Expansion is a multi-faceted question for beef producers that are in the position to do so. Expectations about future returns relative to the cost of purchasing or retaining a replacement cow or heifer are often the first question to be addressed. Included in that decision are expectations about pasture availability in the future as some areas continue to recover from drought. There are then potential decisions to make about whether purchasing of new bulls to improve the genetic potential of the herd is in the best interest of the operation. For producers that have not experienced the full impact of a drought in recent years, cash reserves may be available to limit the need for outside financing to secure replacement animals or additional pasture resources.

With pasture availability limiting how quickly the U.S. (and world) beef industry can (and will) expand, the decline in overall cattle numbers and beef production has been masked by the carcass weight of animals going to slaughter. Record U.S. steer carcass weights were seen last fall and have averaged 15 pounds heavier so far this year compared to last year. This partially reflects how efficient feedlots have become with feeding and management practices and the changes in cattle frame sizes over time. One can also not ignore the current economic and environmental factors supporting these dressed weights: favorable grain prices, winter grazing conditions, winter feeding conditions and historic fed cattle prices. The combination of all these factors are providing incentives resulting in what we are seeing become a norm. Change any one or more of these factors and the market will make some adjustments. It won’t completely undo the genetic improvements that have occurred over time and the fact that more years than not, there will be at least a gradual increase in carcass weights of animals leaving feedlots.

While the factors driving improved efficiency beyond weaning aren’t under the control of a cow/calf producer, things that are occurring at this level are contributing to what’s possible in the stocker and feedlot level. Selecting for animals that grow quickly and have a larger frame potential are just some of the factors allowing for larger finished cattle. Just as feedlot animals are larger than they were in 1980, so is the average brood cow. Data from USDA for dressed cow carcass weights have increased 114 pounds since 1980 meaning the live weight has increased by 228 pounds, on average. While this data does include dairy cows, beef cows typically account for 53% of the annual cow slaughter mix.

So what does the fact that average cow size has increased from 1027 pounds in 1980 to 1255 pounds in 2014 have to do with efficiency and your operation? That weight difference results in today’s cow needing at least 1248 additional pounds of dry matter each year just to maintain body weight compared to the cow from 1980. Lactation increases the needs of the female. This suggests additional cost for your operation through additional fertilizer needs, hay production or purchases, supplements, or some combination of these inputs.As cows get larger, the long term trend in total U.S. pasture acres has been declining. This land use change won’t reverse course overnight due to fewer cattle in the country than the late 1990s, increased use of confinement in certain segments of the overall cattle industry and relative returns of alternative potential enterprises. However, as one looks over their individual operation, is it prepared to accommodate and support this gradual change? Alternatively, the question that really should be asked is how well your cows match the available pasture resources to minimize costs over the life of the female.

May USDA NASS Cattle on Feed Report summary:                                             Pre-Report Estimates

                                                     1,000 head                % of Prior Year                         Avg.                       Range

Placed in April                               1,548                                   95.4                               102.5                 97.0 – 105.5           

Marketed in April                        1,639                                   92.2                                  92.5                  91.5 – 94.0

On Feed May 1                          10,640                                 100.8                               101.5               101.0 – 102.5

This month’s report contains some surprises as the USDA estimates fell outside the ranges provided by trade analysts. The largest difference came in the placement estimate as Colorado was the only major feeding state that saw a year-on-year increase in placements. Other major feedlot states were down between 3% (Kansas) and 8% (Nebraska, Texas) compared to April 2014. Placements of cattle weighing at least 800 pounds were higher than a year ago for the ninth consecutive month. Other weight categories were down with 600-699 pounds only 4% lower and the other two weight categories were at least 11% lower.  April marketings were the smallest since the current Cattle on Feed series began in 1996. Only Arizona, Colorado, and Texas had below year ago levels for total cattle on feed.

In news that surprised probably no one, the World Trade Organization ruled against the current version of the mandatory Country of Origin Labeling (COOL) law. Congress seems to be working on repealing the law to prevent retaliatory Canadian and Mexican tariffs measures being put on U.S. agricultural and consumer products.

Beef, chicken, and pork in cold storage continue to be above year ago levels for April. Both beef and pork levels in cold storage declined from March to April.

Corn futures finished lower on the week as weather continues to be favorable for the development of this year’s crop. Some areas may be receiving too much rain right now, but planting was 85% complete as of May 17th with 56% emerged. Commercial demand is supporting current price levels as export sales and inspections continue to be consistent or ahead of USDA forecasted pace. Ethanol production and supplies continue to be favorable.

Live cattle futures were mixed on the week with nearby contracts lower. There are some concerns about post Memorial Day demand even though cutout values were higher on the week as retailers were needing to purchase beef for this weekend. Live cattle may be range bound at this time needing something substantive to push them outside of the current bounds of the range.

Feeder cattle futures were up on the week due to support from cash sales across the country. Additional support was found in today’s Cattle on Feed report with the possibility of more support next week impacting both live and feeder cattle futures.

Cash fed cattle sales were slightly lower this week. Most sales on a live basis were $159 to $160/cwt on light demand, which was a $1 to $2/cwt lower than last week. Dressed sales were $250 to $253/cwt this week.

*Prices are for Medium and Large 1-2 Steers
**Mississippi prices are for midpoint of 400-500, 500-600 and 700-800 steers
Note zero values in table represent no reported sales for that weight group.
Source: USDA AMS
Source: USDA AMS

Table 1.  Futures Prices

 

Live

 

Feeder

 

 

 

Month

Cattle

Change*

Cattle

Change*

Corn

Change*

June

 $      152.13

-0.40

 

 

 

 

July

 

 

 

 

360   

-5 1/2

August

 $      150.70

-0.10

 $     219.00

0.60

 

 

September

 

 

 $     218.00

0.47

366 3/4

-5 3/4

October

 $      152.60

0.92

 $     217.00

0.35

 

 

November

 

 

 $     216.30

0.75

 

 

December

 $      154.15

1.45

 

 

377 3/4

-5   

January

 

 

 $     210.13

0.53

 

 

February

 $      154.15

1.55

 

 

 

 

March

 

 

 $     209.30

0.90

388 1/4

-5 1/4

April

 $      153.30

0.75

 $     209.05

0.40

 

 

May

 

 

 $     208.00

 

395 1/4

-5 1/2

Source: DTN
* Change is from the previous Friday’s close

Table 2.  State and National Market Information
Source: USDA Agricultural Marketing Service, USDA National Agricultural Statistics Service and Livestock Marketing Information Center
1 Note the placements numbers are lagged by one week prior to publishing.