Category: Livestock Marketing

Wheat and other small grain grazing is an important source of demand for calves every Fall.   Fewer cattle will likely be grazing on small grain pastures this Winter due to poor plant establishment caused by drought. The January 2022 USDA-NASS Cattle report indicated 1 percent fewer cattle grazing on small grain pastures in Kansas, Oklahoma, and Texas last winter. Many producers from the Southern Plains (Kansas, Oklahoma, and Texas) have already early weaned and sold their calves due to the drought. Lower winter wheat forage production this year will reduce cattle demand from other Southern states.

Planted acres of winter wheat are expected to increase in the Southern States from last year. However, early planting conditions challenge future grazing forage production for ranchers in this area. Winter wheat planting conditions have been severely affected after three consecutive ENSO Niña periods. About 95 percent of the winter wheat area in the Southern Plains (Kansas, Oklahoma, and Texas) is still under drought (Figure 1), compared to an estimated 33 percent at the beginning of last season.

Figure 1. Winter Wheat under Drought Conditions

The planting rate in the Southern Plains States is 4.2 percent lower than the average over the last five years (Figure 2). However, the crop emergence rate is even lower than the planting rate. Kansas winter wheat has the lowest emergence rate of 40 percent (34.4 percent lower than the five-year average). Oklahoma’s emergence rate is 11.5 percent lower than average, while Texas’s is only down 4.2 percent. 

Figure 2. Winter Wheat Planted Acres and Wheat Emergence Rates

Compared to last year, some stockers were grazed in deferred summer grasses, with higher costs and at the expense of a reduced spring forage supply for their cow-calf operation. Range and pasture conditions have severely decreased compared to last year (Figure 3). In Kansas, 79 percent of Range and Pasture Condition was categorized as very poor and poor. In Oklahoma and Texas, range and pasture conditions are 58 and 30 points higher for similar categories. This alternative will not be available this year, where all forage left will likely be reserved for cows.

Figure 3. Range and Pasture Conditions

Producers will face many challenges putting weight on stockers if poor winter wheat conditions do not improve during the season. As the drought continues, the higher the risk of seeing more calves being sold underweight and earlier in the market.  It will likely mean less of a seasonal decline in heavy feeder prices in the March-May period.

Pancho Abello

Assistant Professor and Extension Specialist-Management

pancho.abello@ag.tamu.edu 

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Abello, Pancho. “Small Grain Pastures“. Southern Ag Today 2(45.2). November 1, 2022. Permalink

It’s the season to think about turkey prices as the birds will start showing up in our grocery store meat cases in the next couple of weeks.  Last year, at this time, turkey prices were record high.  Prices have set new record highs this year leading up to Thanksgiving. 

Wholesale, frozen, 8-16 pound, national average whole hen prices hit $1.80 per pound in the third week of October 2022.  They were $1.41 per pound in October 2021.  Turkey prices normally peak around the end of September to the 1^st of October.  Fresh turkeys hit $1.93 compared to $1.47 last year.

The most important factor in high prices is reduced turkey production.  High Pathogenic Avian Infuenza (HPAI) has hit the turkey industry hard.  Production this year is 4.7 percent below last year.  Turkey production has increased dramatically in recent weeks as the industry tries to boost supplies in time for Thanksgiving.  Last week’s production was 8 percent above the same week the year before.  Turkeys are typically put into cold storage for sales in the Fall.  September cold storage stocks of turkey were about 5 percent below a year ago.  The second major factor in high turkey prices are high feed costs.  High corn and soybean prices have pressured profits for turkey producers leading to lower production.  Like all other businesses, transportation costs, labor, and other costs of getting turkeys to market are higher contributing to higher turkey prices. 

While higher wholesale prices will likely translate to higher retail prices, stores often use turkeys as part of Thanksgiving marketing specials.  Grocery stores should have plenty of turkeys on hand.  But, smaller restaurants and other users have struggled getting supplies for most of this year.  

Photo by Randy Fath on Unsplash

Anderson, David . “It’s Turkey Time!“. Southern Ag Today 2(44.2). October 25, 2022. Permalink

In 2022, beef production has been higher than last year. An indication of beef demand can be seen in wholesale beef prices. Anderson (2022) highlighted how the wholesale price of primals translate to the retail consumer. In addition to the boxed beef cutout value report, beef sales in the wholesale market can provide insights into current and future market demand for increased beef production this year. 

            Beef sales are reported by four types or methods: negotiated cash sale with the beef being delivered in 0-21 days, negotiated cash sale with the beef delivery in 22+ days, formula, and forward contract. For definition, a negotiated sale can have a delivery window of either 21 or less days or 22+ days. This means that the contracted beef will be delivered from the packer to the buyer in either 21 or less days or in 22 or more days. Prior to the mid-2000s, most beef was sold using negotiated cash sales. After the mid-2000s, formula based sales became the predominant way beef was sold in the wholesale market. Although volume of negotiated sales has decreased since 2002, the decrease depends on the type of delivery window of the sale. The trends and data discussed below use sales data from the weekly comprehensive cutout report.  Figure 1 displays the total number of weekly load sales for the four transaction methods:  negotiated cash sale with the beef being delivered in 0-21 days, negotiated cash sale with the beef delivery in 22+ days, formula, and forward contract. 

            As indicated in figure 1, negotiated sales with delivery in 21 days or less (blue line) has trended downward since 2010, while negotiated sales with delivery in 22+ days (yellow line), and formula sales (orange line) has trended upwards in volume during the same time frame. Forward contract volumes have remained relatively unchanged. Thus, the net loss seen in negotiated beef sales is attributable to the decrease in negotiated sales with delivery in 21 or less days. 

Compared to this week a year ago, volume of negotiated sales with delivery of 0-21 and 22+ days are down by 18% and 7%, respectively. But, through September of this year, volume of negotiated sales with delivery of 0-21 and 22+ days are down by 2%, and up 6%, respectively. The increase use of negotiated cash sales with deferred delivery could be an indicator of risk management by wholesale market participants with an expectation of future price movement.

Figure 1. Weekly Beef Sales by Transaction Method, Number of Loads

Reference:

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

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Martinez, Charley. “Growth in Forward Delivery Beef Sales“. Southern Ag Today 2(43.2). October 18, 2022. Permalink

Beef Photo by Jason Leung on Unsplash

Since the 2019 fire at the Tyson plant in Holcomb, Kansas a lot of attention has been given to the volume of fed cattle traded through different transaction types, largely due to concerns over price discovery. 

Fed cattle sales are categorized into two types; negotiated and non-negotiated sales. Negotiated transactions are sales made in the cash or spot market, and include negotiated cash sales and negotiated grid sales. Non-negotiated transactions are sales in which at least the base price is not negotiated in the time immediately preceding the transaction. Non-negotiated transaction types include formula sales, forward contract sales, and grid sales. 

A major difference between the two is that negotiated sales contribute to price discovery, while non-negotiated sales do not. Price discovery is the result of an interaction (bid and ask) between buyers and sellers. The base price for a non-negotiated sale is often based on negotiated prices in the time period immediately preceding the sale, but the sales themselves do not contribute to price discovery. 

Negotiated trade volumes as a share of total trades have declined in 2022 when compared to both 2021 and the previous five year average, regardless of region. Though negotiated trade as a share of total trade remains high in regions like Iowa-Minnesota and low in regions like Texas-Oklahoma-New Mexico, the share of total transactions that are negotiated has dropped across the board. Interestingly, this trend is not coupled with lower fed cattle prices, as slaughter cattle prices have remained higher than 2021 and the previous five year average through 2022, and have been relatively stable.  

Benavidez, Justin. “Negotiated Fed Cattle Sales Decline in 2022“. Southern Ag Today 2(42.2). October 11, 2022. Permalink

Most livestock marketing and management discussions over the past six to nine months have focused on the drought, high feed prices, and increased cow and heifer slaughter. These discussions generally pertain to what cattle producers need to do in the immediate future. However, these same discussion points have longer term implications that should be discussed. Given that heifer slaughter year-to-date is nearly 5 percent higher than 2021 and that beef cow slaughter is more than 13 percent higher than 2021, there will certainly be opportunities in the bred heifer market as soon as drought subsides and cattle producers move into herd expansion mode.

The million-dollar question is when should a person take the risk to try to meet this expected future demand for breeding females? There is no way to know, but one can have an idea of what bred heifers should be worth in the future. Based on research in Tennessee, bred heifer and weanling heifer (550 lb) values are highly correlated. Historically speaking, bred heifers sold in May to calve in the fall have been worth 2.5 times the value of a 550 pound heifer while bred heifers sold in November to calve in the spring have been worth 2.8 times the value of a 550 pound heifer sold at the same time. Thus, if feeder cattle futures are any indication of what can be expected for bred heifers in 2023, bred heifer values may be worth $2,400 to $2,600 per head. Producers should be asking themselves if there is an opportunity to breed and market bred heifers in 2023. It is certainly a big risk, but there is still money to be made if bred heifer values do not reach $2,400.

Figure 1. Bred heifer price ($/head) and feeder cattle price ($/cwt) for 500- to 600- pound heifers at the time of the May and November bred heifer sale from 2008 to 2017. (Boyer et al., 2020)

Boyer, C.N., A.P. Griffith, J. Thompson, J. Rhinehart, K.H. Burdine, and K. Laurent. 2020. Bred Heifer Price Determinants in the Southeast. Journal of Applied Farm Economics 3(2): Article 2. doi:10.7771/2331-9151.1042.

Griffith, Andrew. “Value of Bred Heifers in 2023“. Southern Ag Today 2(41.2). October 4, 2022. Permalink