High Plains Ag Week 10/3/2022 – Culling and Potential Restocking Opportunities

United States Hog Inventory Down 1% – Morning Ag Clips

Fertilizer Maker Mosaic Says Some Florida Sites Evacuated – Bloomberg

FDA proposes voluntary ‘healthy’ food label claim – Feedstuffs

Culling and Potential Restocking Opportunities

Cull Cow Values

It’s not secret that the cow herd is shrinking at a rapid pace across the U.S. Profitability is the main driver of culling, but drought is exacerbating losses which force some extra culling above normal cycles. The beef cow herd shrank 2% from July 1, 2021 to July 1, 2022. Of course, it is possible that in some cases cull cows are being replaced with heifers. However, the July Cattle report indicated that the beef heifer herd also shrank, but at an even faster rate (3%) than the beef cow herd.

This increase in culling on its own would lead the casual observer to think that cull animal prices are probably lower when compared to history. After all, increased supply of a product on its own should mean a lower price, right? However, market prices are relatively high compared to 2021 values, and also above the five-year historic average.

Slaughter Cow Prices, USDA-AMS, LMIC

So, why the high value for cull cows? We know that if supply of cull cows is relatively high but prices are up, demand for cull cow products must have increased even more than the influx of cull cow supply. A few things are happening that are pulling up the demand for cull cows.

First, inflationary pressure is lowering consumer spending power, and with beef remaining a relatively expensive product when compared to pork and chicken, some consumers are substituting other proteins for beef. However, trends in the beef primal cuts suggest that consumers are also substituting high value cuts (typically taken from fed cattle) for lower value cuts, specifically ground beef, which is largely taken from cull animals. Net import trends suggest similar market activity as the U.S. has been a net exporter of beef for most of 2022, i.e. we are exporting more value than we are importing. Again, we are trading away cuts from fed cattle and primarily importing ground beef; but with relatively lower imports U.S. suppliers are bidding up the value of cull animals.

Culling Decisions

While we are seeing strong cull cow prices, calf prices are also high and expected to increase to record or near-record levels in the upcoming year. Strong demand for beef and beef products along with contracting supplies mean that we expect support for calf prices all along the value chain.

The expectation of strong calf prices means every cow that we are able to maintain would generate a lot of value in the future, however many of us on the High Plains are low on grass. So, the culling decision is a complicated one this year. We’ve been asked many times if holding cows through the winter is worth the cost, even if she came up open. Our beef cattle colleague has a saying that cows may “need to find a new career”. The math would suggest that an open cow needs to find a new career immediately.

Gross Revenues from Cattle Trades, Week of 9/26/2022 – 9/30/2022

Consider the first figure in this writeup again. Seasonal trends suggest that we won’t see current cull cow values again until at least February 1, 2023, roughly five months from now. If you want extra value for your culls, you’ll have to wait longer, until at least March 1, 2023. If she’s open, that means you’ll be holding onto her for five to six months in the hope that values increase enough to offset your costs; a risky bet.

Again, it is time to cull opens if you haven’t already. However, there are some interesting trade opportunities in the market right now. First, take inventory of your forage resources. Do you have enough feed to keep cull cow pounds on pasture? If so, is there something in the marketplace that offers more value than your cull cows? The table above lists a few replacement categories that were available at sales across the High Plains last week. There is an associated price, the net revenue from trading your cull with the replacement option, and the subsequent revenue from the replacement generated from sale around the same time you would’ve held onto a cull to hit the next market increase.

Considering that you COULD add $780 to all of the cow replacement categories in February if you don’t want to hold on to the replacement you purchase, there appear to be many profitable trades in the marketplace as of today. Keep a few things in mind when reading the table. The revenue generated from stockers is on a head to head trade, i.e. one cull cow for one stocker calf. In reality, you can support roughly two-and-a-half to three stocker calves on the same forage as a cull cow, however the gross revenue per head on the second and third calf will be substantially less, accounting for the purchase of the calf. Second, when considering heifer purchase, remember that there are plenty of challenges in developing them. If you don’t have the experience necessary to develop a valuable heifer, consider your other options carefully. Finally, remember that you don’t have to hold onto these replacements forever. A trade today can be spun for additional profit at the same time as an open would be in the spring.