Compared to earlier this year, due to COVID-19, the economic environment has dramatically changed. We are in an economic recession that borders on depression, restaurants and packing plants are shuttered, on and on. Given the unknowns ahead, in cattle country, what can we monitor for insight and planning purposes? Below are four ideas to consider.
First, carefully monitor the forage situation on your operation. Importantly, take that to the next levels—looking at surrounding areas and states, and nationally. Pasture conditions this year will be critical to regional and national flows of calves, and especially yearlings, to market. USDA’s National Agricultural Statistics Service (NASS) will begin reporting weekly pasture and range condition updates soon (in the Monday Crop Progress report). That report is often summarized in the media, and an update every couple of weeks is sufficient.
Many more animals are headed to spring and summer grazing programs than in recent years because of the drop in the number of animals being placed into feedlots, a trend that may continue for several months. Poor pasture and range conditions could cause bunches of cattle to move into the markets quickly. Further, more winter feed will be required if producers that typically don’t hold over calves into the new calendar year, do so in 2020.
Second, follow the monthly national feedlot placement statistics published by NASS, even if you are not feeding cattle. An eye on those results provides an indirect look at how cattle feeders are positioning (head they are buying and at what weights). It will be a measure of how many more animals are outside of feedlots (still on farms and ranches) than last year. Those reports are widely circulated and commented on.
Third, this year, even solely forage-based operations need to keep an eye on feedstuffs, especially corn. Also, be aware of trends in soybean meal, and in hay prices. The two major drivers of calf and yearling price are fed animal prices and the cost of gain in a feedlot. Critical will be the number of corn acres planted in the Midwestern states. Futures markets currently expect a sizeable year-over-year increase.
After planting season, the markets will run to spring and early summer growing conditions. Low feedstuff costs can become a supportive market factor for late summer and early fall yearling and calf prices. Drought will do the opposite.
Fourth, pay attention to the U.S. dairy sector, including federal policy. Is there potential for bursts in cow culling? Dairy producers are facing very challenging financial circumstances; in some areas of the U.S., milk is being dumped into lagoons or on farm ground. One of their options is to cull cows, which depending on timing, could cause already low prices to fall off a cliff. Milk prices and details of any federal programs could be crucial.
There are at least several more months of this economic environment, and it could easily stretch into 2021. Prepare for price volatility. As conditions change, be ready to adjust marketing plans. Don’t overlook the importance of communicating with your family, partners, and financial institution. — James Robb, senior economist, Livestock Marketing Information Center
