CATTLE MARKET OUTLOOK POSITIVE FOR CULL CATTLE

by: Chel Terrell
Gulf Coast Cattleman


Cull cow and bull prices have seen grasping at record-high levels in recent months, generating a slew of activity on many cow-calf operations around the country as producers aim to take advantage of the market shift in their favor. Not only is it a great time to cull unproductive animals from the herd, it's an ideal opportunity to economically boost herd genetics with new purchases.

“Obviously, cull prices are extremely good and we've seen a response to those cull prices being as good as they are,” said Dr. Walt Prevatt, Extension livestock economist with Auburn University. “There's a number of those cull animals being removed from herds and going to market. The increased marketing of cull cows is obviously contributing to the decrease in the cow inventory numbers.”

In fact, the U.S. beef cowherd inventory is currently at its lowest in at least 37 years, according to industry data.

“There's a number of things working in the cattle market and we can't totally explain all of it, but, fundamentally, it's certainly a supply and demand situation. We've got lower volumes of beef tonnage going to the market and the market has responded with better prices. So that's certainly been helpful,” Prevatt said.

“You can contribute the higher prices for cull cattle to both supply and demand,” said Kevin Good, senior market analyst with CattleFax. “Supply has been tighter because of less imports. Beef imports are down substantially year-to-date. At mid-year, imports were down about 16 percent; the biggest decline was coming out of Australia and New Zealand. Even though we've been killing more domestically, you've still got tighter supplies because of that lack of imports. A lot of that has been driven because the dollar is pretty cheap. A low dollar means that Australia and some other countries can get more money for their products elsewhere.

“I think you can also approach it from the demand side as well. The thought there is that over time, a higher percentage of the beef a consumer is consuming is in the form of trimmings or hamburger. So that's helping support the cull market as well.”

According to industry figures, cull cows and bulls represent between 10 to 20 percent of a cow-calf operation's yearly revenue. This figure may increase as more producers haul culls off to the market this year.

“I think it's a good possibility that percentage would be higher than 15 percent, particularly as these values are a little higher, and with the higher values, farmers may cull a little heavier. So it may approach or exceed 20 percent,” Prevatt said.

“This year is probably going to be a little bit higher than 15 percent just because the cull market has advanced more than the calf market has percentage-wise,” Good said. “Another way to look at it, is we are still liquidating on the beef cow side and beef cow slaughter is higher year-to-date, even though we had a smaller cowherd coming in. We're killing more, so that's more dollars, and percentage is higher. But longer term, I think it's safe to say that could trend a little higher because of the increased demand for hamburger and trimmings that will keep that cow price, over time, pretty stout.”

Though the current market is robust for cull cattle, producers will probably see some weakness due to the seasonal price trend of culls as they come to market later this fall, both Prevatt and Good note.

“We typically see some weakness in the market during that October and November time period because that's when most people make fall culling decisions and a large volume of animals will come to market at that time,” Prevatt said.

“Your peak cull market is typically spring/early summer. It holds together through mid-summer, and by the time you get into September and October, then you start to see it tail away,” Good said. “Typically, your low is November, and that coincides with your bigger runs of your spring-born calves after they're weaned and going into the fall.

“It's extremely strong seasonal that you want to avoid late October to December if you can hold those cows over, upgrade them, get some flesh on them. It typically pays good dividends, especially if you can hold them into February, March. If you can get them to February verses January, that's usually worth another couple hundred dollars per hundredweight.”     

Despite the seasonal shift in market prices for culls in the fall, producers could still reap financial benefits this year by selling culls earlier if they choose not to incur the additional expense for feeding the animals through the winter and holding them over and selling in the spring.

“I don't expect the weakness to be as pronounced as we typically see,” Prevatt said. “We'll generally see the market peak for us in Alabama in the mid-June to mid-July time period. It will generally be about 10 to 14 percent higher than what the October time period is.

“This year, I don't expect to see that kind of decline in cull cow prices from the July time period. I think there are a couple of good reasons for that: 1) beef tonnage, and 2) the export situation, where the weakness of the dollar is limiting the amount of imports that we're pulling into the country. That does have an impact as well.”

While taking advantage of healthy cull prices, producers need to be mindful of higher replacement costs they might incur.

“If you think about the long-term trend from prices, the longer-term trend is higher because of the liquidation we've gone through,” Good said. “This will be the 13th out of the last 15 years that we've liquidated on the beef cow side. That's going to equate to higher prices moving forward, and replacement costs will be higher, too.”

Even though producers may have to fork out a few extra dollars to bring in quality genetics as replacements for cull animals they've marketed, it will benefit them in the long term as the cattle market climate looks positive for the next couple of years.

Randy Blach, CEO of CattleFax, told producers attending this year's Texas A&M Beef Cattle Short Course that he sees several years of potential profitability ahead.

“It's a pretty optimistic picture,” Blach said.

Production costs are expected to “remain in check,” Blach noted, but beef demand growth might be slow as the overall economy continues to recover.

“But we're starting to see some stability (with the economy) and that's the first thing we need to see,” he said.

      “Not only in the general economy, but also in the cattle business, there's a great deal of uncertainty about what lies ahead and how strong the economy is and how long we'll have these good prices,” Prevatt said. “I'm very optimistic about the cattle business during the next three to five years. I think as the economy recovers, you're going to see the market prices improve in all sectors of the cattle business, primarily because we're fundamentally so strong. Our inventories have declined at the right time.”

The above chart shows the average utility cow prices over the last 20 years to help demonstrate seasonality of prices. Courtesy of CattleFax.







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