Cattle Archive

Cattle Markets

Virginia Cattle FarmsA confluence of factors makes this a very good time to be cow/calf operator. According to a July 24 cattle inventory report from the U.S. Department of Agriculture, all cattle and calves in the U.S. totaled 98.4 million head as of July 1. This is 2% above the 96.3 million head reported July 1, 2014. Although there is a slight increase in the number of cattle, the U.S. is still experience a severe shortage in its supply of cattle. Livestock numbers have been dropping steadily throughout the last decade, and 2014 is the year with the lowest number of cattle on record in some 60-odd years, since Harry Truman was president.

In accordance with the laws of supply and demand, the paucity of cattle in the country has driven cattle prices up. The latest information from the NASDAQ has the price per head of feeder cattle at $210. The all-time high was around $235 during the fourth quarter of 2014, but prices were as low as $170 at the start of 2014 and rose steadily, resulting in unprecedented highs for feeder cattle that are just starting to taper off. If you’re a person sitting on some feeder cattle, it’s anyone’s guess whether or not prices for your product will stay high, but it looks like the market is showing some signs of recovery from a supply perspective.

There may be a shortage of cattle in the country, but there is no shortage of good news for cow/calf operators. Improved precipitation in the Plains States has yielded a good, cheap supply of forage, providing cattle farmers with more nourishment for their herds at ever-cheaper costs. This—rather than the actual population of cattle—may be responsible for the more recent tapering off of feeder cattle prices in recent months. At the time of writing we didn’t have access to very recent prices of forage. However we can tell you that the price of corn (which is the primary source of nutrition for feeder cows after a certain age) has gone down from $7.00/bushel in 2013 to around $3.50/bushel this year. Forage and sustenance for cattle is cheaper and more available than it has been in a while and this, coupled with the recent scarcity of cattle means that cow/calf operators are holding on to more cattle than in recent years. They can afford to feed the cattle more and more, resulting in higher weights (and therefore more money per cow than before). The scarcity also means that more heifers are being retained than would ordinarily; this causes a temporary dip in the supply of cattle with the hope that it’ll yield more cattle in coming generations. Improved pasture prospects means that cattle producers aren’t culling as many cows as they would ordinarily during this time of year; more will be going to slaughter in the fall. It’s feasible that because people are feeding cattle to heavier weights, the decrease in slaughter numbers this year will be offset by an increase in the total amount of beef, considering cows on average will weigh more.

Feedlot operators are struggling, because feeder cattle prices are higher than ever while fed cattle prices are declining. They have more of an incentive to hold out for better prices, just feeding the supply that they currently have and waiting for feeder cattle prices to drop (which evidently they are). This strategy has worked in the past, and as we mentioned earlier, forage is cheap and plentiful right now.

A reduction in cow slaughter means that the demand for importing processed beef has risen. Australia, one of the biggest exporters of beef to the U.S. has experienced severe drought in many major production centers, resulting in the exportation of beef which can’t be sustained within its borders. In the first quarter alone, the U.S. imported 412.3 million lbs. of beef from Australia. Beef imports from Canada, Mexico, and Brazil are also higher than they were this time last year. The USDA predicts the U.S. will import 3.3 billion lbs. of beef by the end of the year. For 2016 however, these numbers are expected to drop as domestic supply of beef rises and Australia begins feeling the longer-term effects of the drought on the cattle industry.

U.S. Beef Prices near Historic Highs



Have you noticed the price of beef lately?  In April of this year, beef prices reached historic highs due to the decreasing supply of cattle going to slaughter.  The U.S. inventory of cattle is expected to increase next year due to farmers not culling their herds as tightly as well as holding back their young stock.  With pasture conditions improving in the Midwest, farmers are able to produce cattle with heavier carcass weights, which is helping to offset some of the decrease in supply, but it is also allowing them to retain their cattle longer before taking them to market.  Commercial beef production in the U.S. is  expected to decline to a multi-decade low of 24 billion this year according to the USDA.

Global markets are responding to the U.S. price surge.  The Australian cattle industry is experiencing severe drought conditions in many beef producing areas and beef prices there are extremely low.  Seeing opportunity in the overseas markets, they have exported to the U.S. 412.3 million pounds of beef between January and April of this year.

Cattle Farming in Virginia

Virginia Cattle FarmsVirginia’s topography, relatively mild clim­ate, and various levels of elevation make it an ideal location for a variety of agricultural pursuits within the state’s different regions. The cattle industry is not least among these. Particularly in the western part of the state with its higher elevation, cattle farmers take advantage of the miles of sprawling pasture to breed and raise feeder calves which are typically weaned around 7-9 months. As you probably know or can assume, livestock is not one integrated, homogenized industry. It’s extremely uncommon for one farm to raise an infant cow to adulthood; it’s more efficient to consolidate the training, resources, and labor required for one stage and to focus on that. Your porterhouse steak or cheeseburger was likely born and bred on one farm, shipped to another operation after a few months, and then “finished” at a feedlot with a bunch of other cows. At this point in the process, the cows (varying in age from little over a year to over two and a half years) are anywhere from 1000 to 1500 pounds! As you’ll see, certain steps in the operation lend themselves better to certain climates and regions. It’s pretty normal for cattle farmers in Virginia to send their weaning calves off to feeding lots all over the country, especially up north to Pennsylvania, which is the closest market for feeder cattle on the coast.

There are four distinct stages of cattle production in the beef industry. Beyond these, the beef must be processed, packaged, and approved for public consumption.

Seedstock:

Like all forms of life, the cattle industry begins with genetics. In this phase, special consideration is given to breed. Branding is every bit as important here as it is in the marketing of other products: consider the weight of terms like “angus” or “wagyu” beef. The cows must have documented pedigrees and in most cases must be registered with a breed association (i.e. the Belted Galloway Society in Staunton, Virginia). These measures protect the brand. Within this sector, seedstock operators make decisions, the implications of which last for years. They are the source of bulls and new genetics. The idea is to use thoughtful, deliberate breeding to engineer “genetically superior” cows. Artificial insemination is central to this segment of the cattle industry, as it helps to quickly introduce superior genetics into herds of cattle. The relative nature of terms like “quality” or “superiority” leaves much of the seedstock operator’s job open to interpretation. A breeder has countless considerations. S/he must attempt to predict and intuit the market, and a reputation for having excellent or substandard product tends to be quite lasting.

Most of the revenue generated in this sector comes from the sale of yearling bulls, generally no older than 18 or so months. These bulls can be extremely valuable based on their genes. Seedstock operators can also make money by selling:

-Heifers

-Young breeding females

-Older bulls that have lost most of their reproductive potential,

-“Genetically inferior” cattle as commercial feeders

-Genetic materials like semen or embryos

The seedstock operation can be further subdivided into elite and multipliergroups. An operator belonging to the former group would be more expressly concerned with making improvements to the breed and manipulating genetics. Elite operators sell their bulls, semen and embryos to other seedstock operators. Multiplier operators interact more directly with the cow/calf operators at the next step in the livestock chain.

 Cow-Calf Operation

 This second segment is by far the most prevalent, with regard to both total designated acreage and the number of operations compared to the other sectors of the cattle-rearing industry. This operation by-and-large is sustained by breeding a herd of permanent cows to produce calves for sale. These mother cows are either raised from infancy on the farm or purchased from a seedstock operation (in which case they may be used to produce purebred beef). Their offspring—the commercial feeder cows—are raised from infancy and weaned between 7 and 9 months, when they reach a weight between roughly 400 and 650 pounds. The goal of this operation is to produce a regular generation of feeder calves annually.

Cow-calf operations are usually established on pasturelands unsuitable for the cultivation of row-crops. The livestock is raised on forage from the pasturelands, often supplemented with vitamins and minerals as the operation sees fit. In the U.S., this sector of the industry is concentrated in the western and southeastern parts of the country. Cow-calf operations in these parts of the country have a few significant advantages. They have longer grazing seasons, so there is less need to stockpile additional forage for the winter months. Operations in the Midwest must endure longer, more severe winters and this takes a toll a significant toll on revenue. What the Midwest, Southeast, and Western regions have in common is an abundance of large open pasture space, although in the Southeast, cow-calf operations are generally smaller, with many functioning as part-time operations.

From the outset, a person hoping to put a foot into the door of this sector would require substantial intermediate—long-term investment. From an economic perspective, this operation is largely cyclical. The beef industry follows a 10-12 year cycle of growth and diminishing, wherein the usual supply-demand principles are in effect. As farmers, ranchers, and operators across all four sectors increase their stock in response to favorable/profitable conditions, demand predictably diminishes. At this point, the industry limits the number of stock, trying to find agreement between the supply and demand curves.

Backgrounding/Stocking:

Backgrounding

 When they are between 7 to 9 months old and between 400 and 650 pounds, feeder calves are ready to leave the cow-calf operation. There are several problems associated with this transitional phase, which become exacerbated when present in large number of cows. This is a difficult period for the young cows, as they have been freshly weaned, are adjusting to changes in diet, being marketed extensively for different bidders and ultimately being shipped or otherwise transported to unfamiliar surroundings. This confluence of factors, coupled with the presence of foreign cows can result in Bovine Respiratory Disease Complex (BRDC). Also known as “shipping fever” or pneumonia, this illness is responsible for between 45 and 75% of the deaths in some feedlots. When afflicted, cows will adopt mannerisms and behaviors symptomatic of depression. Look for drooped ears (think Eeyore from Winnie-the-Pooh) and a bowed neck. The cows also tend to stand isolated…eventually they will stop eating. Their respiratory rate increases; their lungs start to create noise (audible with the aid of a stethoscope); their temperatures float around104-108 degrees.

The backgrounder serves as a buffer between the cow-calf operators and the feedlots. Feedlot operators have become increasingly reticent to deal with BRDC, and often the symptoms manifest themselves after the calves leave the cow-calf operation (typically one to three weeks after purchase). Calves generally spend between one and six months being “conditioned” by the backgrounders. As they are seeing calves through a difficult, transitory time, backgrounders must be very cognizant of nutritional standards. They generally have access to at least rudimentary health management facilities. There must be in place a feeding infrastructure capable of producing intermediate energy to sustain cows. There is considerable price risk in running a backgrounding operation, especially considering the aforementioned conditions that are present in several of the calves. Nevertheless, this sector of the cattle industry is crucial in bridging the gap between cow-calf operations—where cows are essentially produced—and feedlots where the cows are fattened for the slaughter. Backgrounders typically buy several small groups of cows, identify and address any health issues, and repackage them into larger groups, which are more attractive to the owners/operators of commercial feedlots.

 Cattle Finishing

 Cattle finishing is the final sector of the cattle industry (besides the post-production aspects like slaughter, processing, packaging and retail). At this point, feeder calves have been weaned, and are taken to feedlots. The name is very indicative of the procedure; cows are fed a high-grain diet (generally corn). They exist only to eat, gaining as much weight as possible before marketing, and generally health concerns and other “growing pains” are of little concern.

These commercial feedlots may receive feeder cattle from either cow-calf operations or backgrounding operations, which do more to prepare cows for life on the feedlot. The cattle they receive range from freshly weaned seven-month-olds to yearlings. At this point, the cattle finisher switches from a primarily pasture, forage-based diet to a high-grain diet on substances like corn. When their tenure at the feedlot comes to an end, cattle can weigh anywhere between 1000 and 1350 pounds…sometimes even more! Cattle spend more time at this sector than anywhere else in the cattle industry, generally a length of time that spans between 14 months and 30 months. The cows are cultivating mass.

In other big cattle-producing regions (primarily Australia), cows in feedlots are grass-fed. In America they are mostly grain-fed, with corn being the primary source of nutrition. Effective feedlots have access to large amounts of low-priced grain with which to sustain cows. Due to its climate and topography, Virginia is an ideal place for cow-calf operations, but not so much for feedlots, at least if feedlot operators are using the high-grain diet which typifies the American cattle industry. But in recent years, there has been a surge in the grass-fed cow industry; through food marketing and increased health-awareness, many Americans are espousing a preference for grass-fed beef. Virginia, with its plethora of rolling pastures and uplands, is ideal for grass-fed cows. Especially with farms in the Madison, Nelson and Albemarle counties; there is considerable interest in the farm-to-table concept in Charlottesville, a city whose chefs are generally well-known in the culinary industry.