Aug 31, 2012

Cull cow boom

After cogitating over the last cattle on feed report, something seemed a little odd. We’re in the middle of a widespread drought, pastures are scrubbed clean, and you would think there would be some early weaning going on with calves going into grow lots or feedlots. It’s early September and many cattlemen have not weaned their calves in this dry weather. That’s almost rule number one for drought management of a cow herd.

You would think that the markets would be full of light weight calves, but not yet. Feed costs are so high that the idea of putting them in a feedlot doesn’t seem very appealing with the cost of gain somewhere around $120 a pound. But those lightweight calves are still trading around that $2 mark, so some guys have a plan. About the only grazing opportunities this winter are West Coast winter grass or Southern Plains wheat pasture, and both regions were a little sketchy this last year.

There has been some rain through the southern tier of the country and all of a sudden, folks are getting a little excited about wheat pasture grazing. But then again, wheat is trading around $8.75 a bushel and some of those wheat farmers would rather have higher yields than run some stocker calves. We should see some wheat planting start very soon but it still will be a 50-50 chance that a grazing program would work without some timely rains.

The other side of the coin is that cow slaughter has not picked up that much. It appears that many ranchers are not culling that hard and are willing to see if they can scrape by this winter. Hay supplies are very low and expensive, and as we’ve reported in the past few weeks, hay yields are about a third of normal.

The folks at the Livestock Marketing Information Center (LMIC) reported that year-to-date cow slaughter is down 6 percent from a year ago, largely due to a 13 percent reduction in beef cow slaughter. Dairy cow slaughter is up 2 percent year-to-date, through the week of Aug. 11. On a weekly basis, beef cow slaughter has been down as much as 25 percent in a single week, with the smallest runs occurring in April and May. In contrast, dairy cow slaughter was up minimally most of the year but in the last five weeks has been as much as 22 percent higher than last year. Dairy cow slaughter from Canada has been up as well.

LMIC also reported that cow slaughter is typically largest the fourth quarter of the year, mostly in November, and prices usually drop 12.5 percent from September through November and pick up in December, with prices topping out in May. Culling cows early in a drought situation allows valuable forage to be used for the most productive cows. Also, the economic conditions of the dairy industry have the potential to influence cull beef cow prices much more than normal.

Right now, top cull cows are selling between $65- 75/cwt. Last week, West Coast markets were reporting a $5-10 advance in the slaughter cow market which may reflect a slow down on the dairy cow liquidation that has been going on the past few weeks.

If you need to cull cows, it would be a good time to get it done, or wait until the traditional fall cow run is over for maximum value.

LMIC also reported that in the Southern Plains, even with ongoing drought, cull cow prices in late August were 17 percent higher than a year ago and 41 percent higher than the five-year average for cull cow prices. That price strength reflects cow slaughter levels below a year ago and very strong consumer demand for lean beef products, including hamburger.

Seasonally larger cow slaughter this fall will likely be supplemented by both drought-forced sales of beef cows and dairy herd reductions. Beef cattle operations should have their cows pregnancy checked and evaluate their herd in light of their forage supplies, and cull cows soon. There is anticipation of a volatile cull cow market this fall from the dairy industry. Selling cull cows sooner rather than later could be a smart move this year.

Demand for lean cow beef is quite strong. The cow beef cutout was at $169.20 last week, just $20 lower than the fed beef cutout which is at $190. And 90 percent lean beef is trading at $216.44. If demand stays strong, there may be little effect on the cull cow market this fall.

But it would be a good idea to evaluate your feed resources and get them secured for this winter, pregnancy check the cows early and get the open cows to the auction barn now. — PETE CROW