Category: Livestock Marketing

On July 1^st, 2023, California’s Proposition 12, which sets production standards for pork sold in California, officially came into effect. This animal welfare law requires that all uncooked pork sold in California comes from the offspring of sows that are kept in pens with at least 24 square ft. of space.  California accounts for approximately 14% of U.S. pork consumption but less than 2% of pork production, leaving producers and processors in major hog producing states, such as those in the Plains, Corn Belt, and North Carolina, to decide if it is economically viable to meet Prop 12 requirements and continue to supply the California market. A Sacramento County court order extended the time for non-compliant pork that was in the supply chain before July 1^st to continue to be sold in the California market until December 31^st, 2023. This modification was expected to help mitigate any supply chain disruptions or price spikes. 

Nevertheless, early indications from Circana retail-level scanner data reveal signs of strain in California markets after July 1^st. Pork prices have surged, expenditures are down—a classic symptom of a supply shock.  For example, pork ribs and pork loin, the top two consumed fresh pork* products in California, have witnessed substantial price hikes by the end of July. The average sales price of pork ribs and loins were 25% and 43% higher, respectively, in California, in August, compared to June. In comparison, pork rib and loin average sales prices for the rest of the U.S. were 6.4% higher and 5.4% lower over the same period. 

Concurrently with the price increase, there has been a notable decline in the volume of pork purchased in California. The total volume of fresh pork purchased in California decreased by 23% from June 2023 to August 2023. This volume represents 37% less than the average volume sold in California in August from 2020-2022. As depicted in the graph below, the volume in California generally follows the rest of the U.S. volume patterns up until the large deviation in July 2023. California is the first and largest state to implement this type of law, but it is worth noting that Massachusetts also recently enacted a similar law. These developments are likely to have far-reaching implications for consumers in affected states and livestock producers throughout the United States, including many in the South.

*Fresh pork products reported in the scanner level data include AO pork, ground pork, leg (fresh ham), pork ingredient cuts, pork loin, pork offal, pork ribs, and pork shoulder.

Figure 1: Pork Rib and Loin Average Sales Price

Figure 2: Fresh Pork Sales, by Volume

Hawkins, Hannah. “Proposition 12 Preliminary Price Impacts.” Southern Ag Today 3(38.2). September 19, 2023. Permalink

As the 2023 hay season comes to an end for much of the South, the last cuttings are being baled and balers are being parked for the year.  Loader tractors will have some rest before it’s time to start feeding out hay.  In some parts of the South, feeding has been going on for some weeks and drought stopped hay production.  When purchasing hay here are some questions to consider:  How much hay do I need to make it through the winter?  How much can I spend on hay?  These questions can be answered by planning.  Working through a budget for the operation will show the potential cost incurred by various situations, whether it is a change in cost or a change in the amount needed.

Hay Quantity.

Hay is measured primarily by two methods: by the bale or by the ton. Most commonly hay marketing occurs by the bale. When planning on hay needs for the winter or working through a budget, focus on the tonnage required.  Accounting for hay needs by the ton will allow for pricing comparison across various bale sizes, assuming constant moisture levels.  Table 1 provides a standard bale weight estimate based on bale size.  Using tons as a measurement will allow for livestock consumption based on pounds consumed per day.  This method does require some pencil work but will provide more efficient use of hay resources.

Hay Quality:

Here is the most common hay quality test: “It’s got good color and smells good, must be good.”  While I’m not going to disagree with long-standing tradition, there is value in the marginal investment of requesting fertilization records/soil sample data, herbicide records, and a forage sample.  Is this worth the trouble?  It will depend on the willingness to minimize risk.

Fertilization and soil sampling records will illustrate that the forage grown had fertility management applied correctly.  The presence of weed load in hay can be a problem.  To safeguard against this, herbicide records will show that unwanted seeds/plant matter were managed.  A forage sample provides the best picture of the quality of the purchased hay.  The sample results will also provide insight into additional nutritional requirements.  Knowing the quality can also help fine-tune feeding to meet the nutritional needs of the cows.

In closing, feeding livestock during low/no grazing periods adds to the cost of the operation.  More information can allow for the efficient use of operation dollars and decreased cost in herd health/losses. Lastly, to give some “cud to chew on,” consider the choices typically made when purchasing a commodity blend supplement feed.  Would you purchase a load of commodity blend feed based on a guess of how much it weighs?  Or would you request a weigh ticket to verify amount purchased?  How about the quality of the feed?  It helps to know what the nutritional value is to make the best decision.  All of this takes extra work; however, management of input cost is a great tool to ensure profit potential.  

At conferences, field days, and producer meetings throughout the Spring and Summer, many producers have often asked, “When will this market bust, and start a downward trend?” Answering this one question isn’t simple. There are various factors that impact the prices across the beef supply chain. One indicator of future price trends throughout the beef supply chain is the Boxed Beef Cutout Value. The boxed beef cutout represents the estimated gross value of a beef carcass based on prices paid for individual beef items (primal cuts) derived from a beef carcass. Essentially, as consumers pay for beef items derived primal cuts (i.e. steaks from the rib primal) in conjunction with expected seasonal demand, retailers, and food service entities purchase primals or boxes of specific cuts that translate into the price and value seen in the boxed beef value.  

Figure 1 displays the weekly Choice boxed beef cutout value. The red line denotes the 5-year average from 2017-2021, the dotted blue line is last year’s (2022) weekly values, and the orange dashed line this year’s weekly values up through 8/25/2023. Through 2023, the cutout value has been above last year and the 5-year average. The low of $265.82/cwt was in early February. Since then, the weekly value trended up and peaked at $339.93/cwt in mid-June. Through the rest of the summer, the cutout decreased in value from the peak but has remained between $300-$320/cwt. The 5-year trend and 2022 cutout values remained relatively steady during the remaining months of the calendar year. If 2023 follows trend, then the value is expected to remain above the previous year and the 5-year average. 

Other factors impact this value, such as fed cattle supply, which are currently tight given the most recent cattle on feed report. The amount of beef grading Prime, Choice, and Select affects relative supplies of each grade even though total beef supplies are tighter.  Given that the national herd is still currently in liquidation mode, fed cattle supply is going to get even tighter over the next couple of years. When looking at the boxed beef value, there are few market signals indicating that it will be decreasing anytime soon, so when answering the question at the beginning of this article, my answer is, “not any time soon”. 

Figure 1. Weekly Boxed Beef Cutout Value

Martinez, Charley. “A Check-in on Boxed Beef Cutout Value.” Southern Ag Today 3(36.2). September 5, 2023. Permalink

In last week’s Southern Ag Today article, Andrew Griffith discussed whether the ranchers should feed or breed their heifers in the current market. He stressed the relevance of feed, capital, and labor costs. Here, I briefly discuss the prices of two crucial feed inputs: corn and hay. Along with pasture quality, these inputs are essential for herd recovery and expansion.

While cattle prices continue to have an upward trend, corn markets show a different pattern. Global ending stocks (311.05 MMT) and plentiful production in the U.S. (15.1 B bushels) are driving corn prices down (Figure 1). Last August, corn prices hovered above $7/bu. Recently, corn is trading below $5.50/bu. Of course, lower corn prices boost feeder prices. 

Figure 1 – 600-900 Feeder and Corn Prices: Aug/2022 – Aug/2023

The price and availability of hay is also crucial to the decision to retain animals. Hay is the 3^rd largest crop in the U.S. by number of acres harvested (USDA-NASS). Figure 2 contains U.S. average hay prices. Fertilizer and fuel costs swelled forage production costs and drought cut production in many areas of the country.  Higher hay prices than last year suggests we are still suffering from the effects of drought. 

Figure 2 – Hay Prices

USDA’s latest hay production report indicates some growth in hay inventory. Nationwide, hay supplies are expected to rebound about 5 percent compared to last year.  But, longer term, hay production has declined 24 percent over the past 20 years. Yields have declined from 2.48 to 2.29 tons/acre during the same period. 

While much of Louisiana and Texas remain in drought, most of the rest of the South is drought free. Less expensive feed and better pasture conditions may provide opportunity for some herd growth.  

References

Griffith, Andrew P. To Breed or To Feed? Southern Ag Today 3(34.2). August 22, 2023. Permalink

USDA – NASS (2023). Available online: https://quickstats.nass.usda.gov/

Beef Cattle Decision Aids. Available online: https://agecoext.tamu.edu/resources/decisionaids/beef/

To breed or to feed, that is the question? In an October 2022 article, bred heifer values for 2023 were discussed. The projected value for bred heifers in Tennessee during 2023 was between $2,400 and $2,600, which is exactly the value that many of the bred heifers traded for in the spring. The question now is if a producer should retain heifers from the spring calf crop for breeding or if they should set wheels under them for feeding.

Despite bred heifer values hitting the price projection this spring for fall calving females, it is beneficial to consider the expected value for those animals moving forward. Given the expectation that calf values will hold firm, the bred heifer value could reach $3,000 to $3,200 per head this fall and moving into late winter. Thus, should a producer retain those animals and breed them, or should the producer sell the female at weaning or as a yearling? A weanling 550 pound heifer in Tennessee is currently valued near $1,265 per head while a load of 750 pound black heifers is valued near $1,770 per head (Figure 1).

The answer to this question is not simple. Here are a few considerations. First, are the heifers being retained and bred to go back in the retaining producer’s herd or are they meant for resale? If they are meant for the retaining producer’s herd then calf price projections moving forward are important. If the females are meant to be sold then a producer needs to make sure they have a marketing outlet for those females. Second, it takes feed, capital, and labor resources to retain heifers. If any of these are in short supply then critical pencil and paper work need to be done. Third, is it worth the risk to forgo the calf or feeder cattle value to breed females?

In closing, the demand for bred heifers or bred females, in general, is regional at this point. Some regions do not have the hay and forage resources to begin retaining heifers while other regions do. Producers should consider their resources and expected demand for bred females before jumping into this market.

Figure 1. Weekly Tennessee prices for 500-550 pound and 750-800 pound heifers.

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Griffith, Andrew P. “To Breed or To Feed?” Southern Ag Today 3(34.2). August 22, 2023. Permalink