Category: Livestock Marketing

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

As commercial poultry growers have improved housing insulation and tightened up old leaky houses, heating efficiency has improved, and fuel costs have declined. However, as overall bird size has increased across the U.S., keeping larger birds properly ventilated and cool with exhaust fans has driven electricity costs up. The short-term forecast for electricity may be positive, but the overall trend is increasing prices. Small scale solar has also increased across the country and is one of the ways poultry growers have explored to lower their power bill by offsetting utility grid power usage. Currently there are significant federal incentive programs that make solar on poultry farms more attractive. Some solar components have decreased in price as well. However, as with many things, buyers should do their research. 

Current solar incentives have the potential to pay for a large percentage of a solar project. The most impactful incentive is the USDA’s current Rural Energy for America Program, commonly known as a REAP grant. Currently, the REAP program offers up to 50% of the installation cost of a qualifying project to be covered by the grant. It is important to understand that these grants are competitive, and the funding is limited. They are also not funded up-front but are reimbursement grants. Go to https://www.rd.usda.gov/programs-services/energy-programs/rural-energy-america-program-renewable-energy-systems-energy-efficiency-improvement-guaranteed-loans for more information. The REAP grant is by far the most available opportunity for poultry growers to obtain assistance for their solar project. It is advised that a grower obtain the services of an experienced grant writer or technical service provider (TSP) to help complete the grant application. Oftentimes a solar installation company will have secured the services of a grant writer or have someone skilled to do so on staff. These services usually carry a fee that is often not charged unless a grant is secured.

Next to consider is the Federal Income Tax Credit (FITC) available for qualifying solar energy projects. Currently the FITC is set for 30% of the installation cost taken off owed taxes. The tax liability can be taken forward 22 years and look back 3 years. There are additional discounts added if certain system criteria are met. There is an additional 10% tax credit applied based on the use of qualifying U.S. made materials. If the system is being installed in a historically “low income” area, an additional 10% credit is applied. The problem for many poultry growers is that they typically do not have high tax liability until later in the farm’s life after depreciation is used up. Then this usually coincides with the need for equipment replacement and heavy maintenance requirements, which often require refinancing or additional loans. This is one reason the FITC incentive portion of the solar option may be more fitting for farms that have paid off their houses and are expecting to incur increasing tax liabilities. However, there is now an opportunity for growers to sell the unused tax credits at a reduced cash value as part of the Clean Energy Tax Credit program passed under The Inflation Reduction Act of 2022 (IRA) (Pub. L. 117-169, 136 Stat. 1818 (2022)).

The final thing to discuss here, but the most important to consider with the solar option, is what kind of solar deal a grower has with their current utility company. If you have anything less than one to one net metering, then it is most likely that a system that offsets less than 100% of your total power usage will be best suited to a poultry farm. Due to the irregular usage patterns of poultry houses, large systems have the potential to put a lot of power back into the grid for low prices buy-back to the grower. In most situations examined where there is something less than full net metering, poultry farms optimally achieve 60% or less power offset, depending on the cost of the electricity and the price given to the grower for excess power. Therefore, growers should not think of the incentives as a way to offset more power by installing larger systems but use the incentives to pay off an optimized system sooner rather than later. 

Amid the run to record high calf prices in recent weeks, the cow market is higher too.  Cow prices are higher on tighter supplies of cows and beef as we get closer to grilling season (it’s always grilling season for most of us down here).  

Since the beginning of the year, total cow slaughter is about 9.4 percent lower than last year.  Beef cow and dairy cow slaughter are lower than a year ago.  Dairy cow slaughter tends to be its highest early in the year before declining in Summer.  Beef cow slaughter is pretty close to the 5-year average.  You’ll notice in the attached charts that beef cow slaughter tends to pick up mid-year before hitting its peak in Fall.  

Cull cow prices tend to increase seasonally into late Spring and early Summer.  Auction prices have shown a lot of volatility bouncing between $85 and $105 per cwt over the last 4 weeks.  National average direct cutter quality cows have continued higher hitting $104.53 per cwt last week.  The boxed cow beef cutout has increased from $205 in January to $246 last week.

More impressive than the increase in cull cow prices is the increase in lean beef prices for ground beef.  The 90 percent lean boneless beef wholesale price has increased from $255 to $317 per cwt so far this year.  A real contrast has developed between the 90 percent lean and the 50 percent lean price.  Fifty percent lean prices are about 20 percent, about $26 per cwt, lower than last year.  The contrast really highlights the tight supply situation in the cow and cow-beef market and the fed cattle market.  Heavier weights are likely contributing to some relatively higher supplies of 50 percent lean beef.  We seem to have plenty of fat to go with not enough lean.  

What to Watch For

Cull cow prices should continue to increase seasonally over the next couple of months.  Cull cow prices will look attractive compared to future calf prices from her offspring.  Once grilling season gets a little closer, watch for increasing middle meat (steak) prices.  High lean beef wholesale prices and tight supplies will continue to boost beef imports.  We’ll begin to hear more about cow plants struggling to find supplies and going further and further out to buy cows and boosting bids more.  Even more stress will be put on fast food restaurant chains selling hamburgers and pressure on ground beef prices at grocery stores.   

A Note on This Friday’s Cattle on Feed Report

USDA will release its latest cattle on feed report on Friday afternoon.  Watch for placements higher than a year ago.  We are likely to see a rare event where February placements are larger than January’s placements.  Higher placements will continue to leave more cattle on feed compared to a year ago.

Feeder cattle prices are at or above record levels across all categories. Today’s chart shows average monthly prices for four steer weight categories in Oklahoma City. Average prices during February 2024 were up approximately 35 percent above year-ago levels and were roughly 60 percent above February 2022 levels. The current prices have met or exceeded the price records previously set during the Fall of 2014.

Cattle supplies have tightened in recent years as cow-culling increased and producers have held back fewer heifers as replacements. Drought conditions, higher input costs, and tight profit margins have been key factors for the decline in inventory. The estimated number of calves produced in 2023 was 33.6 million head which was similar to the 2014 level and down by more than 3 million head since 2018. The number of calves produced in 2024 will very likely be lower again because we are starting the year with fewer beef cows expected to calve. Higher prices are a response to these tighter supplies and should eventually incentivize expansion as producers’ financial situations improve. 

The majority of cattle producers in the U.S. sell their calves in the fall months and the current expectations are for prices to remain strong through 2024. CME feeder cattle futures contracts for the fall months are trading near $2.70 per pound. For reference, the CME feeder cattle contracts have never settled above $2.55. The strong expectations for cattle are leading to attractive risk management opportunities for producers. Whether it is using futures, options, or USDA Livestock Risk Protection (LRP), now is a great time to analyze price risk management tools. 

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Maples, Josh. “Record Feeder Cattle Prices.” Southern Ag Today 4(11.2). March 12, 2024. Permalink

On February 13^th, USDA-NASS released the 2022 Census of Agriculture report.  This report provides a comprehensive agricultural overview for each state and county. The report provides information on farm operations, livestock inventory, milk production, commodity production and value of commodity production.  Hay (including alfalfa) production ranked in the top three for value of crop commodity production in six of the thirteen Southern region states.  Those states were Virginia, Kentucky, Tennessee, Texas, Alabama, and Oklahoma. 

The census is conducted and published every 5 years and is loaded with useful data about U.S. hay production.  In addition to this 5-year look at hay production, USDA Agricultural Marketing Service (AMS) report provides weekly hay prices in many markets and USDA National Agricultural Statistics Service reports annual production, hay stocks, and monthly prices received by farmers.   This wealth of information can aid in pricing knowledge.  

Drought conditions in recent years has brought attention to hay and forage which is an important input for livestock production.  There are challenges in the valuation of a hay crop.  Given the differences in form, weight, quality, species of forage, and regional availability.  Therefore, no reference price is established.  There are market reports provided by USDA that provide some market data but are geographically limited in the south. The Census of Agriculture reports state level data. 

All states in the southern region reported price data for hay, excluding alfalfa.  Fig. 1 contains the reported price per ton for hay, excluding alfalfa for the 2022 Census of Agriculture.  To better explain the price of hay, $/ton to $/bale will be assumed to be a 4X5 round bale at 880 lbs.  If the average price was $142/ton, then the bale price was $62.  Fig. 2 illustrates the reported price per ton for alfalfa for the 2022 Census of Agriculture.  As previously stated, $/ton to $/bale conversion is the same calculation.  The average price per ton was $229/ton, which caclulates to $101/bale.  

Figure 1.  Hay Price per State in the 2022 Census of Agriculture.

Figure 2.  Alfalfa Price per State in the 2022 Census of Agriculture.