Cattle markets are in a state of flux and it appears certain market dynamics aren’t running in their normal seasonal patterns. The cattle cycle is suggesting that the nation’s cow herd has leveled off. There are still plenty of fed cattle available to packers and they have been holding the big stick for quite some time, earning the best margins in perhaps beef packing history.
There is a shift in the cattle cycle and it appears that cattlemen have a few things to think about when marketing their cattle this fall. For instance, what happened to the cull cow business? The last few weeks have seen more than the typical fall run of cull cows and have driven cow prices lower than we’ve seen for quite some time. Good, fleshy cows have been trading in the low $50s range; a month ago they were trading in the $60 range. Last year they were trading in the $70 range. The cull cow market is typically around 10-15 percent of ranch revenues.
Granted, we normally see the fall run of cull cows and the prices drift down a bit. Demand has been good for ground beef and it normally gets slower in the fall then picks up in the spring. But cattlemen are certainly not keeping any more females than normal. The herd buildup has stopped in my book.
Now we’re faced with the choice of letting those cows go at any price or feeding them into next year. This latter strategy has been around for a long time and it usually depends on how much cheap feed a rancher has. No one likes to winter an open cow, but it should be considered.
The Livestock Marketing Information Center (LMIC) is projecting beef cattle herd growth at 0.3 percent for this year. USDA’s cow slaughter numbers show beef cow slaughter is 237,000 head higher than a year ago. The dairy industry increased cull cow slaughter by 107,000 head over last year, and we understand that dairy cow slaughter is picking up quickly. Total cull cow slaughter is 7.3 percent over a year ago. Good slaughter cows were trading in the $70 range a year ago. Those thin, low-yielding cows are now trading in the $30s. Simply put, cattlemen are sending lots of cows to town.
Then, when you look at the volume of feeder heifers being placed in feedlots, it’s also 7 percent higher than a year ago; 496,000 more heifers went into feedlots. Last year, the nation’s beef cow herd grew around 1.6 percent and one would think it’s natural that we have more cattle, so we’ll have more heifers go to the feedlots.
These kinds of numbers suggest that fewer producers are keeping extra replacement heifers around. The replacement heifer market has been softer, and auction market trade has been between $1,000-1,300 per head. However, the bred heifers that are bred AI and ultrasounded to calve in two-week intervals are bringing as much as $2,000 a head. There appears to be a lot of value in those calving intervals. Less labor needed to babysit them.
The dairy industry has been having a tough time and producing more milk than they can sell. The economic margins in the dairy business has forced an exodus of dairymen. Banks in many cases are making the call on whether they stay in business, according to Jim Robb at LMIC. We’ve seen a couple very large dairies fold up in the past few months.
We have also been seeing a wider price spread between steer and heifer calves. Typically, the heifers would sell for around a dime less than their steer mates. But now we’re seeing that spread widen to 20-25 cents. I realize that most stockers and feeders want to deal with steers, but if these heifer calves are trading that much lower, there certainly must be a profit opportunity somewhere. Cheap, abundant feed and patience could go a long way in this deal.
Cattle cycles come and go, and they are never the same. It seems certain classes of cattle fall out of favor as the cycle continues. This can create some heartburn for sellers, but also creates opportunity for buyers.
Demand for beef remains strong and there is nothing on the horizon to suggest demand will fade. Consumers are spending record sums on beef and pouring more money into the cattle industry. Packers are making the big money right now and we need to figure out how to gain some leverage on them to get the big checks back on the producer side. — PETE CROW
