TheCattleSite.com - news, features, articles and disease information for the cattle industry

News

CME: Implications of Good Pasture Conditions for Cattle Supplies

31 August 2016

US - A number of factors impact the incentive to expand cattle supplies and, ultimately, beef output, write Steve Meyer and Len Steiner.

The cost of feed and the price of finished cattle affects the maximum price that a feedlot is willing to pay for calves and yearlings.

In 2014 and 2015, feed costs declined sharply while the price of finished cattle hit all-time record highs. Feedlots tripped over each other in bidding for feeders and this drove calf prices and thus cow‐calf operator returns to all-time record highs.

The chart illustrates average cow‐calf returns as calculated by the Livestock Marketing Information Center (LMIC). As LMIC points out, it is important to keep in mind that the calculating by no means reflects the potential for individual operations.

Also, as LMIC notes the “returns only include cash costs of production and pasture rent. That is, return to owner management, labour, etc., are not included.” This is important as there are significant differences between producers in various parts of the country.

Recently LMIC lowered its estimated cow‐calf returns for 2016 and 2017 due to the larger than expected decline in fed cattle and cull cow prices. Current estimated returns are significantly lower than in 2014‐15 but they still some of the highest of the last 40 years.

Indeed, the LMIC estimate of $133/head for 2016 is the fourth highest return since 1979.

But while fed cattle and feed costs may signal cow‐calf operators to produce more calves, much still depends on Mother Nature and the ability of producers to increase the production base.

Grass supply availability is paramount and one cannot overstate the impact of above average pasture conditions in recent years. The second chart shows pasture condition ratings as reported by USDA in its weekly ‘Crop Progress’ report.

Normally pasture conditions are best in late May and early June when ample rainfall and mild temperatures encourage pasture growth. Conditions deteriorate into the summer as heat and dry weather start to take a toll.

So far this year pasture conditions have been in very good shape and showed some improvement in August.

For the week ending August 28, USDA reported that 53 per cent of pastures and ranges were in good/excellent condition while just 5 per cent were rated in very poor condition. This is three points better than a year ago and 14 points better than the 10-year average.

Current pasture conditions argue for continued expansion of the cattle herd as producers have the ability to retain all the intended females in the herd and feel more confident about the ability to sustain a larger production base.

Good pastures also point to robust hay supplies going forward. The relationship between pasture conditions and hay output is positive, i.e. good pasture conditions correlate with higher yields and increased production.

Hay stocks as of May 1 were 2.5 per cent higher than a year ago and a dramatic 77.5 per cent higher than what they were in 2013. This was the largest May 1 supply of hay since 2004.

Harvested hay acres in 2016 are estimated at 56.127 million acres compared to 54.437 million acres in 2015. The increase in acres harvested and robust yields should further bolster hay supplies available this fall and winter.

Beef cow slaughter has increased recently but keep in mind that we are comparing to extremely low cow slaughter levels in 2015. Current beef cow slaughter still is well below the 5‐year average. We still expect a larger cow herd on January 1, 2017 and a larger calf crop in 2017.


Daily Livestock Report - Copyright © 2008 CME. All rights reserved.


TheCattleSite News Desk

Our Sponsors

Partners


Seasonal Picks

Charismatic Cows and Beefcake Bulls