The bad news-good news story of cattle markets
by Derrell S. Peel, Oklahoma State University Extension livestock marketing specialist
Current cattle markets can be thought of as a series of bad news-good news stories. The bad news is that cash fed cattle prices pulled back last week from the highs at the end of the week before. The good news is that the jump up to $124/cwt live fed cattle prices were not expected and the current level in the $120-121/cwt range is at or above most expectations for fed prices at this point.
After an unexpected run higher, Live Cattle futures prices also pulled back last week from highs the week before. Nevertheless, Live futures are still offering attractive levels to lock in fed cattle for the spring. It’s not clear if cattle futures are simply making a technical correction and some profit taking but the long speculative position in the markets makes it vulnerable to move lower. The opportunities currently offered may be fleeting.
A similar story exists for Feeder futures with recent moves lower from unexpectedly high peaks in early November. The good news is that moves lower have thus far been quite orderly and spring contracts remain at levels that offer unusual opportunities for feeder cattle producers to lock in attractive margins. As with Live Cattle futures, current Feeder futures are built on long speculative positions that could turn and allow an abrupt and sharp drop. The opportunity is there but may be passing.
Cash feeder cattle markets have remained unseasonably strong this fall… bad news for stocker buyers but good news for cow-calf producers. However, as noted above, even at current calf and stocker prices, good margin opportunity exists currently for stocker producers. There is certainly downside risk so risk management is advised.
There is bad news in that cattle slaughter is higher than last year reflecting the growth in cattle numbers the past three years. The good news is that steer and heifer carcass weights are sharply lower than last year and are offsetting a significant amount of increased cattle slaughter in 2017. The upcoming cattle on feed report is expected to show another month of large placements in October. This is certainly consistent with the strong feeder prices and larger feeder market volumes this fall. The good news is that feedlot marketings remain strong as well and are limiting growth in feedlot inventories.
In the bigger picture, the bad news is that feeder cattle supplies will continue to grow into 2018 and beef production is expected to increase another four percent year over year, on top of a roughly four percent increase this year from 2016 levels. Combined with increased pork and broiler production, total meat supplies will be larger in 2018. The good news is that strong beef demand, both domestically and internationally, has supported cattle and beef prices in 2017. At the current time, retail beef prices are holding close to year-ago levels with boxed beef and cattle prices at all levels higher than this time last year.
In general, it seems clear that the good news outweighs the bad news in current cattle markets. However, there will continue to be uncertainty and challenges in the continuing cattle market demand and supply dynamics.
How many heifers to keep??
by Glenn Selk, Oklahoma State University Emeritus Extension animal scientist
Each year commercial cow/calf operations must decide how many replacement heifers are grown out to be put in the breeding pasture. Individual ranches must make the decisions about heifer retention based upon factors that directly affect their bottom-line. Stocking rates may have changed over time due to increases in cow size. Droughts have caused herd sizes to fluctuate over time.
Matching the number of cattle to the grass and feed resources on the ranch is a constant challenge for any cow-calf producer. Also, producers strive to maintain cow numbers to match their marketing plans for the long-term changes in the cattle cycle. Therefore, it is a constant struggle to evaluate the number of replacement heifers that must be developed or purchased to bring into the herd each year. As a starting place in the effort to answer this question, it is important to look at the “average” cow herd to understand how many cows are in each age category. Dr. Kris Ringwall, director of the Dickinson, North Dakota Research and Extension Center, reported on the average number of cows in their research herd by age group for a period of over 20 years. The following graph depicts the “average” percent of cows in this herd by age group.
The above graph indicates that the typical herd will, on the average, introduce 17 percent new first calf heifers each year. Stated another way, if 100 cows are expected to produce a calf each year, 17 of them will be having their first baby. Therefore, this gives us a starting point in choosing how many heifers we need to save each year.
Next, we must predict the percentage of heifers that enter a breeding season that will become pregnant. The prediction is made primarily upon the nutritional growing program that the heifers receive between weaning and breeding. Researchers many years ago found that only half of heifers that reached 55 percent of their eventual mature weight were cycling by the time they entered their first breeding season. This data was reinforced with data from Oklahoma State University (Davis and Wettemann, 2009). If these heifers were exposed to a bull for a limited number of days (45-60), not all would have a chance to become pregnant during that breeding season. Therefore, it would be necessary to keep an additional 50 percent more heifers just to make certain that enough bred heifers were available to go into the herd. Remember the increased number of heifers will require additional pasture, increased health costs, and increased breeding costs. If natural breeding is used, extra bull power will be necessary. If artificial insemination is the method of choice, the larger number of heifers will require increased synchronization and AI costs. As soon as possible the heifers should be pregnancy checked and the open heifers marketed as stocker heifers.
However, if the heifers were grown at a more rapid rate and weighed 65 percent of their eventual mature weight, then 90 percent of them would be cycling at the start of the breeding season and a much higher pregnancy rate would be the result. Even in the very best scenarios, some heifers will be difficult or impossible to breed. Most experienced cow herd managers will always expose at least 10 percent more heifers than they need even when all heifers are grown properly and weigh at least 65 percent of the expected mature weight.
The need to properly estimate the expected mature weight is important in understanding heifer growing programs. Cattle type and mature size have increased over the last half-century. Rules of thumb that apply to 1000-pound mature cows very likely do not apply to your herd. Watch sale weights of culled mature cows from your herd to better estimate the needed size and weights for heifers in your program. Most commercial herds have cows that average about 1200 pounds or more. This requires that the heifers from these cows must weigh at least 780 pounds at the start of their first breeding season to expect a high percentage to be cycling when you turn in the bulls.
This discussion is meant to be a STARTING PLACE in the decision to determine the number of heifers needed for replacements. Ranchers must keep in mind the over-riding need to understand what forage base resources that they have available to them.
Cow-Calf Corner is a weekly newsletter from the Oklahoma Cooperative Extension Agency.