11 January 2010

5 minute read

North America

Bred Cow & Heifer Prices Remain High

Last week, a banker/rancher friend of mine emailed me to ask what bred cows were going for back in 1960. Based on my limited data for bred cow prices fifty years ago, it appeared like $165/head would have been representative of the sales back then. At the special holiday bred cow and heifer sales last week in the Nebraska Sandhills, there were standingroom only crowds paying prices ranging from $900-1400/head for bred heifers and young bred cows. To say a lot has changed since then is a bit of an understatement. Feeding costs were sure lower then, with corn at $0.95/bu and alfalfa hay at $16/ton. But, productivity was lower fifty years ago too. In 1960, we produced just over 500 lbs. of beef from each beef cow in the national herd. Today, we produce over 800 lbs. of beef per cow.

Besides my friend’s question about 1960 cow prices, the most common questions I seem to get at the beginning of each year are 1) “should I sell my cows?” or 2) “should I buy some cows?” and I have emails in my inbox right now asking each of those. The typical noncommittal economist answer, “it depends,” adequately responds to both questions.

Selling bred cows and heifers now is appealing because supplies are relatively tight. Volume at a couple of the main special bred cow sales over the holiday week in the Sandhills was just a little lower than last year. After two consecutive years of high beef cow slaughter and deep culling into herds, fewer good running-age cows are available to be sold as bred stock. Additionally, demand may be strong because these same ranchers have culled the most unproductive cows in their herd and are seeking replacements. Ranchers in areas like the Nebraska Sandhills, Kansas Finthills, and Montana that had adequate moisture for forage production may have the ability to increase herd size. Given the historically small calf-crop produced in the last two years and expectations for an improvement in fed cattle prices in 2010, these ranchers may be bidding up bred prices in anticipation of meeting that demand for calves later in 2010 and beyond. Bred cow and heifer prices appear steady to stronger than last year, but they are notably higher for the best replacement stock. High quality, AI bred, and reputation genetics resulted in bred heifers and young bred cows being bid up to $1,400/head.

So, to answer the “should I sell my cows” question, it appears like this would be a good year to do so if you were planning liquidate your herd due to retirement or lifestyle changes or a desire to reduce risk exposure. Cow prices are not likely to drop substantially by next year because supplies will remain tight, but it will depend on what materialises in the fed cattle and calf market, which will be defined by beef demand and general economic conditions. For those wanting to be conservative, waiting to liquidate some or all of a herd on the basis of an improving cattle market may find these factors too uncertain to wait for.

Buying cows, as suggested above, may make sense depending upon forage availability and annual cow costs. Prices for 500-600 lb. steer calves in Nebraska in the fall of 2010 are forecasted to be $115-130/cwt, and potential exists for higher prices in future years if beef demand improves. This suggests possible revenue of about $600/head after adjusting for weaning rates and split steer/heifer calf sales. Annual cow ownership costs may be about $90/head, figuring paying $1200/head for the bred cow and selling it for a cull value of $560/head in seven years. Non-ownership cash costs (e.g., feed, health, equipment, etc.) for maintaining the cow in the herd for one year are likely between $500-550/head per year for the typical, or average, Nebraska operation. So, this could quickly become a breakeven scenario: cash costs and cow ownership costs could meet (or exceed) calf revenue. Buying those cows still might be worth consideration though. Cheaper feeding costs would significantly lower breakevens. Additionally, cow ownership costs may be averaged across the herd for a lower average cost per cow. More bullish outlook on calf prices for 2010 and beyond also could make that $1200/head bred cow purchase look more attractive.

As with every management decision, there are some risks involved in whether to buy or sell cows, but there are potential and realistic rewards too. One thing is probably for certain though: even the rancher that bought the $165 cow in 1960 wasn’t sure at the time if it would turn out to be profitable.

The Markets

In a holiday week marked by blizzard conditions in the Midwest, the 5-Area fed cattle market traded $2/cwt higher last week on a live basis and $3-4/cwt higher on a dressed basis, averaging $84.12/cwt and $135.21/cwt, respectively. Last week, Choice boxed beef averaged $139.06/cwt, up $0.56/cwt from the previous week. The Choice-Select spread narrrowed $1.50 to $5.91/cwt. Feeder cattle markets were lightly tested last week due to the holidays and weather, but Nebraska feeder steers saw prices $1-2/cwt higher. That increase came in spite of a rally in the corn market, which gained $0.17/bu last week. Distillers grain prices were steady to weaker last week. DDGS prices are currently 87 per cent of the price of corn on a dry matter basis, while WDGS prices are trading at 62 per cent of the corn price (dry matter basis).