Category: Livestock Marketing

As we move into fall, we have a pretty good feel for the size of the 2022 corn crop. Acreage is down significantly from last year and yield estimates were reduced recently to 172.5 per acre. Barring a major shock on the demand side, feed prices are going to be a challenge for cattle operations this winter.

Perhaps the most important thing to remember is that cost of gain and value of gain are correlated. Feedlots prefer to place heavier feeder cattle when feed prices are high, so the price discount on higher weights gets smaller. This narrowing of price slides increases the value of additional pounds when feeder cattle are sold. Opportunities can still exist in high feed price markets depending on cattle price dynamics. Producers may find that opportunities to grow feeders still exist, especially if they can efficiently make use of alternative feeds. Along those same lines, producers need to make sure they distinguish between cost of feed and cost of gain. Cost per ton of feed really does not tell me much unless I know something about that feed’s ability to put weight on cattle. 

Finally, there are also implications for fall grazing. A quick glance at the drought monitor reveals how much variation exists across the country. While grazing costs have increased recently as well, they have not increased as much as purchased feed. So fall pasture is likely the most attractive feed that can utilize to add pounds. The current market also increases incentives to incorporate rotational grazing or strip grazing to increase the utilization of those forages.

Burdine, Kenny. “Livestock Feed Price Implications for Fall“. Southern Ag Today 2(39.2). September 20, 2022. Permalink

On livestock market Tuesdays, the authors normally highlight events in livestock markets.  Today we are looking beyond the farmgate to examine wholesale beef prices (we’ll look at pork, poultry, and dairy products in future SATs).  The boxed beef cutout is the value of the primal cuts making up a carcass.  The cutout is below last year across all USDA quality grades.  Digging a little deeper into individual cut prices paints a pretty interesting picture of beef prices this year and provides some price evidence of changing consumers.

We can think of the middle meats of a beef carcass as the expensive, high value cuts – the steaks from the loin and the rib.  The end meats are the chuck and round and are, generally, lower valued.  With consumers facing higher costs and budget pressures we might expect them to buy fewer steaks and more ground beef.  The wholesale price data tends to support that idea.

Wholesale ribeye prices have been below last year’s prices since the end of January.  Last week ribeyes averaged $9.40 per pound compared to $14.51 per pound the same week last year.  Ribeyes, traditionally, tend to peak late in the year as a holiday item and have been increasing over the last several weeks.  It’s likely that they will continue to trend higher as an alternative to high priced turkeys.  

Strip steaks normally peak in value during early grilling season.  That peak was a little later this year at $8.81 per pound back in July.  They have since dropped sharply to $6.48 last week, below last year’s $7.67 per pound in the same week.  Tenderloins last week were 26 percent lower than this point a year ago.  

In contrast, 90 and 50 percent lean boneless beef prices have remained above a year ago until just recently.  Even in the face of large cow slaughter, lean beef prices have remained relatively high. 

Wholesale beef price data certainly suggest consumers, through retailers, have likely shifted around a bit, buying fewer steaks and more ground beef.  It’s also likely that the overall demand for beef has remained quite good.  We continue to produce large amounts of beef and retail prices have not begun to decline.  All in all, this is not bad news for calf and cattle prices this fall.

Anderson, David. “Wholesale Beef Prices“. Southern Ag Today 2(38.2). September 13, 2022. Permalink

There has been a lot written about beef cow culling this year due to drought and high costs and most of that has focused nationally.  This article looks at cow slaughter in the South.  Federally inspected beef and dairy cow slaughter is reported regionally.  The two regions that cover most of the South are regions 4 and 6.  Region 4 is comprised of 8 states including Alabama, Florida, Georgia, Kentucky, Mississippi, North and South Carolina, and Tennessee.  Region 6 includes Louisiana, Arkansas, Texas, Oklahoma, and New Mexico (a little further afield than the traditional South).  These two regions only leave out Virginia, which is in region 3.  

Region 6, the Southern region most affected by drought, has culled 668,000 beef cows this year, up 31 percent from last year (157,000 head).  Beef cow slaughter in region 4 is up 55,000 head, or 18 percent, over 2021.  In 2022, these states contained 44 percent of the nation’s beef cows.  Dairy cow slaughter in both regions is slightly below last year.  

A comparison of cow culling this year to that of 2011, during the last major drought in Texas and other parts of region 6, indicates that 8,000 more beef cows have been culled this year than in 2011.  About 24,000 more beef cows have been culled in region 4 this year than in 2011.  Both regions began 2022 with fewer cows than they had at the beginning of 2011. 

Significant rainfall in parts of Texas over the last couple of weeks may curtail culling in the near future.  Watch beef cow culling over the next 6 weeks heading into, seasonally, the largest cow culling weeks of the year nationally in October and November.

Anderson, David. “Cow Slaughter in the South“. Southern Ag Today 2(37.2). September 6, 2022. Permalink

Livestock Risk Protection insurance (LRP) is a price insurance policy livestock producers can purchase to reduce price risk and losses, but LRP is not widely used by cattle producers. Several reasons could explain why few producers have not used LRP in the past, but the cost of LRP is a big reason. In 2019 and 2020, the LRP premium subsidy rate was increased to reduce the insurance premium cost to producers. The premium subsidy increased to 20% from 13% of the total premium cost in 2019. Then, in 2020, a tiered subsidy rate was set. Subsidy rates became 35% for coverage between 95–100%, 40% for coverage between 90–94.99%, 45% for coverage between 85–89.99%, 50% for coverage between 80–84.99%, and 55% for coverage between 70–79.99%. We recently published research analyzing the impact of the premium subsidy rate increase on feeder and fed cattle LRP costs. We found producers’ premiums for feeder cattle LRP policies were reduced between $1.41-$1.90 per cwt and $0.95-$1.56 per cwt for fed cattle LRP policies with the new subsidy rate. The figure shows the range of cost savings based on coverage level. These changes also increased the chances a LRP policy would pay an indemnity greater than the premium. In the past, indemnity payments would rarely be higher than the premium cost. These policy changes significantly reduced LRP cost, which might make LRP a more viable risk management tool for producers. 

Figure 1. Reduction in Producer Premiums for Feeder and Fed Cattle LRP policies from Recent Subsidy Rate Increases

Citation 

Boyer, C.N., and A.P. Griffith. In press. “Increasing Livestock Risk Protection Subsidies Impact on Producer Premiums” Agricultural Finance Review Available at: https://www.emerald.com/insight/content/doi/10.1108/AFR-05-2022-0066/full/html#:~:text=The%20increased%20subsidy%20in%202019,is%20lower%20to%20start%20with.

Boyer, C.N., and A.P. Griffith. In press. “Subsidy Rate Changes on Livestock Risk Protection for Feeder Cattle” Journal of Agricultural and Resource Economics Available at: https://ideas.repec.org/a/ags/jlaare/316752.html

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Boyer, Chris, and Andrew Griffith. “Livestock Risk Protection Cost is Lower“. Southern Ag Today 2(36.2). August 30, 2022. Permalink

Even as we are in the middle of the heat of summer, contract poultry growers should be concerned about fuel prices going into this winter. Propane prices have remained at a high level through the spring and into the summer. Looking ahead, evaluating the world market demand for energy and current US inventories suggests that prices could increase drastically. According to an analysis by Propane Resources LLC, a leading US propane marketing company, growers should expect a very volatile six to nine months in propane prices. Much of this will be driven by a very active European market with much instability being caused by the Ukrainian conflict, which is stifling natural gas trading. To help fill that void, sellers of liquid natural gas that would normally supply Asia are rerouting that LNG to a European market. That LNG will likely be replaced in Asia by propane. 

As supply and demand for propane becomes an even more global market, a look at the current and projected US propane inventory for 2022-23 does not give one a good feeling for the upcoming winter’s prices, or even into next spring. The current peak projected inventory for the US comes in at about 3.25 billion gals, and drops off from there, staying at or below the historical monthly minimum inventory over the last five years. This simply means that the supply of propane does not look to be ample for the next several months. For poultry growers, this means the time to secure future pricing is now. Waiting around for a mid-summer price drop will likely mean you will be paying more, not less, for your propane this winter. 

Brothers, Dennis. “Fuel Price Volatility a Growing Concern for Commercial Poultry Growers“. Southern Ag Today 2(35.2). August 23, 2022. Permalink