Cattle sectors improving rapidly going into 2014 -

Declining feed costs and improving pastures are allowing producers who graze livestock more options.

As of early December, monthly average corn prices had dropped by almost a third from August’s monthly average price.

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The corn price decline is due to good corn yields, abundant supplies and developments toward relaxing the Renewable Fuels Standard.

Further, thanks to some timely precipitation, the majority of the winter wheat crop in Texas, Oklahoma and Kansas, particularly the grazing areas, appears to be in mostly fair to excellent condition.

Precipitation now and through the winter will also benefit pastures next spring, enhancing the outlook for summer grazing in 2014.

The recent cold snap and icy conditions will provide a test of the winter-hardiness of these cattle for the remainder of the winter grazing season.

If conditions for the wheat crop continue to improve, or at least do not deteriorate, feedlots could experience an influx of large wheat-pasture feeder cattle next March.

These cattle would likely be market-ready during August-September. However, this influx of feeder cattle into feedlots could be somewhat mitigated or even offset if replacement heifers account for significant proportions of cattle on wheat pasture.

Winter weather could also affect positively (mild weather) or negatively (cold, wet weather) the gains cattle make, whether on wheat pasture or while in feedyards

In addition, feeder calf prices cruised through the fourth quarter at record-breaking levels, reaching an average monthly price of $162.95 per hundredweight (cwt) in November (Medium and Large No. 1 750-pound to 800-pound steers, Oklahoma City).

Monthly average feeder cattle prices had increased from 7 percent (750-pound to 800-pound steers) to 10 percent (500-pound to 550-pound steers) during the August through November period, partly as a result of scarcity but also in response to the positive effect that declining corn prices are having on the potential improvement in cattle feeding margins.

Increasing feeder cattle prices will at least partially offset the weakness recently observed in cull cow prices for cow-calf producer margins.

Will cow slaughter slow?
In the absence of a mid-year cattle inventory report from the National Agricultural Statistics Service (NASS), the Jan. 1, 2014 cattle report with inventory numbers is on the minds of many in the cattle and beef sectors because of its implications for the national aggregate cow herd inventory.

With little information available since the Jan. 1, 2013 cattle report, the state of replacement heifer retention is largely unknown ahead of the Jan. 1, 2014 estimates.

Heifers have constituted relatively large shares of feedlot placements and inventories in 2013. These high heifer proportions of cattle on feed, combined with the relatively large cow slaughter, will likely result in another year-over-year decline in total cow inventories on Jan. 1, 2014.

Some heifers that had been placed on feed and destined for slaughter could be returned to the country as replacement heifers under the right conditions.

As mentioned last month, the anticipated inventory dynamics would push any significant increases in beef production well into the future, likely into 2017 or beyond. Of course, weather – especially drought-related – could alter any projections.

While cow slaughter that has increased steadily since mid-summer has been most pronounced in dairy cows, beef cow slaughter has also ramped up seasonally as 2013 reaches its end.

Except for a brief period at the end of the summer, cull cow prices have been declining since March. Annual cow slaughter for 2013 is expected to be relatively large, over 15 percent of the Jan. 1, 2013 cow inventory, for the fourth consecutive year.

Typically, a beef cow slaughter rate of around 13 to 14 percent of the Jan. 1 total cow inventory, accompanied by a heifer retention rate of about 14 to 17 percent, will maintain a stable total cow inventory. Higher cow slaughter rates imply liquidation, and lower rates imply an increase in cow inventories.

Conversely, higher heifer retention rates imply cow herd expansion, and lower rates – or what shows up in feedlots as higher proportions of heifers to total steers and heifers on feed – imply liquidation.

Typically, lower cow slaughter rates and higher heifer retention rates are observed together, as are higher cow slaughter rates and lower heifer retention rates.

There are some caveats and other dynamics that can affect these generalities. For example, dairy cow culling rates – at 25 to 33 percent – are about two to three times beef cow culling rates.

As a result, beef cow slaughter and replacement rates are lower than those for dairy cows because dairy cows are replaced more often than beef cows.

At the same time, dairy heifer replacement shares of the dairy heifer-calf crop are much higher than beef replacement heifer shares of the beef heifer-calf crop because larger numbers of dairy heifers are needed to keep up with the higher culling rates characteristic of dairy cow herds.

The net result of lower corn prices and higher feeder cattle prices is that breakeven cattle feeding costs for cattle placed in Southern Plains feedlots are projected in the neighborhood of $127 to $128 per cwt through at least the first quarter of 2014.

With expected first-quarter 2014 fed cattle prices expected to average in the low $130s range, cattle feeders could experience a period of from near breakeven to positive margins during the first quarter of 2014.

Beef sector improvements slow to appear
The average dressed weight of U.S. federally inspected cattle reached a record weekly average of 807 pounds during the week ending Nov. 23.

Dressed weights are expected to decline from this level during 2014 for at least two reasons: First, use of the beta agonist feed additive zilpaterol boosted weights by as much as 30 or more pounds per head for steers and heifers in feedlots.

With zilpaterol no longer available – at least temporarily withdrawn from the market – dressed weights of steers and heifers are expected to decline a few pounds.

Second, placements of heavy cattle on feed in 2012 and 2013 were motivated by high corn prices, and with a positive correlation between placement weights and final weights, the result was an increase in dressed weights of fed steers and heifers.

With lower corn prices, the incentive to place heavier cattle is reduced, resulting in lower final weights and thus dressed weights.

While these factors are expected to keep weight gains in dressed weights in check in 2014, factors that could offset these weight-reducing effects will also come into play.

The declining proportion of cows and heifers (which yield lighter carcasses on average) in the slaughter mix will enhance the steer proportion of the slaughter mix.

Steers tend to have large dressed weights relative to heifers and cows. With steers constituting a relatively larger proportion of the slaughter mix in 2014, the expected decline in dressed weights could be mitigated or even completely offset.

However, despite the positive effect a higher proportion of steers could have on dressed weights, the anticipation that fewer total cattle will be slaughtered in 2014 will carry the most weight, and beef production is expected to be lower in 2014 than in 2013. Again, drought in 2014 could alter these expectations by forcing cattle into feedlots that would otherwise be on pasture.