January 12, 2018 Tennessee Market Highlights Number: 2

FED CATTLE: Fed cattle traded $2 lower a live basis compared to last week. Prices on a live basis were mainly $120 while prices on a dressed basis were mainly $192.

The 5-area weighted average prices thru Thursday were $120.07 live, down $1.58 from last week and $191.92 dressed, down $2.42 from a week ago. A year ago prices were $118.44 live and $186.00 dressed.

Is it the large number of cattle on feed, softness in the beef market, or something else causing finished cattle prices to soften? “How many licks does it take to get to the Tootsie Roll center of a Tootsie Pop?” The answer to these two questions may be the same. “The world may never know.” How-ever, the logical answer given current fun-damentals is all of the above. There are a large number of cattle on feed and beef production remains strong. The expectation for beef production to remain strong the next several months will continue to put pressure on finished cattle prices. Some of this pressure may be relieved once spring arrives, but it is difficult to tell how the win-ter will impact finished weights and how many cattle will be available to go on feed in the near term.

BEEF CUTOUT: At midday Friday, the Choice cutout was $208.67 down $0.40 from Thursday and down $0.59 from last Friday. The Select cutout was $202.28 down $0.67 from Thursday and down $0.09 from last Friday. The Choice Select spread was $6.39 compared to $6.91 a week ago.

Following two weeks of post-holiday gains, beef cutout prices managed to hold serve this week. From a packer and industry standpoint, the failure to push prices higher was a disappointment. However, the ability to hold prices steady should be considered a win given beef production totals and weather events negatively impacting much of the eastern coast and the Northeast re-gions of the United States. Anytime big population centers are slowed by winter

weather, pressure is put on the beef indus-try. When a weather event hits simultane-ously with strong beef production, further downward pressure is asserted. There will continue to be struggles in January and February to push beef prices higher as much of the focus will be on end meats. This focus will result in the Choice Select spread continuing to narrow. One bright spot has been the export market. Export data for November 2017 was recently re-leased and it indicated increasing beef ex-ports once again. Every month in 2017 out-paced the same month for 2016. A strong export market will be necessary to support beef prices.

OUTLOOK: Auction markets were back to marketing cattle this week across the state. It is difficult to develop trends relative to last week due to the small number of cattle reported a week ago. Based on Tennessee weekly auction market averages, 525 to 675 pound steers averaged $800 to $940 per head which is not much different from the first and last full sale weeks in Decem-ber. Where the difference arises is in load lot pricing. Several loads of feeder cattle were marketed in Tennessee this week. Steers weighing between 825 and 975 pounds brought $1,075 to $1,275 per head. Prices received this week were $150 to $200 per head lower than those received in December. Feeder cattle basis was dis-cussed extensively in this column one week ago. The discussion focused on the strength in feeder cattle basis when comparing the feeder cattle index and the futures price. Tennessee cattle producers had enjoyed a rather strong basis on load lots of feeder cattle for several months, but the tide turned based on loads marketed this week. The question most will be asking is if the basis will again strengthen or if it will re-main relatively weak as was present in the most recent marketings. It is difficult to predict, but it seems the current situation is

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Livestock Comments by Dr. Andrew P. Griffith Trends for the Week Compared to a Week Ago

Slaughter Cows

No trends established due to low

receipts last week.

Slaughter Bulls

No trends established due to low

receipts last week.

Feeder Steers

No trends established due to low

receipts last week.

Feeder Heifers

No trends established due to low

receipts last week.

Feeder Cattle Index

Wednesday’s index: 148.81

Fed Cattle

The 5-area live price of $120.07 is down $2.58. The dressed price is down $2.42 at $191.92.

Corn

March closed at $3.46 a bushel, down 5 cents since last Friday.

Soybeans

March closed at $9.60 a bushel, down 10 cents since last Friday.

Wheat

March closed at $4.20 a bushel, down 10 cents since last Friday.

Cotton

March closed at 81.68 cents per lb, up 3.67 cents since last Friday.

2

going to be short-lived. Feedlots have plenty of cattle, and they do not necessarily need any extra at this time. However, they are more than willing to purchase undervalued cattle that would appear profitable moving into the spring and summer. As cattle make their way through the system the next couple of months, cattle feeders may find out there are not as many ani-mals readily available to restock the pens. Thus, there could be some price support moving into the spring and summer months. Being wrong here could be an expensive education, but being correct could result in positive returns. Time will tell as the market will keep an eye on placements in the next few cattle on feed reports. The market will see the share of cattle that hit the pens early due to poor grazing in the Southern Plains.

ASK ANDREW, TN THINK TANK: Questions concerning cow-calf operation profitability are frequent and this week was no differ-ent. A question was asked concerning some of the key aspects to focus on in turning an unprofitable cow-calf operation into a profitable operation. The answer to this question is largely situ-ation specific, but there are a few things every producer should keep an eye on and make management decisions to improve. One key is reproductive efficiencies. The weaning rate which is the number of calves weaned and marketed relative to the number of cows exposed to a bull is important. Producers should shoot for 90 percent but 85 percent may be more realis-tic. Secondly, a defined or controlled calving season will im-prove profitability. Year round calving makes management diffi-cult and generally increases feed costs. Anything under 90 days for a calving season is desirable with 60 days being even better. Lastly, reducing costs associated with mechanically harvested feeds. Reducing the stocking rate can sometimes increase profitability if it reduces hay usage.

Please send questions and comments to agriff14@utk.edu or send a letter to Andrew P. Griffith, University of Tennessee, 314B Morgan Hall, 2621 Morgan Circle, Knoxville, TN 37996.

FRIDAY’S FUTURES MARKET CLOSING PRICES: Friday’s closing prices were as follows: Live/fed cattle –February $117.38 +0.30; April $119.45 +0.58; June $111.63 +0.63; Feeder cattle –January

(Continued from page 1)

Livestock Comments by Dr. Andrew Griffith

$144.35 +0.53; March $142.65 +1.28; April $143.00 +1.15; May $142.70 +0.78; March corn closed at $3.46 down $0.03 from Thursday.

Thursday January 11, 2017

Month Class III Close Class IV Close

Jan 13.81 13.27

Feb 13.21 13.06

Mar 13.25 13.16

Apr 13.65 13.39

May 14.07 13.64

Milk Futures

Cattle Hogs

———— Number of head ————

This week (4 days) 118,000 453,750

Last week (3 days) 113,333 441,667

Year ago (4 days) 116,250 430,000

This week as percentage of

Week ago (%) 104% 103%

Year ago (%) 102% 106%

Average Daily Slaughter USDA Box Beef Cutout Value

Choice 1-3 600-900 lbs

Select 1-3 600-900 lbs

———————— $/cwt —-———————

Thursday 209.07 202.95

Last Week 208.67 200.86

Year ago 189.39 187.95

Change from week ago +0.40 +2.09

Change from year ago +19.68 +15.00

3

Crop Comments by Dr. Aaron Smith

Overview Cotton was up; corn, soybeans, and wheat were down for the week. On Friday, USDA released three reports Winter Wheat and Canola Seedings, Grain Stocks, and World Agricultural Supply and Demand Estimates (WASDE). By the end of the day wheat, cotton, and corn were down and soybeans were up. A complete summary of the WASDE report and market reaction for corn,

soybeans, cotton, and wheat is available at: https://ag.tennessee.edu/arec/Pages/MonthlyCropComments.aspx. For corn, a new record U.S. average yield was estimated at 176.6 bu/acre, up 1.2 bu/acre from last month. On the August WASDE report corn yields were estimated at 169.5 bu/acre, 7.1 bu/acre lower than the current estimate for the 2017 crop. This is an esti-mated change in production of 587 million bushels from the August estimate. Upward revisions to domestic yield estimates contin-ues to hinder post-harvest price rallies. Domestic corn stocks as of December 1, 2017 were 12.5 billion bushels up 1% from 2016. Soybean stocks as of December 1, 2017 were estimated at 3.16 billion, up 9% from 2016. Marketing year ending stocks for soy-beans are now estimated at 470 million bushels up, 25 million since last month. Reduction in U.S. exports and increased Brazilian production estimates due not bode well for price improvements. Global demand for soybeans at 12.6 billion remains strong how-ever, production (12.8 billion bushels) is estimated to exceed use for the current marketing year. This week cotton prices continued its upward trajectory crossing the 80 cent level. Strong export demand and increased competi-tiveness with synthetic fibers have precipitated the 3 month rally that has seen nearby prices increase 15 cents. New crop futures have remained closer to 75 cents as some trepidation exists due to the large estimated U.S. stocks carryover and the potential for dramatic increases in planted acreage this spring. Winter wheat seeding were higher than expected at 32.608 million acres, down 88,000 acres compared to last year. In Tennessee, winter wheat seeding was estimated down 10,000 acres from last year at 360,000 acres. If prices remain well below $5.00 reduced harvest acreage in Tennessee should be anticipated. Corn Across Tennessee, average corn basis (cash price-nearby futures price) strengthened or remained unchanged at Northwest Barge Points, Lower-middle, Upper-middle, and Northwest Tennessee and weakened at Memphis. Overall, basis for the week ranged from 15 under to 21 over the March futures contract with an average of 7 over at the end of the week. March 2018 corn futures closed at $3.46, down 5 cents since last Friday. For the week, March 2018 corn futures traded between $3.45 and $3.51. Corn net sales reported by exporters from December 29-January 4 were within expectations with net sales of 17.2 million bushels for the 2017/18 marketing year. Exports for the same time period were up from last week at 35.0 million bushels. Corn export sales and commitments were 55% of the USDA estimated total annual exports for the 2017/18 marketing year (September 1 to August 31) compared to a 5-year average of 59%. Ethanol production for the week ending December 29 was 0.996 million barrels per day down 36,000 from the previous week. Ethanol stocks were 22.719 million barrels, up 100,000 barrels. Mar/May and Mar/Dec fu-ture spreads were 8 and 34 cents, respectively.

May 2018 corn futures closed at $3.54, down 5 cents since last Friday. In Tennessee, September 2018 corn cash forward contracts averaged $3.58 with a range of $3.46 to $3.83. December 2018 corn futures closed at $3.80, down 4 cents since last Friday. Down-

(Continued on page 4)

4

Crop Comments by Dr. Aaron Smith

side price protection could be obtained by purchasing a $3.90 December 2018 Put Option costing 29 cents establishing a $3.61 fu-tures floor. Soybeans Average soybean basis strengthened or remained unchanged at Memphis, Northwest Barge Points, Lower-middle, Upper-middle, and Northwest Tennessee. Basis ranged from 37 under to 20 over the March futures contract at elevators and barge points. Aver-age basis at the end of the week was 5 under the March futures contract. March 2018 soybean futures closed at $9.60, down 10 cents since last Friday. For the week, March 2018 soybean futures traded between $9.44 and $9.71. Net sales reported by export-ers were within expectations with net sales of 22.3 million bushels for the 2017/18 marketing year and 0.3 million bushels for the 2018/19 marketing year. Exports for the same period were down from last week at 56.8 million bushels. Soybean export sales and commitments were 68% of the USDA estimated total annual exports for the 2017/18 marketing year (September 1 to August 31), compared to a 5-year average of 84%. March soybean-to-corn price ratio was 2.77 at the end of the week.

Mar/May and Mar/Nov future spreads were 12 and 23 cents, respectively. May 2018 soybean futures closed at $9.72, down 9 cents since last Friday. In Tennessee, Oct/Nov 2018 soybean cash contracts average $9.59 with a range of $9.32 to $9.83. Novem-ber 2018 soybean futures closed at $9.83, down 2 cents since last Friday. Downside price protection could be achieved by purchas-ing a $10.00 November 2018 Put Option which would cost 64 cents and set a $9.36 futures floor. November/December 2018 soy-bean-to-corn price ratio was 2.59 at the end of the week. Cotton Delta upland cotton spot price quotes for January 11 were 81.65 cents/lb (41-4-34) and 83.4 cents/lb (31-3-35). Adjusted world price (AWP) increased 0.35 cents to 71.21cents per pound. March 2018 cotton futures closed at 81.68 cents, up 3.67 cents since last Friday. For the week, March 2018 cotton futures traded between 77.93 and 84.65 cents. Net sales reported by exporters were up from last week with net sales of 274,500 bales for the 2017/18 marketing year and 92,900 bales for the 2018/19 marketing year. Exports for the same period were down from last week at 281,600 bales. Upland cotton export sales were 80% of the USDA estimated total annual exports for the 2017/18 marketing year (August 1 to July 31), compared to a 5-year average of 68%. Mar/May and Mar/Dec cotton futures spreads were 0.28 cents and -6.34 cents, respectively.

(Continued on page 5)

5

Crop Comments by Dr. Aaron Smith

May 2018 cotton futures closed at 81.96, up 3.71 cents since last Friday. December 2018 cotton futures closed at 75.34, up 0.98 cents since last Friday. Downside price protection could be obtained by purchasing a 76 cent December 2018 Put Option costing 4.96 cents establishing a 71.04 cent futures floor. Wheat In Memphis, old crop cash wheat ranged from $4.02 to $4.39. March 2018 wheat futures closed at $4.20, down 10 cents since last Friday. March 2018 wheat futures traded between $4.18 and $4.36 this week. March wheat-to-corn price ratio was 1.21. Wheat net sales reported by exporters were below expectations with net sales of 2.6 million bushels for the 2017/18 marketing year. Ex-ports for the week were up from last week at 10.6 million bushels. Wheat export sales were 74% of the USDA estimated total annu-al exports for the 2017/18 marketing year (June 1 to May 31), compared to a 5-year average of 80%. Mar/May and Mar/Jul future spreads were 14 cents and 26 cents, respectively.

May 2018 wheat futures closed at $4.34, down 8 cents since last Friday. In Tennessee, June/July 2018 cash forward contracts ranged from $4.30 to $4.85 for the week. July 2018 wheat futures closed at $4.46, down 9 cents since last Friday. Downside price protection could be obtained by purchasing a $4.50 July 2018 Put Option costing 22 cents establishing a $4.28 futures floor. Additional Information: Links for data presented:

U.S. Export Sales - https://apps.fas.usda.gov/export-sales/esrd1.html

USDA FAS: Weekly Export Performance Indicator – https://apps.fas.usda.gov/esrquery/esrpi.aspx

EIA: Weekly ethanol Plant Production - https://www.eia.gov/dnav/pet/pet_pnp_wprode_s1_w.htm

EIA: Weekly Supply Estimates - https://www.eia.gov/dnav/pet/pet_sum_sndw_a_EPOOXE_sae_mbbl_w.htm

Upland Cotton Reports - https://www.fsa.usda.gov/FSA/epasReports?area=home&subject=ecpa&topic=fta-uc

Tennessee Crop Progress - https://www.nass.usda.gov/Statistics_by_State/Tennessee/Publications/Crop_Progress_&_Condition/

U.S. Crop Progress - http://usda.mannlib.cornell.edu/MannUsda/viewDocumentInfo.do?documentID=1048

USDA AMS: Market News - https://www.ams.usda.gov/market-news/search-market-news

If you would like further information or clarification on topics discussed in the crop comments section or would like to be added to our free email list please contact me at aaron.smith@utk.edu.

6

Friday, January 5, 2017 — Thursday, January 11, 2018

Commodity Contract Month Friday Monday Tuesday Wednesday Thursday

Soybeans Jan 9.61 9.58 9.55 9.47 9.40

($/bushel) Mar 9.70 9.66 9.63 9.55 9.50

May 9.81 9.77 9.74 9.66 9.61

Jul 9.91 9.87 9.83 9.75 9.70

Aug 9.93 9.90 9.86 9.78 9.73

Sep 9.88 9.86 9.83 9.75 9.71

Corn Mar 3.51 3.47 3.49 3.49 3.48

($/bushel) May 3.59 3.55 3.57 3.57 3.57

Jul 3.67 3.63 3.65 3.65 3.65

Sep 3.75 3.71 3.73 3.73 3.73

Dec 3.84 3.81 3.82 3.82 3.82

Mar 3.94 3.90 3.92 3.92 3.92

Wheat Mar 4.30 4.27 4.32 4.34 4.33

($/bushel) May 4.42 4.40 4.45 4.47 4.46

Jul 4.55 4.53 4.57 4.60 4.58

Sep 4.69 4.66 4.71 4.74 4.71

Dec 4.87 4.84 4.89 4.92 4.89

Soybean Meal Jan 317 317 314 312 309

($/ton) Mar 321 321 318 316 313

May 324 324 321 319 316

Jul 327 326 323 321 319

Aug 327 326 324 322 320

Sep 327 326 324 322 320

Cotton Mar 78.01 78.14 78.35 79.65 82.65

(¢/lb) May 78.25 78.47 78.69 79.96 82.96

Jul 78.68 78.85 79.03 80.15 83.00

Oct 75.14 75.34 75.52 76.06 77.38

Dec 74.36 74.64 74.72 74.92 75.42

Live Cattle Feb 119.25 117.22 117.67 116.87 117.07

($/cwt) Apr 120.85 119.30 119.52 118.67 118.87

Jun 112.32 111.20 111.67 110.77 111.00

Aug 109.40 108.50 109.07 108.35 108.57

Oct 110.92 110.12 110.62 110.07 110.12

Feeder Cattle Jan 146.62 146.45 145.47 144.37 143.82

($/cwt) Mar 141.97 141.92 142.75 142.22 141.37

Apr 142.35 142.02 142.67 142.35 141.85

May 142.25 141.80 142.35 142.05 141.92

Aug 145.80 145.22 145.80 144.95 145.02

Sep 145.50 144.97 145.57 144.87 145.00

Market Hogs Feb 71.42 72.97 73.17 72.52 70.97

($/cwt) Apr 76.07 76.80 76.77 75.77 73.82

May 80.22 80.95 80.95 80.25 78.70

Jun 84.97 85.50 85.40 85.55 83.67

Jul 84.62 85.07 85.12 85.22 83.47

Futures Settlement Prices: Crops & Livestock

7

Cattle Receipts: This week: 7,757 (11) Week ago: 460 (2) Year ago: 5,793 (9)

This Week Last Week Year Ago

Low High Weighted Average Weighted Average Weighted Average

—————————————————————— $/cwt ——————————————————————

Steers: Medium/Large Frame #1-2

300-400 lbs 147.50 188.00 170.40 ——— 144.27

400-500 lbs 140.00 180.00 162.70 ——— 137.77

500-600 lbs 130.00 165.00 148.30 146.13 129.50

600-700 lbs 122.00 149.00 139.94 138.45 123.35

700-800 lbs 119.00 141.00 131.56 ——— 113.94

Steers: Small Frame #1-2

300-400 lbs 115.00 152.50 141.82 ——— 126.10

400-500 lbs 130.00 155.00 144.61 ——— 125.87

500-600 lbs 125.00 140.00 133.43 ——— ———

600-700 lbs 120.00 130.00 125.00 ——— ———

Steers: Medium/Large Frame #2-3

300-400 lbs 140.00 162.50 149.68 ——— 128.60

400-500 lbs 130.00 159.00 147.54 ——— 121.73

500-600 lbs 110.00 150.00 135.26 ——— 116.69

600-700 lbs 113.00 134.00 125.78 ——— 111.23

700-800 lbs 112.00 123.00 117.07 ——— 102.98

Holstein Steers

300-400 lbs ——— ——— ——— ——— 77.77

500-600 lbs 69.50 95.00 84.40 ——— ———

700-800 lbs ——— ——— ——— ——— ———

Slaughter Cows & Bulls

Breakers 75-80% 44.00 50.93 51.61 50.60 57.00

Boners 80-85% 54.33 56.37 53.36 43.00 67.00

Lean 85-90% 34.50 56.50 44.54 54.42 47.78

Bulls YG 1 62.50 81.00 71.80 73.46 76.07

Heifers: Medium/Large Frame #1-2

300-400 lbs 119.00 163.00 141.51 ——— 127.52

400-500 lbs 118.00 150.00 137.67 127.76 120.44

500-600 lbs 115.00 144.00 130.49 ——— 114.26

600-700 lbs 108.00 140.00 125.02 115.94 107.11

Heifers: Small Frame #1-2

300-400 lbs 110.00 135.00 125.28 ——— 108.16

400-500 lbs 112.50 132.50 124.77 ——— 103.86

500-600 lbs 105.00 128.00 115.74 ——— 97.91

600-700 lbs ——— ——— ——— ——— 80.00

Heifers: Medium/Large Frame #2-3

300-400 lbs 105.00 144.00 128.09 ——— 114.16

400-500 lbs 110.00 138.00 128.61 ——— 113.12

500-600 lbs 100.00 129.00 120.01 ——— 101.50

600-700 lbs 103.00 125.00 116.99 ——— 98.74

Prices on Tennessee Reported Livestock Auctions for the week ending January 12, 2018

8

Friday, January 5, 2017 — Thursday, January 11, 2018

Friday Monday Tuesday Wednesday Thursday

Low High Low High Low High Low High Low High

———————–——————————————— $/bushel ———————————————————–———

No. 2 Yellow Soybeans

Memphis 9.86-9.86 9.78-9.78 9.75-9.75 9.67-9.67 9.63-9.70

N.W. B.P. 9.82-9.87 9.78-9.81 9.73-9.77 9.65-9.70 9.60-9.67

N.W. TN 9.35-9.55 9.33-9.51 9.38-9.48 9.29-9.40 9.23-9.34

Upper Md. 9.54-9.70 9.52-9.67 9.48-9.64 9.39-9.54 9.34-9.50

Lower Md. 9.34-9.40 9.30-9.36 9.27-9.33 9.18-9.25 9.13-9.20

Yellow Corn

Memphis 3.67-3.71 3.59-3.63 3.61-3.65 3.63-3.69 3.65-3.69

N.W. B.P. 3.63-3.69 3.57-3.63 3.59-3.65 3.59-3.68 3.60-3.67

N.W. TN 3.36-3.56 3.32-3.39 3.34-3.54 3.34-3.54 3.34-3.54

Upper Md. 3.51-3.51 3.47-3.47 3.48-3.49 3.49-3.49 3.48-3.49

Lower Md. 3.47-3.66 3.43-3.62 3.47-3.64 3.47-3.64 3.47-3.63

Wheat

Memphis 4.05-4.35 4.02-4.32 4.07-4.37 4.09-4.39 4.08-4.38

Prices Paid to Farmers by Elevators

100

120

140

160

180

200

220

Tennessee 500-600 lbs. M-1 Steer Prices2017, 2018 and 5-year average

2012/2016 Avg 2017 2018

85

105

125

145

165

185

Tennessee 700-800 lbs. M-1 Steers Prices2017, 2018 and 5-year average

2012/2016 Avg 2017 2018

8595

105115125135145155

5-Area Finished Cattle Prices2017, 2018 and 5-year average

2012/2016 Av g 2017 2018

35455565758595

105

Tennessee Slaughter Cow PricesBreakers 75-80%

2017, 2018 and 5-year average

1.00 2017 2 018

9

East Tennessee Livestock Center - January 10, 2018 1 load out of 65 steers; BQA certified producer; est. wt. 810 lbs.; 100% L&M-1s; medium flesh; 100% Black/BWF $146.00 1 load out of 77 heifers; BQA certified producer; est. wt. 750 lbs.; 95% l&M-1s, 5% L&M-2s; medium flesh; 75% Black/BWF, 20% Chax/Smoky, 5% Red/RWF $129.00 1 load out of 100 Holstein steers; BQA certified producer; est. wt. 950 lbs.; 100% #1s; medium flesh $95.00 Dickson Livestock Center - January 8, 2018 1 load of 62 heifers; est. wt. 881 lbs.; $131.75 Hardin County Stockyard - January 10, 2018 1 load of 59 steers; est. wt. 811 lbs.; M&L 1-2s $139.50 Mid-South Livestock Center - January 8, 2018 1 load of 56 steers; avg. wt. 799 lbs.; $141.25 2 loads of 112 steers; avg. wt. 829 lbs.; avg. price $140.48 1 load of 71 heifers; avg. wt. 751 lbs.; $131.00 1 load of 62 heifers; avg. wt. 804 lbs.; $128.00

Warren Co. Livestock Graded Sale, McMinnville, TN Weighted Average Report for Wednesday Jan 10, 2018 Cattle Receipts: 1155 For complete report: https://www.ams.usda.gov/mnreports/nv_ls189.txt

Columbia Graded Sheep and Goat Sale Weighted Average Report for 01/08/2018 Receipts: 225 (170 goats; 55 sheep) Last Sale 903 For complete report: https://www.ams.usda.gov/mnreports/nv_ls320.txt

Video Sales & Loads Self-Reported and Self-Graded Livestock Markets

Graded Sales

Graded Sheep and Goat Sale

10

What’s the difference between high, medium and low-profit producers?

By Dustin L. Pendell and Kevin L. Herbel Jan 11, 2018

It’s an unfortunate fact in cow-calf production that some pro-ducers seem to be profitable most of the time, even a down-turning market, while others seem to struggle every year.

There are a number of reasons for that, including the cattle cycle, but regardless, the end result can be dramatic. Figure 1 shows that the economic returns to beef cow-calf producers vary considerably over time. The record high average return in 2014 was a result of a drought and strengthening beef demand.

Although beef demand has been relatively strong in 2015 and 2016, herd expansion has led to larger supplies, lower cattle prices and lower returns to the cow-calf enterprise. The 2012 to 2016 Kansas Farm Management Association summary of data from cow-calf enterprises has lessons for producers given the wide range of variability inherent to this industry.

Figure 1. Net returns over total cost for cow-calf enterprise in Kansas Farm Management Association, 1975-2016

For example, over the last 42 years there has been an average $233 difference in net returns per cow, between the good (top 1/3) and the bad (bottom 1/3) years. This is a big variability, but unfortunately this risk is difficult to manage because much of it is due to factors and conditions that are typically beyond the control of individual producers.

Beef Industry News Featured Article from BEEF Magazine

However, what is much more important is that the variability across producers at a point in time is much larger than the vari-ability over time. In other words, even in the “good years,” some producers are losing money and even in the “bad years” some producers are making money. This is an important point to make because it indicates there are management changes producers can make to seek to improve their operations.

This analysis suggests that while both price and weight of calves do impact profit, they are much less important in ex-plaining differences between producers than costs. In the data analyzed here, economies of size exist such that larger opera-tions tend to have lower costs and hence are more profitable than smaller operations.

However, it is important to point out that being a large opera-tion does not guarantee low costs and high profits, as a number of mid-sized to smaller operations were cost competitive. Op-erations that have higher labor allocation in the cowherd enter-prise, relative to crop enterprises, tended to have lower costs and be more profitable.

The factor that is important regarding profit and cost differ-ences between producers is how well they manage their non-pasture feed costs. Producers that had a lower percentage of their total costs as non-pasture feed had significantly lower costs and hence significantly higher profits.

There is tremendous variability in costs and returns across pro-ducers, which means there is room for producers to improve their relative situations. However, before one can improve, they need to know where they stand relative to other produc-ers. Thus, benchmarking and identifying an operation’s strengths and weaknesses is the first step to deciding where to focus management efforts.

Pendell and Herbel are ag economist at Kansas State University

Department of Agricultural and Resource Economics 314 Morgan Hall • 2621 Morgan Circle

arec.tennessee.edu USDA / Tennessee Department of Agriculture Market News Service http://www.tennessee.gov/agriculture/article/ag-farms-market-news 1-800-342-8206