Marketing is always a top concern for cattlemen, but this year producers seem even more anxious about their financial prospects. Professional market analysts warn of several ominous market signals that threaten to undermine the 2008 cattle markets. Chief among those are projections that both beef production and total red meat production will grow this year.
Last month’s cattle on feed report suggests the cards are already in place to produce significant increases in beef production during the first quarter. For instance, the number of cattle on feed, 11.76 million, set a new record for the month of December, while placements were up 12 percent from the previous year, and the largest since 1999. But even more ominous for prices in the coming months is the fact that the industry is placing cattle at heavier weights. More cattle coming to slaughter at heavier weights means increases of beef production of 4 to 5 percent during the first quarter.
Corn prices, of course, remain the other key factor in the profitability of your cattle operation this year. The market remained strong through the end of the year, with the trend higher since the harvest lows in mid-October.
To identify and understand the needs of our readers, Drovers regularly conducts surveys of readers from all segments of the industry. Our most recent survey, Drovers’ Beef Cattle Operations Study, was completed this past November. The survey, conducted for Drovers by Irwin Broh & Associates, sampled 1,500 readers of the publication by mail and we received a response rate of 24 percent. We’ll share more of the information from this survey in an upcoming issue, but because marketing is such a concern—especially at the beginning of the year—we’re providing some tidbits gleaned from the marketing questions in the survey.
Among those responding to Drovers’ survey, about 75 percent owned beef cows last year, 79 percent marketed stocker cattle and 56 percent marketed fed cattle. About 60 percent of respondents said their cow herd is crossbred, with about 19 percent indicating their cows are unregistered purebreds.
We asked readers to estimate the breakeven calf selling price needed to cover cash operating costs for 2007, and the average from our respondents was $96 per hundredweight. Specifically, 5 percent of respondents expected to lose zero to $25 per calf last year while 6 percent expected to finish at about breakeven. Twenty-two percent of respondents expected to earn $26 to $49 per calf; 34 percent ex-pected to earn $50 to $99 per calf; 33 percent expected 2007 profits would exceed $100 per calf. Those responses provide a mean, or average profit per calf of $82 for 2007.
We also asked readers about marketing methods, and, not surprisingly, 76 percent of respondents market their calves by auction. On average, 50 percent of each operation’s calves and feeder cattle combined are marketed through an auction.
The next most common marketing method among respondents was direct/private treaty, with 54 percent of respondents using that method, with an average of 31 percent of each operation’s calves marketed in that manner. Retained ownership was listed by 19 percent of respondents, 11 percent listed video sales and 2 percent said they use Internet marketing.
Just 8 percent of respondents told Drovers they sold cattle in 2007 through an alliance or other non-traditional marketing program. But, among those who did, 82 percent say they discovered a marketing premium for their calves sold through an alliance, and the average premium was 9 percent over that week’s published market price.
Nine percent of respondents told us they marketed cattle through a natural-beef program in 2007, and 1 percent said they marketed cattle through an organic-beef program.
Finally, we learned marketing is so critical because gross income from cattle accounts for an average of 64 percent of total gross farm/ranch income for our respondents. Specifically, 18 percent of respondents say cattle account for 100 percent of total farm/ranch income; 21 percent of respondents say cattle account for 81 to 99 percent of income; and 16 percent of respondents say cattle account for 61 to 80 percent of their income.