Another near-record year predicted for cow-calf producers in 2015

My advice for ranchers is to always compare their marketing alternatives to selling at weaning. To do this, you must price your calves at weaning — whether you sell them or not.

A Handbook for Ranch ManagersGood advise…but as with all things, it’s worth exactly what it cost you. Never ever put 100% trust in some market predicting guru. Keep ’em hedged, keep your drought plan up to date, and use those profits toward getting debt free. You’ll be OK. — jtl, 419

by in Market Advisor via Beef Magazine

Planned Grazing: A Study Guide and Reference ManualFeeder cattle market prices have thus far stayed relatively strong, albeit a little lower than the October 2014 peak. While markets typically overreact on both the upside and the downside, the bottom line for ranchers is that prices thus far in 2015 are very strong relative to previous years. Environmental & Natural Resource Economics: The Austrian ViewRanchers’ biggest challenge is to make sure they take advantage of these good times, as these prices likely won’t last through this decade.

Over the next two years, ranchers need to keep two general price characteristics in mind. First, is the absolute level of beef prices. Second, is the relative price of different weights of feeder cattle, which I call “buy-sell margins.”

Buy-sell margins make or break post-weaning enterprises. Yes, cost of gain is important, but most ranchers have that under reasonably good control.The Essence of Liberty: Volume I: Liberty and History: The Rise and Fall of the Noble Experiment with Constitutionally Limited Government (Liberty and ... Limited Government) (Volume 1)  The Essence of Liberty: Volume II: The Economics of Liberty (Volume 2) The Essence of Liberty: Volume III: A Universal Philosophy of Political Economy (Liberty: A Universal Political Ethic) (Volume 3)

In this month’s column, I’ll focus on the absolute price level. Next month, I’ll focus on the relative price levels that will determine backgrounding, stocker cattle and cattle feeding profits.

Combat Shooter's HandbookReconnaissance Marine MCI 03.32f: Marine Corps InstituteThe Betrayed: On Warriors, Cowboys and Other MisfitsRanchers who sell calves at weaning should focus on the absolute price levels. I predict that ranchers selling at weaning will do well in 2015 and 2016.

Meanwhile, those who grow out their calves, or run grass cattle, should focus more on the relative price of feeder cattle. Post-weaning enterprises function around the relative prices of feeder cattle, and I predict the price situation for these will be greatly different in 2015-16 versus 2009-14.

The 2009-15 trend line in my feeder cattle futures data shows a positive $20 annual trend, but I don’t see this continuing. Those growing their calves, grazing yearling steers and retaining ownership may see a couple of challenging years ahead, as cattle prices level off and adjust downward in a return to more historical cattle price cycles.

My advice for ranchers is to always compare their marketing alternatives to selling at weaning. You need to know if you’re making your profit by running cows, or growing and finishing your calves. To do this, you must price your calves at weaning — whether you sell them or not. Using beef cow profits to subsidize cattle feeding is not a good economic decision.

If you want to generate a quick review of the absolute feeder cattle market price levels, go to Kansas State University’s beefbasis.com. Go to the third page and generate a “Stocker Index” for your state. Click on the small graph symbol on the stocker index, and you’ll find a gold mine of data for graphing stocker cattle price trends for your state. This software allows you to pick a state and generate several stocker price charts for that state. The price data graphs come from USDA’s Agriculture Marketing Service summary of weekly sale barn prices for that state.

I routinely use this program to gain a quick feel for stocker price averages over several time periods up through the current week’s prices. For example, using beefbasis.com, I plotted monthly stocker prices from mid-February 2015 to mid-March 2015. It clearly signaled a run-up in stocker prices in the first half of March.

I used another option in the beefbasis.com program with an Oklahoma rancher who was trying to decide when to market his stockers on wheat pasture. He was considering grazing his current steers to heavier market weights rather than buying expensive replacement stockers. He decided to take his current steers well beyond 850 pounds and is now looking to market them in April 2015. He used the beefbasis.com analysis program with Oklahoma data rather than the Nebraska data that I used.

annual live cattle futures averages

It’s important to keep current prices in perspective with previous prices. I like to look at the one-year chart on beefbasis.com to see current prices relative to prices over the last year. For instance, researching seven-day averages for Nebraska stocker prices (average of 350 to 650 pounds) for the last year indicates that weekly prices peaked in October 2014, but current prices are still high relative to early 2014 and prior to that.Let’s now consider the live cattle futures market prices, along with current absolute price levels of finished cattle (Figure 1). Figure 1 depicts the strong run-up in slaughter cattle prices since 2010. It also suggests the 2015 average could be similar to 2014, but I predict the monthly trend to be opposite that of 2014. I base this projection on the current live cattle futures prices presented in Figure 2.

live cattle futures prices

Figure 3 shows my current suggested planning prices for five key marketing periods in 2015. It projects 600-pound steers on grass at $266 in spring 2015 and off grass at 800 pounds in fall 2015 at $200, with a –$66 buy-sell margin. In 2014, the buy-sell margin for grass cattle was a +$30, and it was also positive in 2013. Yes, times are a-changin’. The red numbers in Figure 3 are marked specifically for grass cattle marketings.

The fall 2015 planning prices (Figure 3) generate a profit projection of $541 per cow for my eastern Wyoming and western Nebraska study herd. This compares to $602 per cow in 2014. It’s projected that the unit cost of producing 100 pounds of steer calf on this study ranch in 2015 will be $173 compared to $194 in 2014. Replacement costs and lower hay costs account for this cost difference. Replacement costs for 2016 are projected to be considerably higher.

historical cattle prices

I fully expect ranchers who sell calves at weaning will have another near-record, high-profit year in 2015 — down only slightly from 2014.

Harlan Hughes is a North Dakota State University professor emeritus. He lives in Kuna, Idaho. Reach him at 701-238-9607 or harlan.hughes@outlook.com.

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A Handbook for Ranch ManagersA Handbook for Ranch Managers.  In keeping with the “holistic” idea that the land, the livestock, the people and the money should be viewed as a single integrated whole: Part I deals with the management of the natural resources. Part II covers livestock production and Part III deals with the people and the money. Not only would this book make an excellent basic text for a university program in Ranch Management, no professional ranch manager’s reference bookshelf should be without it. It is a comprehensive reference manual for managing the working ranch. The information in the appendices and extensive bibliography alone is worth the price of the book.

You might be interested in this books supplement: Planned Grazing: A Study Guide and Reference Manual.

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Land and Livestock International, Inc. is a leading agribusiness management firm providing a complete line of services to the range livestock industry. We believe that private property is the foundation of America. Private property and free markets go hand in hand—without property there is no freedom. We also believe that free markets, not government intervention, hold the key to natural resource conservation and environmental preservation. No government bureaucrat can (or will) understand and treat the land with as much respect as its owner. The bureaucrat simply does not have the same motives as does the owner of a capital interest in the property. Our specialty is the working livestock ranch simply because there are so many very good reasons for owning such a property. We provide educational, management and consulting services with a focus on ecologically and financially sustainable land management that will enhance natural processes (water and mineral cycles, energy flow and community dynamics) while enhancing profits and steadily building wealth.
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