Feed costs and availability will be the drivers shaping expansion locally and nationally.
USDA’s September Cattle on Feed (COF) report was expected to show a dramatic decline in placement numbers, and it did. In fact, the September number was down 19% compared to a year ago, which exceeded analyst estimates that averaged a decline of 15%. In part, the placement number is down because of tighter supplies, and in part because last September’s placements were magnified due to drought in the High Plains.
The COF number is down by 3% compared to a year ago. Interestingly, the number of steers on feed is up ever slightly over a year ago, and represents 63% of the inventory. Meanwhile, the number of heifers placed is down by nearly 8%. That means the decline in COF numbers can be explained almost entirely by a decline in heifer placement numbers. The September marketing number was down 12 compared to a year ago.
We know that numbers are tightening and will continue to decrease as a result of drought conditions that made 2012 another liquidation year. Conversely, we know that drought caused cows to be sold. Just to maintain numbers, we will need to see an increase in heifer retention to expand the cowherd, and that will require a substantial increase in the number of heifers being kept back out of the feeder mix.
BEEF Cowherd Tip: Replacement Heifer Management
What we are seeing among producers, especially those affected by drought, is that they have sold cows and are keeping heifers, as they provide more flexibility. If moisture conditions improve, those heifers can be bred and upgraded substantially in value. If moisture conditions don’t change and continue to limit expansion, they can be sold later in the year as feeder cattle.
Economics always dictate expansion and liquidation decisions, but the economics driving these decisions have narrowed. Feed costs and availability will be the drivers shaping expansion locally and nationally.
The local aspect is becoming far more critical than in the past. With diesel at $4/gal., the ability to transport feed ‒ especially hay ‒ has greatly diminished, as prices are going to be dictated by local demand. That means we’ll continue to see dramatic differences in feed costs from year to year, and region to region.
The market is still doing a tremendous job of equalizing feed costs nationally, but doubling transportation costs has mightily increased the basis between regions. It will be interesting to see how rapidly people switch out of round bale production to squares as a result.
Fed cattle marketings in September also fell short of analysts’ expectations. But with placements down, it only makes sense that feeders will look to extend days on feed in order to increase capacity utilization.
Not surprisingly, the first week of October saw carcass weights set new records. Steer carcass weights averaged ‒ yes, averaged ‒ 880 lbs., while heifers averaged 807 lbs. With fewer cattle to place, and liquidation eliminating older and poorer-performing cows, we can expect to see record or near-record carcass weights going forward.
Industry At A Glance: Carcass Weights Set Record High
Every economic signal out there is telling feeders to make them bigger. This will continue to make rapid early growth and feed efficiency top priorities. Feed efficiency to larger endpoints also will put pressure on the antagonism for the stocker, feeder and packing segments to demand more growth, and the cow-calf side trying to reduce mature size. Inevitably, this will result in a reduction of milk, but also probably lead to more sophisticated terminal x maternal mating systems.
The composite or hybrid movement has been the fastest growing segment of the seedstock business, as it allows a simple method for producers to gain the advantages of hybrid vigor and improve maternal efficiency and productivity without elevating costs. This growing disconnect between the growth required upstream, and the moderation needed at the cow-calf level, will drive a whole new wave of terminal and maternal lines and crossing both in the purebred and hybrid industry.
The drought will affect more than genetic selections. We’re already hearing from feeders and stockers that the drought has affected immunity levels and morbidity rates. This will likely affect, to some degree, carcass weights, quality grade and other factors in the short term ‒ and perhaps as long as 2-3 years, as evidence mounts that this spring’s calf crop will be influenced by the drought as well.
Most likely, we’ll never be able to quantify the impact of the 2012 drought. It will be impossible to sort out improved genetics, longer days on feed, larger placement weights, feed/growth promotants, etc. Drought is certainly nothing new in this industry, but what we’ve seen in the two major droughts since the advent of subsidizing ethanol, is that the impact of drought is far greater than it ever was before ethanol subsidies.