The Cattle and Beef Margin Squeeze

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

 

The cattle and beef industry consists of primary production at the cow-calf level followed by a series of margin sectors for stocker and feedlot production; slaughter and fabrication at the packing level; and a multitude of beef product markets including retail grocery, food service and exports.  Price adjustments in each of the industry sectors are related but variable in magnitude and timing.  It is generally true in food markets that prices at retail adjust less and more slowly than farm level.  Increasingly tight cattle supplies suggest that margins at all levels above the cow-calf sector will be squeezed in the coming months.  The severity of the squeeze and the timing will vary across beef industry segments.

 

Retail beef prices are mostly unchanged over the last 16 months, with the most recent monthly retail all fresh beef price down 0.7 percent year over year.  However, current Choice boxed beef prices are up over 14 percent from one year ago.  It appears that retail margins are decreasing as wholesale values are increasing faster than retail prices.  The reported retail beef prices reflect only grocery sales and less is known about beef price adjustments in food service and export markets.  The ability of retail beef prices to move higher as limited supplies and rising wholesale prices squeeze retail margins is perhaps the biggest concern in beef markets currently.

 

Packer margins are already being squeezed with more pressure expected ahead.  Fed cattle prices are up 25 percent year over year, outpacing the 14 percent increase in boxed beef prices.  Additionally, packers will face increased overhead costs as declining cattle numbers will reduce packing plant utilization rates in the coming months. 

 

Feedlots are currently enjoying good profits due to the long time lags in feedlot production and the fact that fed prices increased quickly to record levels this year.  The increase in fed cattle prices are balanced against the price of feeder cattle placed in feedlots roughly six months ago.   However, it’s just a matter of time before feedlot margins feel the squeeze of rising cattle prices.  The prices of feeder cattle currently being placed in feedlots are up about 39 percent year over year.  Feedlot breakevens for fed cattle will increase sharply by the end of the year.

 

Calf prices are currently up roughly 50 percent year over year.  With calf prices increasing faster than feeder cattle prices, stocker margins or value of gain is eroding.  However, similar to feedlots, the time lags in stocker production will allow the uptrend in prices feeder sales to offset part of the high calf purchase prices.  A significant uptrend in feeder prices is priced into Feeder futures contract for the deferred months and, depending on the details, stocker or backgrounding programs may still show decent prospects for positive returns.  Calf prices are likely to continue increasing faster than feeder cattle prices in the coming months.   

 

Cattle markets are increasingly focused on calf prices in order to build the incentives for herd expansion in the coming months.  Cow-calf producers will see sharply rising revenues as calf prices continue to increase.  Cow-calf production is the primary source of supply for the industry and, thus, cow-calf producers do not face buy-sell margins like the rest of the industry.  However, input costs for fertilizer, chemicals and fuel have been a significant challenge for the cow-calf sector.  Drought impacts and record high hay prices are a particular challenge for some producers.  High calf prices that encourage herd rebuilding will be accompanied by sharply higher breeding cow and replacement heifer prices in the coming months. Undoubtedly there will be considerable dynamics and volatility in cattle and beef markets at all levels for the foreseeable future.

 

Can the Cattle Industry Have a Positive Impact on Climate Change? YES!

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

 

At the recently completed Blueprint For The Future Cattlemen’s Conference, I had the opportunity to interview Dr. Frank Mitloehner. Dr. Mitloehner is a professor and air quality specialist in cooperative extension in the Department of Animal Science at the University of California, Davis. As such he shares his knowledge and research, both domestically and abroad, with students, scientists, farmers and ranchers, policy makers, and the public at large. Dr. Mitloehner served the keynote speaker at the conference banquet and is highly regarded as the “greenhouse gas guru” and an advocate for animal agriculture. He collaborates with animal agriculture to create better efficiencies and mitigate pollutants. His focus is on understanding and mitigating air emissions from livestock operations, as well as studying the implications of these emissions on the health of farm workers and neighboring communities. In addition, he is focused on the food production challenge that will become a global issue as the world’s population grows to nearly 10 billion by 2050.  

 

Dr. Mitloehner made the following points in his presentation:

• The most concerning greenhouse gas from animal agriculture is methane. Cattle (as a ruminant animal), swamps and even more sources produce methane. Methane is quite different from other greenhouse gases because it is naturally destroyed within about 10 years. While there is a constant source of methane produced by cowherds, it is not contributing to additional global warming because a similar amount of what is produced is also destroyed. The same is not true of other greenhouse gases, like vehicle emissions, which accumulate in the atmosphere.
• Furthermore, as a result of his work, California Dairy herds have actually been successful in reducing the amount of methane produced and in some cases, as a result of covering lagoons to trap biogas (much of which is methane) it is being converted into transportation fuel. As such, it has turned into a second “cash crop” for these Dairy operations.
• Decreasing methane emissions will decrease global warming. This means the cattle industry can be part of the climate solution because there are ways to reduce methane that are cost-effective and have positive impact on climate.
• Dr Mitloehner’s most important “take home” message was that this is a positive news story for the beef industry and cattle producers which we should embrace.
   

Reference

Clear Center (https://clear.ucdavis.edu)

 

 

Secure Beef Supply-Is Your Operation Ready?

Rosslyn Biggs, DVM, OSU Extension State Beef Cattle Veterinarian 

 

One of the greatest threats to United States’ agriculture is the potential introduction of foot and mouth disease (FMD).  FMD is a highly contagious viral disease found in multiple countries around the world. Symptoms of FMD include a fever and blister like lesions on the mouth, udder and feet of cloven hooved animals.  FMD occurs in both domestic livestock and wildlife. 

 

Managed movement of livestock through permitting during an FMD outbreak would be essential in maintaining commerce activities and preserving animal welfare. The Secure Beef Supply Plan, a project funded by the USDA, focuses on these types of movement by encouraging individual producers to develop continuity of business plans now. 

 

Producer participation in the Secure Beef Supply is voluntary. Cattle operations that choose to participate in the Secure Beef Supply Plan will be better prepared to request a movement permit once movement is allowed in an outbreak and may see benefits of reducing other disease outbreaks. 

 

In a recent biosecurity survey by Oklahoma State University researchers, only 15.43% of Oklahoma cow-calf producers knew the recommendations of the Secure Beef Supply and had started any level of implementation on their operation. 

 

To begin participation in the Secure Beef Supply Plan, producers should request a premise identification number from their state animal health official. In Oklahoma premises numbers can be requested through the State Veterinarian’s office.

 

Next producers should develop an enhanced biosecurity plan. Initially, a biosecurity manager should be identified. The biosecurity manager should work closely with the operation’s veterinarian to create a written operation-specific biosecurity plan. 

 

This plan builds on the operation’s current biosecurity practices and elevates those measures specifically to prevent the introduction of FMD to the premises. A Secure Beef Supply biosecurity plan includes the identification of items such as lines of separation and personnel training specific to FMD.

 

Another part of the plan involves preparing operation personnel to monitor cattle and other susceptible species for signs of FMD. Additionally, records must be maintained for all movement on and off the operation of animals, germplasm, people and equipment. The contingency plan also addresses how the operation will continue to function during periods of restricted movement.

                             

The Secure Beef Supply Plan offers extensive resources including training and templates to assist producers in preparing for a potential FMD outbreak.