Potential Drought Impacts on Cattle Markets

Derrell S. Peel, Oklahoma State University Extension Livestock Marketing Specialist

 

As April arrives, the current drought situation looms larger and potential impacts on cattle markets are increasing with each passing week.  The latest Drought Monitor shows that 43.55 percent of the continental U.S. is in some degree of drought (D1-D4), including 18.06 percent in Extreme and Exceptional drought (D3-D4).  Additionally, another 20.66 percent of the country is abnormally dry (D0), which means that only 35.79 percent of the U.S. is free of drought conditions.  At the beginning of March one year ago, over 76 percent of the U.S. was drought free.  

 

Along with the pandemic, the current drought began advancing in early March 2020.  The rapid progression of the drought this past year is faster than any drought in more than 20 years, since the Drought Monitor began.  An aggregate annual index of drought conditions is currently at the highest level (worst drought) since 2014.  The growing season is just beginning from south to north, and with two-thirds of the country abnormally dry or already in drought, the threat of warm weather and persistent or advancing drought is a major concern for forage production. 

 

As droughts develop regionally, affected producers endure growing management challenges and increased costs.  Drought conditions necessitate a sequence of producer actions including modified pasture and water management, increased supplemental feeding, additional feed purchases and perhaps relocation or liquidation of part or all of the herd.  As producers recognize and anticipate drought conditions they must assess and evaluate their resource situation, nutritional and health requirements of the herd and the economic considerations of input costs and the liquidation value of animals. At this level, producer decisions may have little or no impact on broader market values, except perhaps in localized situations.  If a drought is severe enough, over a big enough region, and lasts long enough, broader market values may be affected resulting in lower prices for cattle and higher prices for feeds and other inputs.  This can result in additional challenges for drought impacted producers as well as impacts on producers outside the drought region.  

 

Expanding drought conditions in 2020 impacted many producers regionally.  The impacts were centered in Colorado where the beef cow inventory decreased by 14.5 percent last year along with a 16.1 percent year over year decrease in beef replacement heifers.  The cow herd reduction in Colorado was 112,000 cows.  Drought conditions plagued much of the desert southwest in 2020 but cow herd liquidation in Nevada, New Mexico and Utah totaled just 34,000 head.  As bad as they were, these cow herd losses were not enough to cause significant general cattle market impacts. Significantly higher hay prices were noted in 2020 in the western drought region. 

 

What does the current drought situation suggest about possible market cattle market impacts in 2021?  Recent rain and snow has alleviated some of the previous dryness in Kansas, Nebraska and eastern Colorado with enough moisture to ensure at least some spring growth. Oklahoma has generally adequate moisture at this time. However, drought is forecast to redevelop eastward into the central plains.  Arguably the most concerning areas now are North and South Dakota and Texas.  Persistence or expansion of drought in these areas (which have large beef cattle numbers), in conjunction with ongoing drought in Rocky Mountain and desert southwest regions could result in levels of herd liquidation/movement that broadly impact cattle markets.  If the drought preempts spring forage growth in these regions, market impacts could develop rapidly in the next three to five months.  Conditions in the coming weeks may have significant cattle market impacts on producers in drought regions, producers in regions where drought is or could develop, as well as producers outside of drought areas.

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Selection for Growth and Carcass Merit

Mark Z. Johnson, Oklahoma State University Extension Beef Cattle Breeding Specialist 

 

After considering what traits are most economically important to us in our own production and marketing system.  Bull selection is critical to maximize the genetic potential of future calf crops to perform in those traits.  This week we look specifically at the EPDs we should consider when improving growth and/or carcass merit are among our selection priorities.  Selection pressure should be applied based on the intended marketing endpoint of our calf crop.  

 

EPDs for Growth 

Weaning Weight (WW) – expressed in pounds, a predictor of a sire’s ability to transmit weaning growth to his progeny as compared to that of other sires. 

 

Yearling Weight (YW) – expressed in pounds, a predictor of a sire’s ability to transmit yearling growth to his progeny as compared to that of other sires. 

 

Residual Average Daily Gain (RADG) – expressed in pounds per day, a predictor of a sire’s genetic ability to transmit post-weaning average daily gain given a constant amount of feed consumed, as compared to that of other sires.  Selection for higher RADG will result in more efficient feed conversion in the offspring. 

 

Dry Matter Intake (DMI) – expressed in pounds per day, a predictor of a sire’s genetic ability to transmit feed intake post-weaning. 

 

EPDs for Carcass Merit

Carcass Weight (CW) – expressed in pounds, a predictor of hot carcass weight of a sire’s progeny as compared to that of other sires.  

 

Marbling (Marb) – expressed units of marbling score, predictor of a sire’s ability to transmit marbling as compared to that of other sires.  Selection for higher Marb would result in higher beef carcass Quality Grades in finished offspring. 

 

Fat Thickness (FT) – expressed in inches, a predictor of differences in external fat thickness at the 12th rib of a sire’s progeny as compared to that of other sires. Selection for less FT would result in improved carcass cutability in finished offspring. 

 

Ribeye Area (RE) – expressed in square inches, a predictor of a sire’s ability to transmit ribeye size as compared to that of other sires.  Selection for higher RE would result in heavier muscled carcasses with higher cutability in finished offspring. 

 

To view Dr. Johnson’s description of what EPDs are on Sunup TV Cow-Calf Corner from March 27, 2021.

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Record Keeping- A Powerful Tool

Courtney Bir, OSU Farm Management and Agricultural Finance Extension Specialist

 

Unfortunately, record keeping and the financial analysis that can result are often not seen as an interesting or fun exercise. It definitely can’t hold a candle to the latest nutrition webinar or checking heifers. However, good records, financial or otherwise, can help you make well-informed decisions. When it comes to outlining contracts, deciding to rent land or keep a bull, good records can make decision making easier. 

 

Due to the COVID-19 pandemic, there were a record number of relief programs available for farmers and ranchers. Did you have up-to-date records that you could use to apply for these programs? Do you have beginning and ending balance sheets to take to your lender when you need a loan? Having good records are not just for decision making, but they can also help you be prepared to take steps to act on those decisions. One of our classic fact sheets is the Farm and Ranch Stress Test. I think this fact sheet is so important I have it printed and taped next to my computer in my office. Being able to calculate your liquidity, solvency, and other measures of financial health can help you identify problem areas in your finances before they become huge irreparable issues. 

 

Many producers in other states including those in Minnesota and North Dakota, have the added advantage of comparing their records to similar benchmarked producers through FINBIN (https://finbin.umn.edu/). Sales information, expenses, and some production data are all available for producers to “see where they stand.” You can compare your finances, and production data to the other states available in FINBIN, although it would be even better to compare to fellow Oklahoma producers. We know that compiling financial records can be daunting and sometimes even difficult. Here in the OSU ag econ department we have partnered with area and county extension specialists to help you with this process. We are currently working with producers to complete at least beginning and ending balance sheets, and to help with other financial analysis as needed for free. Once we have enough producers, we will anonymize and benchmark the data in FINBIN, providing our producers with another great resource. If you are interested in participating in this free program, please email me at Courtney.bir@okstate.edu.