Kentucky Beef Cattle Market Update

By Dr. Kenny Burdine, Livestock Marketing Specialist, University of Kentucky

December was not the most friendly of months for feeder cattle markets as most contracts dropped considerably leading up to the Christmas holiday. Several limit down days were seen, leaving many to wonder how far the market would drop before finding a bottom. The CME actually expanded daily limits on feeder cattle futures contracts last month. However, at the time of this writing, markets have gained back a portion of what was lost. Due to the Christmas holiday, tracking local markets is more challenging, but it appeared that the drop in futures had much more impact on heavy feeders than on calves.

Next month, we will discuss the January cattle inventory report in detail and have a better feel for what is likely occurring with respect to expansion across the US. Cow slaughter continues to run well below year-ago levels, down by more than 850,000 through November. This alone leads me to continue to expect a slightly larger estimate for beef cow numbers for 2015 and a slightly larger calf crop.

Given price levels and weather, I also have to believe that increased heifer retention will be ongoing in many areas. Given the constraints on expansion that exist in Kentucky, I do not expect major changes in heifer development numbers across the Commonwealth. I would expect the largest growth in heifer development to occur in the Southern and Northern Plains. Drought forced many producers in the Southern Plains to greatly reduce beef cow numbers since 2011. Expansion had actually begun in the Northern Plains, but was likely cut short by the massive blizzard in the fall of 2013.

While one can certainly debate how long the current strong market will hold and what the next few years will bring with respect to prices, everyone can agree that 2014 was an incredible year for cow-calf operators. Further, fundamentals would suggest that while prices may decline some over the next couple years, most cow-calf operations will enjoy historically strong profit levels in the intermediate future. These increased returns provide a great opportunity for cow-calf operators to invest in their operations in multiple ways.

While expansion is certainly an opportunity that makes sense for many producers, I always caution producers that their cost of production is just as important as expected prices levels when one considers growing the size of their cow herd. Another option for producers is to use the current profit levels to invest in things that reduce their costs or otherwise allow them to increase their profitability per head. Possible cost reducing investments are improved forage programs, working facilities, hay storage and feeding methods, and many others. The cow-calf business is a long term venture and part of taking advantage of a strong market is making investments that improve profitability in weaker markets.

Source:osu.edu