Cattle Prices Only Get Hotter

An all-spring-calving herd of 600 mama cows means Travis and Sarajane Snowden barely have a chance to catch their breaths come mid-April. That's when calves start hitting the ground here in Colorado's Yampa Valley. By the time most of these calves are 530 to 550 pounds, they have a buyer. And, by late October, wheels start going under them as they are truck-weaned straight off their dams.

It's a tight season, but it's all about making the most of the days this beautiful high-country spot gives. Travis says they see about four months of growing season, meaning just one hay harvest. The other eight months are muddy -- or winter. Late-summer pastures are at 9,000 feet, so cattle coming off Snowden Ranch are sturdy, and bulls must be bred to handle the harsh environment.

Most years, Travis said, they sell about five truckloads of calves, holding some over to send to a grow yard in Wyoming.

"Those are the odds and ends, the colors and the smaller calves," he explained. "We put another 120 days on them in the grow yard, and then we sell them around January when the wheat folks are buying feeders."

The Snowdens are also known for selling replacement heifers, but right now, prices for feeders are so strong, they aren't holding over any females.

"Our cow base is really young, so we are selling everything," Travis said of their commercial Angus-based calves. "Selling all our yearlings in the fall lets us take full advantage of this market, where supply of feeders is down and demand is high. You have to be able to adapt to get what the market will give you."

It doesn't hurt if you have a stellar reputation with cattle buyers. Travis said they are blessed to have repeat buyers, so when they sell calves through video auction around July, the demand is there. Steers usually leave the farm between 550 and 575 pounds, heifers between 530 and 540 pounds. Last year, their steers brought $2.46 per pound, with heifers 10 to 15 cents off of that.

While the Snowdens are hopeful the feeder market stays strong for a long time, they also like to stay diversified through consumer-direct sales that allow them to get a higher per-pound price on some of their beef.

Along with Travis' dad, Bob Snowden, the couple started Snowden Meats in 2020. The online direct-sales platform takes their finished beef to consumers across the country. They also sell locally to consumers and restaurants. This growing side of their business is one Travis says isn't controlled by packers, meaning they get a larger share of the value of the animal they've raised and in which they've invested.

For the Snowdens and other cow-calf producers across the U.S., when it comes to this market cycle, the big question is: Just how long can the good times last? Is this another 2014? Or is the 2023 market different, and if so, how?

THIS IS NOT 2014 ALL OVER AGAIN

Bernt Nelson said not to look back to try to figure out where today's market is headed, because fundamentals have completely shifted. He expects at least two years of especially strong cattle prices from feeders to breeders.

Raised on a North Dakota cattle ranch, Nelson is an economist at the American Farm Bureau, based in Washington, D.C. He said when comparing the two cattle cycles, producers should consider market exposure.

"Going back to 2014, we were coming out of what we were calling the great recession. There was a contraction perceived in the market, which led to liquidation of cattle. We were left with a market where the cow-calf producer was trying to expand and trying to get bred heifers and paying astronomical prices for them. But the debt situation then was very different from what it is now."

Nelson pointed out that interest rate hikes and higher operating costs are key differences between now and 2014. Producers still have good access to credit, for example, but the cost of that credit is higher.

"As a result, in some cases, we are going to be looking at higher debt loads and more costly debt loads moving forward," he explained. "That will make the financial situation for producers very different than it was in 2014, and it changes how lenders see things, as well. Today, you need more working capital to secure credit, more collateral to secure credit. That's where the balancing act comes in for a lot of producers," he continued.

In addition to financial worries, drought and its effects continue to be a factor. Some analysts talk about drought as though it's in the cattle industry's rearview mirror, but we're really not there yet, Nelson said.

"Evidence supports a weakening La Nina trend, but if we talk about drought, it's important to note the damage has been done. It takes time to recover. I hope we see weakening drought moving into late spring and early summer, but we still need time for pastures to recover, and in some areas, that will take longer than in others."

WATCH FOR MORE HEIFER RETENTION

Nelson pointed to a cycle of expansion and contraction in the cattle industry that tends to range from 10 to 14 years. Inventory goes up, inventory goes down. Last year, a lot of females went to slaughter, a trend that is continuing so far. USDA's most recent Cattle on Feed report, for example, showed levels down 7%.

"To rebuild our herd and our feeder supplies, we first have to start retaining replacements," Nelson continues. "When that happens, it's going to pull even more calves out of the supply line. We aren't doing that yet. And, because of that, I think we are looking at two to three more years minimum before numbers start to rebound."

DTN Livestock Analyst ShayLe Stewart agrees, noting it won't be until green grass and profitability come back that cow-calf producers will really be ready to start rebuilding the breeding side of their operations.

"Once those two components are factored in, I believe we will see replacement-heifer prices climb astronomically," she said. "We are already seeing extremely strong bull prices on the commercial herd side.

"Today's guidelines tell us a good rule of thumb on bull pricing for commercial producers is four times the price of a 550-weight steer. Every operation will have different criteria for what they need in their breeding program, but as an industry, we know how important it is to have the right genetics. You need the complete package today in terms of marketing."

MARGIN, LEVERAGE AND DANCE PARTNERS

Packer margins are a hot-button issue for any cow-calf producer. Nelson said to think of margin as: Who has the leverage, the packer or the producer? Today, on the cash market, which was more current at publication time than the futures market, the leverage is with producers. But on forward contracts, the leverage still leans toward the packer. That is all about to change, the economist said.

"If we look(ed) at cash offerings late March across the South, live cattle were asking 165 to 167; compare that to last year in the 150s," Nelson explained. "As we've seen this shift, the packer has maintained margin, so the market hasn't gotten away from them yet."

Moving forward, though, he said tighter feeder supplies and the need for the packing industry to meet expected demand means packers will likely be willing to pay higher cash-asking prices. As they do, margins will shift more to producers -- something the industry hasn't seen for quite some time.

"As this tightens, packer behavior will change," Nelson predicted. "When they have the ability to maintain profit margins, we'll see aggressive buying as they try to maintain the balance. So, they will try to make all they can while they can. But they know if they do too much too fast, they will lose control of the market, and they won't be able to stretch this out."

As exciting as it is for producers to be in that positive margin position, it's important to see the whole picture.

"Packers write our checks, and we need to remember that," Nelson cautioned. "They are a dance partner, and as we move into unknown economic situations where we could see consumer confidence erode, we don't want to see prices rise too fast, or it will hurt demand."

AGGRESSIVE FEEDER SALES

As producers like Travis Snowden continue aggressively selling into the feeder market, overall supply numbers are tethered tightly to cost of production in most areas. In the South, for example, University of Tennessee economist Andrew Griffith said producers are especially concerned about high fertilizer and feed prices. Low hay stocks are another ongoing factor.

"Many producers by the end of March had burned through most of their hay reserves, and they were already concerned about the hay crop this year," Griffith explained. "Many of them say it won't be enough to fill the barns. A lot of our cattle producers try to have two years of hay supplies on hand, but it's unlikely we'll see that kind of reserve built back in during 2023."

The feed outlook is influencing heifer retention here, as well. He said no one is keeping anything more than their feed and hay resources will allow.

"We lost several cows this year simply because there was not going to be enough hay, so producers sold them. Our producers are rationing feed resources to maintain the herd they've kept, but we won't see heifer retention until maybe the second half of the year."

And while producers are excited about strong feeder prices, Griffith said there aren't many playing the wait-and-see game.

"They are selling calves and taking the money home," he said. "Moving those calves is saving hay. Today, a 550-pound steer in Tennessee is over $1,200."

Wyoming-based market analyst Stewart said she's hearing the same enthusiasm as Griffith but added it's important to remember every day won't be a market-topper as we move through this cycle.

"Sometimes, I think folks get mixed up when they hear we are in a bull market for cattle," she said. "Sometimes, we think a bull market means there are no bad days, no lower closes. In mid-March, we were seeing external pressures due to a banking crisis, inflation and higher interest rates, and we had days of lower trade.

"Do those days mean the bull run is over? They definitely do not," Stewart continued.

"We need to take the longer outlook, but we also need to remember the first rule of cattle marketing, which is that a bull run doesn't ensure a profit. You have to know your breakevens and target your inputs. That's how you get the most out of bull markets. It has to make sense for your individual operation. It has to be a balance."

Victoria Myers can be reached at vicki.myers@dtn.com

Follow her on Twitter @myersPF

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