingly valuable over the last 24 years.

In the interest of painting a complete picture, Figure 2 contains the Uniform Skim Price for FMMO #7. As with the butterfat series (Figure 1), volatility is clearly present. One can see strong skim milk price levels in 2007, 2014, and 2022, but one can also see multiple times when skim milk prices were south of $10 per cwt. The slight upward trend over time in skim milk price is not as evident as the trend in butterfat prices. 

Because butterfat only represents a small percentage of the milk that is produced, it is easy to underestimate its significance on milk price at the farm level. To emphasize, for the month of March 2024, the uniform skim milk price was $11.23 per cwt and the butterfat price was $3.2099 per lb. When uniform milk prices are calculated by the orders, they are done so by assuming 3.5% butterfat levels. With that 3.5% butterfat assumption and a $3.2099 butterfat value per lb, each cwt of milk yields a butterfat value of $11.23 (3.5 lbs @ $3.2099 per lb). At the same time, the skim milk value from a cwt of milk was calculated to be $10.84 (96.5 lbs @ $11.23 per cwt). Combining the butterfat and skim values results in a uniform milk price of $22.07 per cwt for the month of March. This calculation can be seen in the first row of Table 1. Note that even at 3.5%, the butterfat value represents just over half of the uniform milk value. 

This uniform milk price does not represent the price that an individual dairy producer would receive as that would be impacted by any premiums and/or deductions, as well as how their location differential compares to that of the base zone. Readers should use the specific prices with caution as they are just used for illustration. But, the difference in milk price as butterfat increases is very telling. Note that each additional 0.25% increase in butterfat results in an increase in milk value of $0.77 per cwt. Table 1 also illustrates the same milk price calculation for butterfat percentages from 3.5% to 5.0%. At 5%, milk price exceeds $26 per cwt, and butterfat accounts for over 60% of that value. Given the value differences calculated in Table 1, it is clear why increasing butterfat has been a focus of many dairy farmers in recent years. It is important to note that Table 1 looks only at price and does not consider the potential for increased expenses that may be associated with increasing butterfat.  

Table 1. Uniform Skim Milk and Butterfat Price and Their Impact on Milk Value

% Butterfat	Skim Milk Value	Butterfat Value	Milk Price	% of Value from Butterfat
3.50%	$10.84	$11.23	$22.07	50.9%
3.75%	$10.81	$12.04	$22.85	52.7%
4.00%	$10.78	$12.84	$23.62	54.4%
4.25%	$10.75	$13.64	$24.39	55.9%
4.50%	$10.72	$14.44	$25.17	57.4%
4.75%	$10.70	$15.25	$25.94	58.8%
5.00%	$10.67	$16.05	$26.72	60.1%
Estimated from March 2024 Uniform Price Computations for FMMO #7. Uniform Skim Milk Price was $11.23 per cwt and Uniform Butterfat Price was $3.2099 per lb.

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Burdine, Kenny. “Butterfat Continues to be a Major Driver of Milk Value.” Southern Ag Today 4(18.2). April 30, 2024. Permalink

Included in the biannual Cattle report is the number of milk cows that have calved in the U.S. and by most individual states. The number milk cows that have calved are holding steady at the national level but individual states in the Southeast show variations in inventory (Table 1). Florida is the only state that shows an increase in milk cows that have calved, while Arkansas, Louisiana, and South Carolina had double digit percentage losses. The thirteen Southeastern states account for 11.33 percent of the milk cows that have calved in the U.S. Texas has the largest number of milk cows in the Southeast and has the fourth highest milk cow inventory in the U.S.

Table 1.	2023	2024	Percent of
	(1,000 head)	(1,000 head)	previous year
Texas	650	635	98
Florida	92	98	107
Georgia	92	91	99
Virginia	67	66	99
Kentucky	45	43	96
North Carolina	39	38	97
Oklahoma	39	38	97
Tennessee	26	25	96
South Carolina	9	8	89
Louisiana	8	7	88
Mississippi	6	6	100
Arkansas	4	3	75
Alabama	2	2	100
U.S.	9,397.50	9,356.80	100

In addition to inventories, milk production per cow is a crucial factor for the dairy industry. Using the 2023 annual production estimates from USDA Quick Stats database, Texas is the only Southeastern state that has a per cow milk production average that is higher than the U. S. average of 24,117 pounds of milk per head, as seen in table 2.

Table 2.
	Annual Milk Production
	Pounds/Head
TEXAS	25,802
NORTH CAROLINA	23,526
GEORGIA	22,275
VIRGINIA	20,882
KENTUCKY	20,333
FLORIDA	20,313
TENNESSEE	18,680
SOUTH CAROLINA	18,500
OKLAHOMA	17,692
ALABAMA	14,000
LOUISIANA	12,625
MISSISSIPPI	12,333
ARKANSAS	11,000
U.S. Average	24,117

Milk production in the U.S. is increasing over the long term but, it’s coming from regions other than the Southeast. For more than a year, dairy producers have suffered from disastrously low milk prices and low returns.  The result of low milk prices has been declining dairy cow numbers, milk production per cow falling below year before levels, and reduced total milk production in some months reversing the long term trend of increasing milk production.  

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Runge, Max . “Milk Cows in the Southeast.” Southern Ag Today 4(17.2). April 23, 2024. Permalink

USDA, National Agricultural Statistics Service (NASS) has recently proposed to eliminate some data reports.  Reports for both livestock and crop sectors would be impacted.  Livestock and meat economists would consider some of the affected reports to be particularly important to market efficiency.  The article looks at a few of those and describes how they are used and why they are important to farmers and ranchers.  

July Cattle Inventory

USDA conducts two cattle inventory surveys per year.  The January report is the most comprehensive and includes state level cattle numbers.  The July report is smaller (it does not breakout numbers by state), but it provides a few valuable pieces of supply information: number of beef cows, heifers held for replacement, and calf crop.  One of the biggest questions in the cattle market today is when will the cattle cycle turn and expansion begin.  The beginning of herd expansion will drive calf prices even higher, will signal how long high prices will last, and how long until beef production begins to grow.  

This report will be very valuable over the next several years.  If this report had to be discontinued, now is the worst time to do it.

Cattle Inventory (January)

The proposed changes include dropping beef cow inventory in a number of states.  Total, or all, cattle would still be reported. The proposed discontinued states include Louisiana, Mississippi, North and South Carolina, and Virginia.  The South is cow-calf country and is a major supplier of feeder cattle to feedlots across the Plains.  

The number of beef cows in these states is critical to the estimation of feeder cattle supplies and the projection of prices to use in planning.

County Estimates

USDA’s announcement included the elimination of the annual county estimates of beef cows and cattle.  These county estimates allow for the analysis of natural disaster impacts on agriculture such as the recent Panhandle wildfires, hurricanes, and drought in Texas.  Following hurricane Harvey, the county level data allowed us to know with some certainty that there were 1.1 million beef cows at risk in the impacted counties.  From there, upper bounds on lost cattle and grazing losses could be estimated.  This Spring, wildfires across the Texas Panhandle, including the Smokehouse Creek Fire, burned more than 1 million acres.  The county level beef cow estimates allowed for the estimation and validation of estimated cattle losses due to the fires.  

Other Livestock Data

Some other changes proposed including dropping Virginia and Maryland from state level estimates in the Chickens and Eggs report.  This state level data is important in doing research on the impact of animal diseases and the effectiveness of alternative disease controls.  Virginia and Maryland remain important poultry producing states as part of the Delmarva (Delaware, Maryland, and Virginia) region.

On Balance…

We all know USDA often faces budget cuts and they must judiciously use taxpayer resources. It is also true that USDA reports are valuable to market participants and reducing the available information will result in varying degrees of negative impacts on market efficiency.   The reports mentioned here, – including the July Cattle, County Estimates, and state level breakouts of beef cow inventory in the South – have tangible benefits to farmers and ranchers.  A good argument can be made that these reports should be kept.  If you are interested in providing comments to USDA on these, or other reports, contact your NASS State Statistician.

Anderson, David, and Josh Maples. “Data Delivers Market Transparency, For Now.” Southern Ag Today 4(16.2). April 16, 2024. Permalink

Input prices have been a major topic of discussion over the last couple of years. As I write this, we are enjoying some extremely high cattle prices. But those high prices have been at least somewhat offset by increases in production costs. This has been true of feed, fertilizer, fuel, machinery, labor and many other inputs. On the heels of USDA’s Prospective Plantings report, it seemed to be a good time to discuss recent trends in feed prices and the impact they have on feeder cattle values. 

For some recent perspective, the US average corn price per bushel is tracked in the figure below from January 2020 through February 2024. It’s easy to see the low-price levels during COVID, price levels exceeding $7 per bushel during 2022, and the significant price decreases seen through the 2023 season. Corn tends to be the market leader and trends in corn price are typically representative of other feedstuffs.  Corn prices have changed dramatically over the last year and will likely continue to do so in the coming months.

The demand for feeder cattle is derived from the demand for fed cattle. Anything that impacts the profitability of finishing cattle impacts the value of feeders. So, feeder cattle values are heavily impacted by the cost of taking those feeder cattle through finishing and feed prices are the most significant cost of doing that. I am also showing projected cost of gain from Kansas State University’s Focus on Feedlots monthly reports in the second chart. Note how closely projected cost of gain follows corn price per bushel. As corn price rises and feedlot cost of gain increases, this gets reflected in lower feeder cattle values – feedlots cannot pay as much for feeders. As corn prices decrease, lower feedlot cost of gain leads to higher feeder cattle values as feedlots place feeders in the lower cost environment. While there are a large number of factors behind the strength of feeder cattle prices over the last year, lower feed prices have been part of story. 

Finishing costs also impact value of gain on feeder cattle, which is reflected in the market through value differences across cattle at different weights. When finishing costs are high, feedlots tend to bid less aggressively on smaller calves and lean towards placing heavier feeder cattle. This tends to result in higher prices for heavy feeders relative to calves. This is sometimes described as a tightening, or narrowing, of price slides. As this happens, the value of pounds that are added prior to feedlot placement increases, and more incentive is created for cow-calf and growing operations to sell heavier feeder cattle. As feed prices have fallen recently, this incentive has also changed a bit. By no means am I suggesting that incentives to sell larger feeders don’t exist, but I do think the value of gain on feeder cattle has decreased from where it was this time last spring.

Coming full-circle, planting intentions impact feeder cattle markets because they impact the supply of feedstuffs and that has feed price implications. Late March’s Prospective Plantings report suggested a significant shift was expected with nearly a 5% decrease in corn acreage from 2023. The report also projected a 6.3 million acre decrease in prospective plantings of all principal crops, which would seem to suggest there is potential for more acreage to be planted in 2024. CME© corn futures rose in response to the report on Thursday but were down a bit at the time of this writing. In reality, this is just the beginning and actual planted acreage will respond to this information, and many other factors, this spring. But it definitely suggests the potential exists for tighter corn supplies later in the year. USDA’s Prospective Plantings report can be found at https://downloads.usda.library.cornell.edu/usda-esmis/files/x633f100h/31980870j/fj237r16t/pspl0324.pdf.

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Burdine, Kenny. “Prospective Plantings, Feed Prices and Implications for Feeder Cattle Markets.” Southern Ag Today 4(15.2). April 9, 2024. Permalink

USDA released the latest monthly cattle on feed report on Friday, the 22^nd 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. 

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