Food, Agriculture, and Resource Economics

Publication: Surviving the Farm Economy Downturn

by Levi Russell

A new publication entitled “Surviving the Farm Economy Downturn” is now available online free of charge. The publication provides a general farm economy outlook as well as discussions of topics such as risk reduction, cost control, alternative crops, livestock sales during drought, crop insurance, ARC and PLC payment forecasts, stress and suicide, and other issues. Please follow the link below to check out essays on these and other topics:


Information on Livestock Emissions Reporting

A recent court case striking down the agricultural exemption for reporting under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) means that many producers will have to start reporting complicated emissions information in May of this year. Currently, a federal Senate bill is being considered that will make the exemption legal, but congress must act swiftly.

In the event that action by congress fails or is delayed, producers should be aware of the rules and how they will impact their operations. Extension agricultural lawyer Paul Goeringer has a pair of short podcast episodes available that explain the rule. Click below to listen!

Part 1

Part 2

Reports: Beef Demand and Cattle Inventory

by Levi A. Russell

A couple of recently-released reports provide some interesting observations about the state of the beef industry and some good news for the long run as well.

Beef Demand

First, a few of my colleagues at Kansas State and Purdue Universities have written an extensive report on many drivers of beef demand. Below I reproduce the Executive Summary, but the rest of the report is also informative:

Several key findings are of elevated importance:

1. Over the past decade, the quantity of beef consumers purchase has become less sensitive tochanges in beef prices yet more sensitive to consumer incomes. This could be a result of record high retail beef prices in recent years that resulted in loyal beef consumers, who are less price sensitive, having the strongest presence in the market. As consumer incomes have grown, more consumers who might have been priced out of the beef market, have allocated some of that income growth to purchase beef again thus increasing beef demand response to growing income.

2. The relative impact of pork and chicken prices on beef demand is economically small relative to other factors. This does not imply individual beef, pork, and chicken products are not substitutes, rather the substitutability in aggregate is just not as strong as traditionally thought.

3. Print media and medical journal coverage of topics around beef changes notably over time in areas of focus and volume of coverage. Certain types of media coverage are found to affect meat demand, and an emerging area of negative impact focuses on climate change. Having an impactful presence in the media is immensely important as it shapes perceptions.

4. Some demographic trends are favorable for beef demand including anticipated growth of Hispanic and African-American populations within the U.S.

Cattle Inventory

On January 31, the 2018 cattle inventory report was published by the USDA. This report compares inventory levels on January 1, 2018 to those of January 1, 2017. This report is a great opportunity to see what is happening on the national scale for cow-calf producers and in the feedlots.

This year’s report tells a familiar story: slow herd expansion. Nationwide, the herd has been expanding since hitting a bottom in 2014. The previous several years saw a decline due in part to serious drought in the western U.S. Expansion in the herd overall was only 1%, significantly slower than the previous few years. This was expected, as we’ve seen slaughter rates for beef heifers and cows pick up significantly in the last couple of years. This year’s report showed a 4% reduction in the number of heifers currently held as beef cow replacements, indicating that during 2018 we will likely see very little to almost no growth in the herd. Finally, the calf crop increased 2% relative to last year and the number of cattle on feed increased 7%. This pre-report commentary provides additional context to the report.

As we continued to see slower herd growth and some bright spots for beef demand, I’m cautiously optimistic that we will be able to maintain profitable calf prices and stocker margins through 2018. If you have questions, please don’t hesitate to contact me at lrussell@uga.edu.

Beef Herd Expansion Possibilities

by Levi A. Russell

Board prices for feeders and fats have been quite strong in the past few months and Georgia producers have seen similarly strong prices in our cash markets, relative to seasonal expectations. The typical seasonal downward slide into October and November has not appeared and prices have been more or less flat since the summer. One of the threats to strong prices in coming years is a continuation of herd expansion.

David Widmar, an ag economics consultant with Agricultural Economic Insights, did a great job recently of digging into the state-level inventory numbers to see if we will see continued expansion through 2018. Ad Widmar notes, Texas cattle numbers made up a large percentage of the recent inventory decline and have also made up a large percentage of the recent increase in inventory. However, Texas has not fully recovered its previous inventory level, so there is still some growing room out there, indicating that we will likely see more herd expansion. You can read Widmar’s full analysis by clicking here.

This year, strong demand and low feed costs have helped buoy prices despite continued herd expansion. Time will tell if continued demand strength will absorb the price-reducing effect of larger beef supplies.

Southern Outlook Conference Presentations Available

by Levi Russell

Last week in Atlanta Extension economists, lenders, and ag media met in Atlanta to discuss the market and policy outlook for agricultural commodities in the Southeast in the coming year. UGA economists presented the outlook for peanuts, timber, turfgrass, the green industry, cotton, poultry, and hogs. All presentations are available here. Feel free to contact us with questions about the presentations.

Feedlot Conditions and Beef Prices

by Levi Russell

Any time I discuss economic conditions in the industry, I try to be as faithful as I can to forecasts and current conditions and avoid undue pessimism or optimism. The beef cattle industry from pastures to processors has had a pretty good year so far in terms of prices, international trade, and consumer demand. That said, one of the clearest threats to cow-calf producers in coming months is the potential for a slowdown in feedlot placements. Feedlot profitability (not considering any price risk management) has moved into the red recently, which will likely push feeder prices down. However, there is a more long-term issue to deal with: beef prices.

Lower Beef Prices

Based on forecasts of beef, pork, and poultry production for the next 18 months, we could see some downward pressure in beef prices. Indeed, we’ve already seen some weakness in wholesale beef prices in the last couple of months. If these trends continue, price reductions will eventually make their way to fat steers, then to feeders and, finally, calves. For cow-calf producers, the feedlot sector in particular is of concern. Feedlot placements have been significantly higher for much of this year compared with the same months in 2016. Feedlot marketings have kept pace with placements such that the number of feeders lingering in feedlots longer than 90 days has stayed relatively low. Though this is expected as beef cattle inventories have recovered over the past few years, this accelerated placement pace will not be sustainable if we start to see price weakness for fat steers.

In 2017, U.S. beef production will be at its highest level since 2010. It remains to be seen just how much beef consumers are willing to purchase, but we will find out over the next 18 months.

Tool for Valuing Replacements

One important financial aspect of cow-calf production is evaluating replacement decisions. Whether you always hold back your own replacements or look for opportunities to expand when the price is right, it’s crucial to take an objective look at the profitability and feasibility of your investment.

To help producers with this task, we’ve developed a decision aid (available here) that will allow you to examine a range of replacement female scenarios. I recommend looking through the red triangles in the upper right corner of the key cells to get an idea of how the spreadsheet works.

Looking Ahead: Feed Costs This Fall

As we saw in 2013, corn price movements can have a big impact on steer prices. Feed prices are obviously important for feedlot operators, but they have implications for stocker and cow-calf operators as well. Recent crop condition reports and yield estimates, combined with a 3% reduction in planted acres versus last year, indicate that corn production will almost certainly be below last year’s. However, that does not doom us to higher feed costs in the coming months. There is still a lot of old-crop corn out there, indicating that the 17/18 ending-stocks-to-use ratio will be similar to 16/17. Thus, we are likely to see corn prices remain low through harvest this fall, assuming the weather holds in corn country.

Feed costs are especially important from an industry perspective this year because of drought conditions in the northern High Plains. Cattle in drought-stressed regions will likely move south early, meaning that they will be put on grass (instead of the wheat they would graze if they had come later) or will go directly to feedlots. Feedlot returns have been positive during 2017 thanks to both low feed costs and strong beef demand fundamentals. This is, of course, good for cow-calf producers and stocker operators, as positive feedlot profits have put upward pressure on calf and feeder prices as the herd has continued to expand.

For more on this topic, check out this month’s “In the Cattle Markets” publication from the Livestock Marketing Information Center.

Beef Exports to China – Webinar

Many folks in Georgia are interested in hearing about the possibility of exporting beef to China. Now that the first shipment has been made, I feel more comfortable discussing the economic impacts of this new market. The webinar, linked below, gives the details on the restrictions the Chinese government has put on the beef that they will import. As the video indicates, the restrictions are severe enough that the Chinese market will not be a major component of our exports. However, time will tell if those restrictions change or if production practices in the U.S. adapt to serve this market.

Webinar Link

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