Take a Look in the Mirror …

Stakeholders throughout the cattle industry are prudently pondering implications of deteriorating pasture conditions, weather impacts on grain markets, etc. as they attempt to assess the current cattle market complex.  As producers increasingly consider decisions such as selling calves early, culling additional breeding stock, etc. a host of short- and longer-term considerations must be made.  To further facilitate sound deliberations here I highlight the fact that weather is far from the only driver of variation in returns experienced by cattle producers and that more persistent patterns in profitability drivers are important to recognize.

First, recognition that even in “good years” many cow-calf producers lose money while in “bad years” there are cow-calf producers who likely make money is critical.  Research assessing Kansas cow-calf producer returns suggest there is notably more variation in returns across producers in a given year than in returns over time for a set of producers.[i]   This research has also found profitability differences across producers is attributed more to total cost differences than gross income differences.

Similarly, researchers at the USDA ERS annually assess cow-calf profitability across eight geographic regions.[ii] Importantly, these assessments regularly find more variation across the eight regions in operating costs than in values of production – a point consistent with the Kansas study noted above.  For instance, in 2011 the estimated range (across regions) in value of production was $214/cow while the range in operating costs was $353/cow.   It is also important to appreciate this assessment compares representative operations across regions and that variation within regions is likely even larger.

The main implication of this for cattle producers is that over-time controlling input costs trumps revenue implications of changes in market conditions for outputs when it comes to relative influence on the bottom-line.  Producers are therefore encouraged to seriously “look in the mirror” to examine the various costs incurred by their operation and to thoroughly assess the comparative position of their operation.  While this exercise is recommended as a sound activity to regularly engage in, its importance is only magnified when operation-altering decisions such as changing the size of one’s herd are being considered.  Only after an honest and extensive self-assessment can a manager properly make these “change or do not change” decisions.

The Markets

Fed cattle prices were flat last week trading near $117/cwt on a live weight basis and over $186/cwt on a dressed basis.  Nebraska yearlings traded slightly lower at $155/cwt while Nebraska calves were up for the week and traded at $175 for the week.  Corn and DDGS prices were up significantly for the week and continue to reflect growing weather based concerns.

 

Week of

Week of

Week of

Data Source: USDA-AMS Market News

6/29/12

6/22/12

7/1/11

5-Area Fed Steer all grades, live weight, $/cwt

$116.69

$116.51

$111.97

all grades, dressed weight, $/cwt

$186.78

$187.69

$179.18

Boxed Beef Choice Price, 600-900 lb., $/cwt

$196.58

$197.46

$178.54

Choice-Select Spread, $/cwt

$16.78

$17.07

$5.56

700-800 lb. Feeder Steer Price Montana 3-market average, $/cwt

$151.50

Nebraska 7-market average, $/cwt

$155.15

$155.31

$141.27

Oklahoma 8-market average, $/cwt

$148.86

$151.40

$137.20

500-600 lb. Feeder Steer Price Montana 3-market average, $/cwt

Nebraska 7-market average, $/cwt

$175.88

$167.54

$165.04

Oklahoma 8-market average, $/cwt

$168.35

$168.44

$140.99

Feed Grains Corn, Omaha, NE, $/bu (Thursday)

$6.75

$6.23

$6.10

DDGS Price, Nebraska, $/ton

$236.85

$223.30

$195.00

Source: Glynn T. Tonsor, Assistant Professor, Department of Agricultural Economics, Kansas State University