By B. Lynn Gordon
If 2017 will be remembered in cattle country for anything, it will go down as a year of surprises. That’s what Glynn Tonsor, professor of agricultural economics at Kansas State University, told cattle feeders at a presentation hosted by Performance Livestock Analytics last week in Sioux Falls, S.D.
“We no longer have tight supplies, 2017’s calf crop was nearly a 4% increase following 2016’s 6% higher beef production numbers and 2018 projections show another 5% increase in beef volume,” Tonsor said. “What is certain is a larger calf crop, but what’s not certain is projected slaughter weights for 2018. Last year, producers kept weights in check, marketings stayed current, and we had a better year as a result.”
“Surprising market prices wrapped up 2017.” That rarity occurred when average calf prices for the fourth quarter were higher than the average in all other quarters of the year. The industry witnessed a price rally at a time of the year typically associated with lowering prices due to numbers of cattle marketed in the fourth quarter.
Supply and demand impacts
Tonsor emphasized the impact of trade, reminding producers many products exported by the U.S. would never be consumed in the typical American diet, yet garner a premium in overseas markets. “At the end of the day, cash fed beef price is at least $10 per cwt higher because of export demand.”
Tonsor reports demand strength offset the increase in beef production enough that 2017’s fourth-quarter fed cattle prices were up 9% and feeder calf prices up 23%. “Export growth and domestic beef demand continues to put dollars back in producers’ pockets.”
2017 provided much needed equity back to the feedlot industry and 2018 looks to be better than Tonsor anticipated, but the outcome will continue to be closely tied to demand. “Anything which hurts demand or exports can cause a big hit on fed cattle prices.”
Shift in cow placement
Cattle feeders in attendance were excited to hear Tonsor confirm the shift in cow numbers moving more north and west over the past 10 years. Since 2008, South Dakota tallied a 9.5% increase in beef cow population, North Dakota numbers are up 6.5%, with Missouri’s growth at 4.6%. Although still ranking number one in cow numbers, Texas’s inventory has fallen 11%. “As northern cattle feeders, this provides an opportunity of increased availably for cattle accessible to enter your feedyard.”
One of Tonsor’s greatest concerns in 2018 is not only the increase in cattle supply, which will push demand to hold its own, but the projection of heavier end weights adding more total tonnage to an already big production number. The Livestock Marketing Information Center (LMIC) projects 2018 could record a 4.7% increase in commercial beef production, both due to increased supply and weight.
He cautions with low commodity prices, feeders and producers may choose to run their own grain through their cattle without placing full value on the feedstuffs. This action historically produces heavier animals, which has market consequences.
“A lot of things work when you are the only person doing it, but they sometimes don’t work as well when done collectively.” In this case, Tonsor is concerned about the risk factor — more pounds hitting the market, putting pressure on price.
Tonsor highlighted three areas for cattle feeders to consider as ways to increase margins and improve management.
“Risk management shrinks the highs and the lows,” he says. “It’s hard to get the benefit of the upside of the market and protect yourself from the bottom lows. “Research has found not only opportunities if you lock into the market, but opportunities can vary by month. You need a data tracking system or to be diligent when monitoring the futures.”
Second, focusing on a 1% improvement in any aspect of your operation can result in better returns. He suggests a good place to start is focusing management efforts on making efficiency improvements on cost of gain, as many producers are output price takers, reducing comparative opportunity for fed cattle price gains.
Furthermore, Tonsor reminds feeders not to become complacent when monitoring cash markets. For example, he referenced the Five Area market average, pointing out past variances in the representation by region. “Understand your market, figure out how you are different from the averages and how you can make improvements that will impact your profitability.”
B. Lynn Gordon is a freelance agricultural writer and regular contributor to BEEF from Sioux Falls, SD