Category: Livestock Marketing

This summer’s drought is affecting a large part of the western half of the South, producing unfortunate losses for many ranchers and farmers in our area. The most affected States are Texas, Oklahoma, Arkansas, Louisiana, Mississippi, and Tennessee within the Southern Region. The last U.S. Drought Monitor reported that 92% of this area is abnormally dry, and about 64% is in severe drought.

U.S. Drought Monitor – South Region. July 26, 2022.

Unfortunately, droughts always have a negative financial and economic effect on our business. The USDA’s Pasture, Rangeland, and Forage Insurance (PRF) has shown to be an essential tool to support ranchers during these times. PRF showed a positive net benefit, indemnities over premiums, in many cases. Still, most importantly, it generated significant payments in drought years when needed most.

USDA created the Pasture, Rangeland, Forage (PRF) insurance program in 2007 as a tool for livestock and forage producers to reduce the risk of forage loss associated with lower precipitation. The program is available in 48 states and policies covered over 247 million acres in 2022. In southern states, the adoption of this program has nearly doubled since 2007. During the program’s first year, the total enrolled acres in this area was 20.8 million. Producers from these states have insured about 41 million acres for 2022.

Ranchers in Texas and Oklahoma have adopted the PRF insurance most quickly within the Southern region and are better prepared when compared to the 2011 drought. The percentage of enrolled acres of total ​​pasture and rangeland in Texas and Oklahoma is 36% and 18%, respectively. The rest of the southern states had an adoption rate between 1 and 4% over their total grassland and rangeland. Texas has 71% more acres enrolled in the PRF program than in 2011, while Oklahoma has almost 990% more.

PRF Enrolled Acres as a Percent of Total Grassland Pasture and Rangeland in Selected Southern States.

Comparison of PRF Coverage in 2011 Compared to 2022 for Selected Southern States

Abello, Francisco “Pancho”. “PRF Adoption Rate to Mitigate Drought Impact“. Southern Ag Today 2(32.2). August 2, 2022. Permalink

USDA released two cattle reports on Friday July 22nd – the Cattle on Feed and Cattle Inventory reports. Taken together, these reports paint a picture of a smaller cowherd and some future opportunities as supplies continue to tighten.

Cattle on Feed

Placements, marketings, and total cattle on feed were reported at 97.6, 102.0, and 100.4 percent of a year ago, respectively.  For the fourth month in a row, placements were below a year ago.  For the year, placements are ahead of last year, but the increase was all in February.  

Placements were higher than a year ago by 15,000 and 10,000 head, in the two lightest weight categories, under 600 pounds and 600-699 pounds.  All of the increase in light weight placements was reported in Texas. Based on anecdotal evidence of large runs of cattle after the 4^th of July, placements in July may be larger than last year, at least in light-weight cattle.

In only two years, 2019 and 2001 (4.470 and 4.446 million head), were more heifers reported on feed on July 1 than this year (4.445 million head).  The quarterly number of heifers on feed dovetails with the inventory report of fewer beef cows and replacement heifers held back.

Cattle Inventory

Beef cow numbers were reported 2.4 percent below July 1, 2021 in the mid-year Cattle inventory report.  The most interesting number in the report, though, was the number of heifers held for beef cow replacement.  Only 4.15 million heifers were held back which was the fewest since the data series began in 1973.  The 4.15 million heifers equals 13.7 percent of the cowherd.  As a percent of the cowherd, only the years of herd contraction 2001-2003, the 2011 drought year, and herd contraction in 2019 were smaller than this year.  It’s worth noting that over the last 50 years, heifers held back as a percent of the cowherd has been declining.  In general, we have fewer beef cows than in the early to mid-1970s requiring fewer replacements, but it also suggests more efficient beef cattle production.  

Anderson, David. “Cattle and COF Reports“. Southern Ag Today 2(31.2). July 26, 2022. Permalink

In drought-stricken areas, cattle producers are having to sell more cattle than normal because of the lack of grass and increased costs of production. While some producers are selling feeder calves earlier than they wanted, the number of cull cows going to the market creates multiple ways to look at the situation. This article covers the current cull cow market and some potential management strategies to think about moving forward. 

            Figure 1 contains the weekly slaughter cow prices for Southern Plains auctions (current drought-stricken areas). The red line represents the 5-year average from 2016-2020, and illustrates the normal seasonal pattern observed in cull cow markets. The dotted line represents the weekly prices for 2021. Prices in 2021 were below the average from January-June, and then stayed relatively true to seasonal expectations. So far in 2022, prices have been frequently above the 5-year average and 2021 prices. This has created higher salvage value for cattle that had to be culled this year. But prices are starting to trend down due to the increased cull cow supply entering the market. The downward trend is expected based on seasonal patterns, but the decrease will likely continue. In the coming weeks, drought and production costs are going to be major drivers of slaughter cow supply as the market tries to find a floor. 

            From a management strategy, producers often start with older cows first. After the older cows, producers get pickier on reasons to cull (bad feet, other non-ideal characteristics). These types of cows have probably been culled already, which leaves the producer with management decisions (cull bred females? Cull yearling females?, etc.). To help with that decision, identify inefficient females. If they are bred, analyze the females calving cycle. If they are yearling females, look at their pedigree, and identify any maternal reproduction issues. If a producer has already culled based on age, bad feet and other physical traits, and reproduction, then look for alternative marketing strategies such as selling females to another producer in a region that isn’t in drought. If a producer has superior genetically based cattle, they probably won’t find enough salvage value from sale barn prices and having a marketing strategy to find more value could be useful for not only increased salvage value, but also for cash flow reasons. 

Martinez, Charley . “Between a Rock and a Dry Place: Culling Decisions“. Southern Ag Today 2(30.2). July 19, 2022. Permalink

Cattle producers should see a bit of relief from high feed expenses over the next few months. The CME DEC ’22 Corn contract has fallen from a contract high of $7.64/bu. on May 16 to $6.23/bu. Some other commodities used in feed rations, such as distiller’s grains, have seen similar downward moves. These feed price changes can have a compounding impact on feeder cattle prices. As inputs become cheaper, feeder cattle become a relatively more profitable investment which lifts their value. It is common to see corn and feeder cattle prices move in opposite directions. 

In the chart below, the CME DEC ’22 Corn price (black line) has declined significantly from mid-June to now. Corn is a significant input in feeding cattle and the CME OCT ’22 Feeder contract (green line) experienced a corresponding increase in value. 

Since the contract high two months ago, cost of gain (COG) has fallen significantly while feeder cattle also became relatively more profitable. If COG is calculated: 

then estimated COG, including yardage, fell from $1.11/lb. to $0.90/lb. from mid-May to the present, providing at least $0.20/lb. additional revenue before even considering the change in value of feeder and fed cattle. This also makes dry-lotting cows and placing lightweight cattle on feed a more feasible option given low pasture availability and historically high price of forage. 

Benavidez, Justin. “Falling Corn Prices and Cost of Gain“. Southern Ag Today 2(29.2). July 12, 2022. Permalink