Why Is the 2011 Beef Base Price
By now, drought has forced some ranchers to sell some cows and/or wean early; others have already priced their 2012 calves. We all have one thing in common – nosotros're all trying to figure out this cattle market. That said, here is my electric current analysis on marketing 2012 calves.
Every month, I refigure a prepare of planning prices for the next 12-15 months. I use these to project the economic functioning of my simulated beefiness cowherd through the slaughter of the current dogie crop.
A key factor in this calendar month's cost analysis is the projected cost for autumn-weaned calves. While the merchandise media reports how drought has lowered calf prices (Figure one), my 2012 fall price projections are still above those of final fall (Figure 2). On boilerplate, good profits were made with 2011 prices, and so 2012 profits should likewise be reasonably skillful.
While information technology's true that current dogie prices are downwards from late wintertime and early on spring, very few ranchers sold calves terminal wintertime or spring. Equally of this writing, I predict fall 2012 calf prices volition be relatively proficient.
Autumn 2012 calf prices equal to last fall'south prices would exercise much to help with emergency drought plans. Even if you weaned your calves early and sold them, your prices should be comparable to, or above, last year's prices.
Live cattle futures prices is some other positive marketing cistron (bottom line, Figure ii). Slaughter prices – driven by exports – seem to go along trending upward. Ranchers who retain ownership typically harvest in May-June. Alive cattle futures averaged $107/cwt. in May and June 2011, and $117 for the same two months in 2012. Slaughter price in 2013 is currently projected to average $133 in May-June 2013. If these prices materialize, they volition negate some of the projected touch of college-priced corn fed to 2012 retained calves.
This calendar month's marketplace analysis has been a challenging one. A general feature of markets is to overreact – both on the upside and the downside. Indeed, the corn market has actually increased in response to the 2012 summer drought, as the existing corn crop has to exist rationed. With the current government-mandated ethanol program, the drought-driven demand adjustments for corn demand to come from animal agronomics and/or corn exports.
Analysts propose, however, that even if the ethanol mandate is relaxed, corn prices may non recede much. The futures market suggests 2012 calves volition exist finished with relatively high-priced corn; admitting, slightly lower than current (mid-August) corn prices.
Fortunately, virtually ranchers who marketed their 2011 spring-born calves via retained ownership should have harvested them in May-June 2012, thus going to market before the big summer run-upwards in corn prices. As this is written, nearby corn futures prices are near $eight/bu., simply corn futures for latter 2013 are in the $6.fifty range based on the supposition of more normal rainfall in 2013.
I will stay with my projected record cost of proceeds (COG) for the growing and finishing of 2012 calves. The assumption here is that feedlots have to pay the subcontract-level cash toll for corn.
A second challenge I encountered doing this month's assay relates to the local corn-toll ground and local farm-level corn prices. Ground is greenbacks price minus the futures toll.
Not but has the corn futures cost skyrocketed, it appears farm-level footing, at least in western Nebraska, has gone to a much smaller negative number (Effigy iii). A smaller negative number implies fifty-fifty higher farm-level corn prices.
As a result, I've adjusted my corn ground in this month'due south projections (Figure 3) from the -45¢/bu. ground in previous months' price projections, to a -10¢ basis on corn fed to 2011 calves, and a -fifteen¢ basis for corn fed to 2012 calves. COG went up for both years' market analysis; and, yes, this has changed my economical calculations for 2011 and my projections for 2012 calves.
Volatile corn prices imply volatile COG in the feedlot. My current calculated COG for retaining (growing and finishing) 2010 calves is $one.09/lb. COG decreased to 94¢ for 2011 retained calves and is now projected at $1.18 for 2012 retained calves (come across COG columns, Figure 4).
I project ranchers' economic costs of producing 2012 weaned calves volition ascent from $126/cwt. of calf produced in 2011 to $142/cwt. in 2012. This is primarily due to drought-induced increased production costs.
This projected $16 increase results in a projected driblet in per-moo-cow profit for 2012 to $112/cow (Effigy iv). I also projection a higher buy/sell margin on backgrounding 2012 calves under a high target average daily gain. The buy/sell margins on the two finishing programs are projected to be less than in 2011.
Finally, some of you are request about the cattle market further out. Of course, much depends on when it starts raining, merely I wait that as the U.S. starts getting more grass in the next year or two, nosotros will meet a national herd expansion. Calf prices should increase through at least 2014. Heifers will be diverted from feeding to breeding and ranchers will effort to rebuild the national beef cowherd. Needless to say, bred heifers will bring a premium.
Corn farmers will respond to higher prices by producing more corn. Feeder cattle supplies volition be tight and feedlot competition will be smashing. Loftier-priced feeders and high-priced corn will keep feeding margins to a minimum. This all suggests to me that the profits will be fabricated at the ranch level.
Harlan Hughes is a North Dakota State University professor emeritus. He lives in Laramie, WY. Attain him at 701-238-9607 or [email protected]
Source: https://www.beefmagazine.com/blog/2012-beef-calf-prices-should-be-equal-2011
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