We’ve got plenty to discuss this week. We’ll cover the fall cattle outlook and let you try your hand at the second week of chart challenge.
Cattle Fundamentals
On the macro side, we’re approaching peak cow herd, and some might even say that we are there. Two common indicators of the growth or decline of the cow herd are the total cow slaughter and total heifer slaughter.
If cow slaughter is increasing it means that, at minimum, the rate of growth of the U.S. cow herd is slowing. If heifer slaughter is increasing then the future cows available for calving are decreasing. An increase in either slaughter rate means relatively fewer calves born in the next year.
Total Cow Slaughter
Total Heifer Slaughter
Both graphs above (Total Cow Slaughter and Total Heifer Slaughter) show an increase in the number of head slaughtered year over year. Both indicate, at minimum, a decline in the growth of the cow herd year over year, and potentially a decline in the total number of cows. The January 1 Cows report will be the first major measure of the size of the cow herd, the most important factor in the number of calves, and eventually cattle available for production in 2020-2021.
Local Cattle
With a decreasing cow herd leading to a decreasing supply of feeder calves we would expect an increase in price, given stable demand. The most recent AMS steer price data for the three high plains auctions are shown in the table below. Local prices have risen incrementally week over week since mid-October. The second row in the table is the Texas A&M AgriLife Extension livestock marketing price forecast for Q1 of 2020. Prices are expected to rise from now through the early part of the year.
When looking at these prices is it important to ask yourself, “Can I make a profit here?” Light calves are relatively cheap and the forecasted price provides a premium. So let’s walk through a scenario.
Texas High Plains 3 Auction Average Prices #1 Steers, 1st Week of December
& AgriLife Livestock Marketing Q1 2020 Forecast Prices
*3 Auction Price includes Amarillo, Dalhart, and Tulia
The most important input to consider on stocker calves is the availability of feed. If you already have access to pasture that is underutilized, what economists would call a ‘sunk cost’ then the returns to gain would be largely profit. If you will need to rent pasture the picture will be a little bit more clouded, but still likely yield a positive return. The drought monitor map shows adequate precipitation to this point, so whether you plan to rent or use your own forage, the current outlook for grazing is positive.
High to Rolling Plains U.S. Drought Monitor Map, 12/8/19
Stocker Example
Let’s assume you purchase a load of light stockers, about 500 lbs/head, so approximately 100 head, and you have unused forage available to you. The current price is approximately $155/cwt, so the load, not including transportation cost, would cost $77,500. According to the 2020 D1 AgriLife Extension Budgets for Winter Stockers, per head cost including delivery, health and veterinary needs, minerals, hay cost, and interest is $69.5. The budgets also included preconditioning, miscellaneous, gain contract cost, and labor costs but those are highly individual and can just be added to the $69.5/head based on your situation. Therefore, total cost per head is $844.5, and total cost is $84,500.
Assuming an average gain of 2 lbs/day for 90 days (early December to late March), the final pay weight per head would be approximately 680/head. If you choose to factor in a 5% death loss the total weight sold at the end of the stocking period would be 64,600 lbs. At a forecasted price of approximately $139/head, the total revenue for the sale would be approximately $89,794, yielding a net profit of about $5,300.
This scenario will be highly dependent upon individual factors. The major assumption we made was the availability of forage. If you change your forage cost and assume a gain contract of $0.45 as the budgets prescribe, the venture yields a net loss of $3,300. Running the numbers on an individual basis is important. To help you through this, Texas A&M AgriLife Extension publishes annual budgets to use as a template for planning your upcoming production year. Additionally, there is a spreadsheet tool that allows you to input your own information alongside Texas A&M AgriLife Extension estimates for you to use as a comparison.
Chart Challenge
This weeks chart was provided by Dr. David Anderson from Texas A&M AgriLife Extension’s Livestock Marketing center. The hint: the chart shows growth in exports year over year of a certain product to a foreign country. I’ll provide the answer next week via Twitter where you can find me, @AmarilloAgEcon.
In the News:
Reuters – China to buy additional $32 billion in U.S. farm goods over two years, sign deal in January: USTR
Upcoming Dates:
December 12 – Randall County Production Ag Landowner/Tenant Program
December 19, 1:30 pm – Industrial Hemp Seminar, Lubbock Texas A&M AgriLife Extension Center; Preregister by contacting Brady Arthur, (806) 775-1680, brady.arthur@ag.tamu.edu, or Calvin Trostle, (806) 746-6101, ctrostle@ag.tamu.edu
January 5-11 – The Executive Program for Agricultural Producers (Register Here)
February 6-7, 2020 – Developing this Year’s Marketing Plan for Feed Grains and Cotton, Amarillo AgriLife Research & Extension Center; Preregister at https://agriliferegister.tamu.edu/Grain