The simple answer for many ranchers is to end the drought in their area by making it rain. Of course President Trump and Agriculture Secretary Sonny Perdue did “make it rain” for some U.S. producers. However, the Ag Nook Trade Aid Winners and Losers Revealed article (spoiler alert) didn’t mention beef. Beef supplies and cattle on feed have been increasing as the cost of hay has dramatically increased. This article explores what experts say a rancher can do in such an environment.
Hay Prices Have Doubled
The expanding drought in many parts of Missouri, Kansas, Oklahoma and even Alberta, Canada have driven hay prices much higher. A Bloomberg story carried in Beef Producer titled, “Cost of Hay Doubles, Beef Producers Consider Liquidation” gets at the conundrum facing cattle ranchers. For example, in Alberta grazing conditions have worsened as the price of hay for feed has doubled over the past year to $153 USD a metric ton.
With limited pasture and pricey hay, if available, some buyers are turning to poorer quality and hail-damaged crops. Rick Toney, chairman of the Saskatchewan Cattlemen’s Association sums up what many are thinking
“Guys are planning on selling because they can’t afford to feed their cows this winter.”
The U.S. Plains are facing a similar scenario. The persistent drought conditions are leading some ranchers to sell cattle to feedlots earlier than normal. This has boosted beef supplies as Chicago cattle futures have slumped 9% in 2018.
In the Ag Nook story titled, “Trouble Making Hay”, we outline three strong alternatives to growing hay this fall.
Additionally, corn silage may be another viable alternative as described in this Ag Nook article.
Read More at beefproducer.com
Beef Supplies Skyrocket
John Perkins of Brownfield Ag News recently wrote about the increase of cattle placement in feedlots and the increase in marketings in a piece titled, “Cattle Placements Jump 8%”. Perkins notes the USDA reported numbers on feed in July were up 8% verse a year ago. Meanwhile, the both placements on feed and marketings in August were up 5% verse the same time last year. These are both at all-time highs since these numbers have been reported dating back to 1996.
Perkins notes that these numbers are bearish. However, they were in-line with what market analysts had been expecting.
DTNPF also offered a reaction on the USDA report in a piece titled, “Cattle on Feed Report Summary”. After citing the same numbers Perkins’ article reported on, the DTNPF quotes their cattle market analyst, John Harrington.
“The monthly on-feed report just released looks negative, especially in terms of larger-than-expected placement activity in July. Aggressive movement off areas with poor pasture conditions include Oklahoma placement (up 10%), Kansas placement (up 8%), and Colorado placement (up 22%).”
Not surprisingly Harrington agrees with Perkins overall assessment of the numbers. Furthermore, he notes the drought stricken regions aggressive movement on to feed.
The DTNPF piece shows that the USDA actual reported numbers fell within the range of analyst expectations. Moreover, they were in-line with the average estimates.
UT’s Griffith Offers Marketing Options
Despite drought conditions having limited ranchers options there are alternatives to consider. Dr. Andrew P. Griffith of the University of Tennessee has offered his outlook for the fall in his most recent weekly livestock comments column. Griffith, sees more downside risk during the fall months before finding fundamental support toward the end of the year. He says
“It would appear cattle feeders are betting on the come in the market based on strong cash feeder cattle prices. In other words, cattle feeders are paying lofty prices for feeder cattle today which means they are counting on the market to increase significantly in the next five or six months.”
Griffith says producers are facing a decision on market pricing. Either ride the market out until the time of marketing, likely resulting in a lower price if seasonal tendency holds this year. Alternatively, producers could take advantage of today’s market price by doing one of two things. 1) Hedge Q4 marketings or 2) sell cattle using a forward contract with an Oct/Nov delivery. Of course if either of these latter items is selected, the risk remains for the prices to move higher. Griffith is encouraging ranchers to hedge or forward contract. He concludes
“the likelihood of prices moving higher is relatively small.”
Drought conditions have beef producers feeling squeezed as pasture land deteriorates, hay prices increase, and market prices for their cattle face downward pressure. Despite record numbers of cattle on feed and record numbers of marketings, ranchers have some options. There are alternatives to paying high hay prices including corn silage. Lastly, Dr. Griffith encourages beef producers to hedge or forward contracting their cattle given the likely downside risk and small chance prices could move higher.
Image Courtesy Oklahoma Farm Report