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I combined USDA's Long-Run Cattle Planning Prices and my Long-Run Cattle Planning Prices in the new planning price chart presented here. The USDA Planning Prices were generated in response to the emerging biofuels era.
USDA projects that feeder cattle prices will adjust downward over the next 3 or 4 years trying to find the new equilbrium with the emerging biofuels era of increased corn prices. With corn prices projected to average higher in 2008, we could well see some feeder cattle price adjustments for the next 18-24 months.
They project that once that equilbrium is found around 2009 to 2010, beef cow producers will begin to expand the beef cow herd driving prices up for the first few years of the expansion. The expanded production will eventually pull beef prices back down by 2015 or so.
Feeder cattle prices are projected to make the biggest adjustment (compared to feeder calf prices) due to increased corn prices. Limited beef cow numbers, coupled with over capacity in the feedlot sector, is projected to add strength to feeder calf prices. Relatively high calf prices, coupled with lower costs of gain for growing feeders on forages, suggests that the industry will be able to adjust to the projected wide buy/sell margins between weaned calf and feeder cattle prices.
As has been traditionally done with retained ownership of calves, ranchers are projected to continue to subsidize growing feeders with the profits made from producing weaned calves. As done in the past, faulty accounting practices will prevent many beef cow producers from again realizing that they are subsidizing the growing and finishing phases in the emerging biofuel era.
Double click on a page icon and a larger version of that page will load into your computer. Then, you can printout that page with your browser's print command. To print the next page, click the left arrow on your browser and return to the previous web page. Then repeat this whole process for the next page.
There is an example completed input form, a blank input form for your use, and a detailed table of the heifer grower ration used in my heifer cost example. The example results are presented on the BEEF Magazine web page as my May 2007 Market Advisor
Fall calf prices peaked In 2005, and the current beef-price cycle is expected to trend lower for a few years as the emerging biofuels era plays out. Thus, measuring and controlling heifer replacement costs over the next 3-4years is critical. Managing home-raised, replacement heifer numbers has much more impact on a rancher's unit cost of producing a hundredweight of calf (UCOP) than ranchers typically believe.
The quickest way to increase UCOP is to hold backadded replacement heifers. Conversely, the quickest way to lower UCOP is to reduce the heifer calves held back as replacements.
Where the cost of raising replacementheifers is concerned, cash accounting will lead most ranchers down a primrosepath. That's because cash accounting underestimates the true economic costs of raising replacement heifers. In fact, I project some ranchers will lose substantial money raising replacement heifers over the next few years and not even be aware of it. Ranchers are currently producing record high-cost replacement heifers destined to produce mid-priced calves for the rest of this decade and into the next- a recipe for financial stress. The cost of replacement heifers should be based on "economic costs"(opportunity costs), not "cash costs."
If you don't hold back replacement heifers, you have the "opportunity" to sell them at weaning. The feed used to raise replacementheifers could be sold, or fed to other animals. If you don't develop your own re-placement heifers, you can run more mature cows.
I have included an example input form used to calculate the cost of rasing replacement heifers. The actual calculations are published as my Market Advisor
in the May 2007 BEEF Magazine.
You can double click on the input form icons for the example and blank input forms and a larger version will load into your computer. You can use your browser's print command to print out the input forms. After print the first page, click the left arrow on your brower to return to previous web page and double click the next input form. Then, print it with your browser.
Send your completed input form, along with a check for $99, to firstname.lastname@example.org
and I will generate a heifer replacement cost for your herd and email it back to you. This service is available free to paid IRM clients and NCIS Risk Management Workshop Participants.
The general level of calf prices has really raised
since 2002. Prices peaked in 2005 and in 2006. Fall prices went up in 2005 with the expectations that the re-entry into the Japanese market would begin in late 2005 and early 2006. Calf prices during the last part of 2005 were drive by market hype rather than market fundamentals. The Japanese market did open up in mid 2006 but at a snails
pace. It still is operating at a snails pace.
Fall 2006 calf prices were driven down by the rapid increase in corn prices.
In spite of the high 2007 corn prices, 2007 calf prices are being driven by $100 slaughter cattle. Current slaughter cattle prices in the $90s is still driving calf prices. $100 cattle prices does a lot to relieve $4.00 corn prices!!
You can load a larger version of this chart into your computer by double clicking on the chart to the left. Then, you can print the larger chart from your computer.
Here is a chart of 2007 slaughter cattle prices compared to 2006 and the last 5-year average.
Double click the graph and a larger verion will load on to your computer. You can then print the larger version if you so desire.