by: Wes Ishmael

Depending on your abacus, cattle prices this past year were unsurprising and mostly on par with the previous year. As long as weather and demand hold up, it's hard to argue that prices will be much different in 2019.

The Livestock Marketing Information Center (LMIC) projected calf prices for the first quarter of 2019 at $168-$172/cwt., according to Glynn Tonsor, agricultural economist at Kansas State University, in December. Yearling prices were projected at $147-$150 and fed prices at $118-$121.

Given record large supplies of both beef and competing meats, holding the price line last year was due in large part to steady domestic demand and extraordinary international demand.

“Each of the major meats—beef, pork and poultry—are projected to reach record levels in 2018 and will combine to push total U.S meat production to a record level of 102.3 billion lbs., up 2.6 percent year over year,” explained Derrell Peel, Extension livestock marketing specialist at Oklahoma State University, in his mid-December market comments. “However, 2018 per capita meat consumption in the U.S. is projected at 218.7 lbs., up 1.0 percent year over year. The smaller increase in meat consumption compared to production is largely due to the net movement of meat offshore through meat exports. Thus far in 2018 (January-October), total meat exports of 13.3 billion lbs. consist of broiler (44.0 percent); pork (36.3 percent); and beef (19.7 percent).

According to data released by USDA and compiled by the U.S. Meat Export Federation, for January through October, beef exports totaled 1.13 million metric tons, which was nine percent more than a year earlier. Value was 17 percent more at $6.92 billion. That value equated to $320.50 per head of fed slaughter, which was 15 percent more than the previous year.

“Continued improvements in the net trade balance will be critical to partially offset total 2019 meat production forecast at 103.7 billion lbs., up 1.4 percent year over year and another record level,” Peel says. “Domestic per capita total meat consumption is forecast to hold steady in 2019.”

Incidentally, odds favor additional beef cowherd expansion in 2018, albeit just a little.

LMIC analysts expect to see 0.2-0.4 percent growth as of January 1. That's despite federally inspected heifer slaughter running 7.3 percent more than the previous year through October; 10.7 percent more for federally inspected beef cow slaughter.

“The beef cow herd likely increased less than one percent year over year in 2018 to a projected Jan. 1, 2019 level of about 31.9 million head,” Peel says. “This may be the cyclical peak in herd inventory or very close to it. From the 2014 low of 29.1 million head, this cyclical expansion has increased the beef cow herd by 2.8 million head or 9.6 percent over five years. The last full cyclical herd expansion occurred in 1990-1996 resulting in an 8.8 percent herd expansion in six years.”

Moreover, Peel explains beef cowherd dynamics are finally returning to normal, following the unprecedented market forces that drove volatility during the past decade. That included drought-induced herd liquidation (2011-2013) that took more cows out of production than would otherwise be expected, followed by the recent rapid expansion.

Margins Narrow

Despite similar cattle prices, and feed prices remaining on the lower side of the scale, cow-calf margins likely narrowed in 2018, due to rising interest rates, heftier labor costs and all the rest.

For perspective, LMIC estimated average cow-calf returns for 2018 (Southern Plains) to be around $10 per head compared to $69 in 2017. That's according to a mid-fall presentation from Tonsor. At the time, returns (returns over cash costs, including pasture rent) for 2019 were estimated at about $45 per head.

The numbers aren't intended to predict specific returns. They serve as a gauge for the likely degree of return. As always, some producers will carve out significantly larger returns than average and some will receive significantly less.

Every one of those operations is unique, with different resources and challenges. However, there are some similarities in studies that examine the differences between the most profitable and least profitable cow-calf producers. The most profitable tend to spend more than the least profitable in key areas such as genetics.

Arguably, investing in genetics to accomplish specific goals has never come with less risk. That's thanks to genomics and a revolutionary change in beef cattle genetic evaluation.

Opportunity Widens

Expected Progeny Differences (EPDs) have long been the gold standard of estimating genetic differences between cattle for specific traits. These estimates became more accurate, and more accurate for cattle at younger ages, when some breed associations began incorporating the animal's DNA into the genetic evaluation. The result is genomic-enhanced EPDs (GE-EPDs), which offer as much prediction reliability for a bull the day it's born as knowing the bull's performance and that of 10-20 progeny, depending on the trait.

In the last 12-18 months associations for the most widely use beef breeds adopted new methodology for calculating EPDs, which also increases the prediction accuracy of animals that aren't genomically tested.

For what it's worth, the methodology is commonly referred to as single-step because it incorporates an animal's pedigree, genotype, phenotypic information and progeny performance data into the calculation at the same time. Before, genomic data was added to EPDs, which had already been calculated.

So, commercial producers who choose bulls with EPDs from one of these breed genetic evaluations can make more accurate selections.

What's more, the increasing development and modification of selection indexes mean commercial producers can select for multiple traits of importance to their program without leaving something else behind.

Selection indexes account for the traits associated with a particular breeding objective, with each of those traits weighted for their relative economic performance. That means some indexes are geared toward maternal value, for instance, while others focus on growth and end product value. There also seems to be a trend toward development of more all-purpose indexes. Bottom line, use the one that aims at your goals.

At the same time, some commercial producers are using stand-alone genomic tests to further gauge the genetic potential of replacement heifers. A few are even conducting genetic evaluation of their own cowherds—getting EPDs for their commercial cows—and matching those to bull selections.

The point is the gap appears to be growing between cow-calf producers making average returns, those holding on by their knuckle hair and those making a handsome return from their cattle.

It's not just genetics, obviously.

The springboard to increased returns could be extending ownership beyond the cow-calf pasture through a stocker enterprise and on into the feedlot. It might be getting a tighter handle on herd health and nutrition by consulting experts in those areas. It could be switching enterprises, from cow-calf to stocker, for instance, based on resources and comparative advantage. The list goes on.

Every operation is different. Arguably, though, a common thread running through all of these examples is the willingness to consider different possibilities for the resources at hand. That implies first having specific goals.

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