Category: Livestock Marketing

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

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.