Cow-Calf Corner: Beef markets adjust to increasing supplies; Feeding weaned calves during a pre-conditioning program

Sept. 6, 2016
Beef markets adjust to increasing supplies
by Derrell S. Peel, Oklahoma State University Extension livestock marketing specialist
U.S. beef production is expected to increase 4 to 4.5 percent in 2016. This follows annual decreases of 5.7 percent in 2014 and 2.3 percent in 2015. A twelve month moving average of beef production reached a low in October of 2015… the lowest since May of 1994… and has been increasing since. In the first half of 2016, monthly beef production averaged 5.3 percent above year earlier levels.  Beef production is expected to increase at least through 2018.
As beef production increases, beef prices are coming down from record levels at the wholesale and retail levels.  Monthly average boxed beef prices peaked at $240.25/cwt. for Choice in May, 2015 and at $249.34/cwt. in April, 2015 for Select.  In the first half of 2016, monthly Choice boxed beef prices averaged 12.6 percent below year earlier levels with Select boxed beef prices averaging 14.5 percent below 2015 levels.  Choice retail beef price peaked in May, 2015 at $641.20/cwt. and the All Fresh beef retail price peaked at $614.70/cwt. in July, 2015.  In the first six months of 2016, Choice retail beef prices averaged 4.1 percent below year ago levels while All Fresh retail beef prices were down 4.3 percent year over year.
Several factors explain why retail beef prices have adjusted less than wholesale beef prices.  First is the long time lag in production.  The dynamics of beef supply are complex and take time to move through all market levels. Thus, supply increases will pressure prices in cattle markets and wholesale markets well ahead of adjustments in retail markets.  Secondly, changes in beef production do not translate directly into retail beef supplies.  The domestic retail beef supply is up only 2.8 percent when production is adjusted for beef imports and exports.  This is due primarily to decreased beef imports in 2016.  Retail beef price adjustments also reflect the impact of competing pork and broiler supplies.
Cattle producers sometimes convey frustration that wholesale and retail beef prices adjust less and more slowly than cattle prices.  At the current time, feeder cattle prices have adjusted the most with smaller adjustments for fed cattle, wholesale (boxed beef) prices and the least adjustment so far in retail prices.  This means that margins at the wholesale and retail levels are wider now.  It’s important to remember that beef industry margins are cyclical meaning that wholesale and retail prices also did not increase as much or as fast when tight supplies pushed cattle prices to record levels.  The margins tend to average out over time.
Faster adjustments in retail beef prices would not be a good thing for the beef industry.  Slowly adjusting retail beef prices in the face of growing beef supplies indicates stronger beef demand.  Weaker beef demand would cause retail prices to adjust more and faster to move increased supplies through the market.  Beef retailers adjust beef prices only when the market forces them to adjust.  The fact that retail beef prices have adjusted slowly thus far, especially in the face of ample pork and poultry supplies, is a sign of strong beef demand.  Retail beef prices are declining but continue to be near record levels relative to retail pork and broiler prices. Adjustments in wholesale and retail beef prices will continue in coming months as beef production continues to grow.  Retail beef prices will fall, which does not mean that beef demand is worse.  Beef consumption will increase, which does not mean that beef demand is better.  However, retail beef prices that decline relatively slowly as supplies increase is a measure of strong beef demand.
 
Feeding weaned calves during a pre-conditioning program
by Glenn Selk, Oklahoma State University Emeritus Extension animal scientist
Spring born calves have already been, or soon will be weaned to meet the 45 day requirement for value-added calf sales.    A minimum of a 45-day weaning period is recommended to maximize the benefits of pre-conditioning.   See the list of sale dates and appropriate weaning dates in the previous article.  A balanced nutrition program during this period is critical to ensure profitability for the cow/calf producer and maximum immune system function during the stressful weaning period and later production phases.
Calves targeted for a VAC-45 sale (i.e. Oklahoma Quality Beef Network) should gain 1.5 to 2 pounds per head per day from weaning to marketing to greatly enhance the likelihood of profitability of the pre-conditioning program.  Research has repeatedly shown that calves that begin eating soon after shipping or weaning will have reduced health issues and certainly gain weight more quickly and consistently.  Low stress “fenceline weaning” has been shown to help calves start to eat sooner and begin weight gain more quickly than calves that are weaned away from the cows.
Providing a high quality ration that meets the nutritional needs of the young calves can be accomplished in a number a ways. Producers should download a copy of the Oklahoma Cooperative Extension Fact sheet ANSI-3031 to obtain several rations to be mixed for weaned calves. Rations are available for very young, lightweight calves as well as for 7 to 8 month old traditional 400 – 600 pound weaned calves.
Some rations will include by-product feeds such as wheat-mids and dried corn distillers grains if these are available at a competitive price. The Fact sheet will also discuss other management tips for early weaning, traditional weaning, and receiving shipped-in stocker calves. The URL for this important fact sheet is http://pods.dasnr.okstate.edu/docushare/dsweb/Get/Document-1957/ANSI-3031web.pdf.