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Previous issues of the BEEF Cattle letter
Issue # 915
December 17, 2014
A Time for Reflection - John Grimes, OSU Extension Beef Coordinator
The holiday season is upon us as Christmas and New Years are rapidly approaching. While many of us can get caught up in holiday get-togethers and shopping for a perfect gift for that special someone, it is important that we remember the real reason for the Christmas and celebrate it in a manner appropriate for your family and beliefs. The New Year's holiday gives us an opportunity to reflect on the events of the past year and enjoy the possibilities that lay ahead in 2015.
The end of 2014 also gives beef producers a chance to reflect on the impact of the past year on their operations and what can be improved upon in the coming year. This year will undoubtedly be remembered as a historically positive year for sales of all classes of beef cattle. Prices for beef cattle reached levels that could not be reasonably anticipated. I hope you were able to capitalize on the current cattle economy as much as possible this year.
Many have questioned about how long these exciting times will last for the beef industry. Nobody can be certain how long these historically high prices will last. We certainly can't become complacent and assume that it is always going to be easy to sell animals at these price levels. My advice is to do what you can to take full advantage of the current situation and to make improvements that can carry you forward for years to come.
Take some time to analyze your current beef production enterprise and look for areas improvement. Just because you are selling animals for record high doesn't mean that you are not leaving money on the table. I understand that the average cow-calf operation in Ohio numbers less than 17 cows and many producers also have an off-farm job. However, cattle are simply too valuable of an asset not to treat this enterprise with an appropriate level of management to improve profitability.
Consider some of the following management decisions as potential moves that can make an immediate impact on your herd's productivity.
- You can't take advantage of historically high prices for beef cattle if you don't have the animals to sell. Use the proven management practices that can help you to improve conception rates, minimize calving difficulties, and increase the percentage of calf crop weaned.
- Cull open or any other unproductive animals with issues relating to disposition, udders, structure, performance, etc. Replace them by purchasing younger, bred females.
- Evaluate the genetics in your herd to determine if they are allowing you to meet your production goals. Utilize the breeds and genetics within a breed that will help you achieve your goals. If you are falling short of these goals, don't be afraid to make changes.
- Are there management practices not being implemented in your operation because of a lack of equipment or facilities? Improving facilities can improve the quality of life for our animals and simplify daily chores for the producer.
- Forages are the single most important feedstuff consumed by beef cattle. Increase forage quality and quantity produced from pasture and hay fields in order to maximize the pounds of beef produced per acre in your operation. Minimize feeding and storage losses associated with this valuable product.
2014 certainly was an exciting year for beef cattle producers. As good as this year has been, challenge yourself to make improvements in your operation to make 2015 even better with your beef enterprise.
Kentucky Beef Cattle Market Update - Dr. Kenny Burdine, Livestock Marketing Specialist, University of Kentucky
As I write this in mid-December, feeder cattle markets have fallen significantly from one month ago. Corn prices have increased during this time, while fed cattle futures have softened. At the same time we have also moved to the time period when feeders are placed with the expectation of slaughter during the lower-priced summer months. This is also consistent with the fact that the market drop in Kentucky markets appears to have been much more pronounced on heavy feeders than on calves.
In October we discussed cow slaughter in some detail. Given the decrease that we have seen in cow slaughter from last year, I expect beef cow numbers to be slightly higher when USDA releases their beef cow inventory estimates next month, which would also mean a slightly larger calf crop. I feel like the increase will be about 0.5%. At the same time, we are likely to see some increased heifer retention, especially in the northern and southern plains. While changes in cow numbers due to decreased cow slaughter impact numbers quickly, it will take some time for heifer development to impact cow numbers. So, I think it is likely that 2015 is the first year that we see beef cow numbers increase, but I expect increases to continue for a few years if weather cooperates.
Looking ahead to 2015, the slightly larger calf crop will impact prices somewhat, but I think our primary threat will be from increased competition from competing meats. At the calf and feeder cattle level, I still expect the calf market to be stronger in the spring of 2015 than it was in the spring of 2014. However, I do expect that the 2015 fall market will be softer than the market that we enjoyed this fall. Backgrounders placing calves into winter programs need to carefully examine the margins being offered between current calf prices and spring feeder cattle futures, which has changed with the recent drop in futures. Given the market volatility that exists, producers should consider some form of price protection on calves that are placed this winter for sale in the spring.
Forward Contracted Fed Cattle and Basis - Matthew A. Diersen, Professor, Department of Economics, South Dakota State University
Heading into the New Year is a good time to think about price and basis levels. The markets currently reflect steep inversions as cash prices for live and feeder cattle are higher than their respective futures prices. On the basis side, there was talk for much of the past year about the relatively high basis levels occurring in the area. Related to that would be the forward basis information from the USDA-AMS report "LM_CT153", which covers weekly fed cattle volume contracted with basis levels.
The report is titled "National Weekly Direct Slaughter Cattle: Prior Week Slaughter and Contract Purchases" or "Weekly Direct Slaughter Cattle - Packer Owned Cattle". It does not receive much attention, but it gives the weekly volume (number of head) of new forward contract signings between feeders and packers. It also tracks the cumulative volume and a breakdown by delivery month with an average basis and a basis range of the related futures contract. The report is available at: http://www.ams.usda.gov/mnreports/lm_ct153.txt
The volume contracted is high. With all of the talk about tight fed cattle supplies the volume contracted for delivery in recent months has been quite high. There were over 400,000 head contracted for October, with slightly less in November and so far in December.
The highest amount for a given month is usually April delivery. In April of 2014 there were 421,737 head contracted - a monthly record. Seasonally, it would be unusual to see such high volumes for the other months. Looking at April of 2015, there are currently 250,636 head contracted. A year ago at this time there were 228,855 head contracted. The point is there have been large shares delivered on contracts in recent months and large shares expected in the coming months. The cumulative total continues to hover above 2 million head.
The basis pattern is consistent with the inverted market. Earlier this year local feedlots wondered about higher basis levels. Since March of 2014 in South Dakota the basis on fed cattle for non-delivery months has been much higher than average. June and October were close to the 5-year average. The constant surprise of higher cash prices at least partially explains the pattern. The general expectation has been for lower prices, at least by the next delivery time. That has carried over into the forward prices. This past week showed the average basis for forward contracts as positive through June of 2015. The range of basis levels for most months still shows a typical wide pattern - anywhere from -$10.00 to +$6.50 versus the futures price.
Knowing the recent basis levels and knowing that contract volumes have been high and are likely to continue may help feedlots as they evaluate new offers from packers. The futures price pattern and recent forward basis pattern both support the idea of a continued inverted market until June of 2015.
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BEEF Cattle is a weekly publication of Ohio State University Extension in Fairfield County and the OSU Beef Team. Contributors include members of the Beef Team and other beef cattle specialists and economists from across the U.S.
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Keith L. Smith, Associate Vice President for Agricultural Administration; Associate Dean, College of Food, Agricultural, and Environmental Sciences; Director, Ohio State University Extension and Gist Chair in Extension Education and Leadership. TDD No. 800-589-8292 (Ohio only) or 614-292-6181.
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