livestock, equine and forage outlook kenny burdine uk ag economics
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Livestock, Equine and Forage Outlook
Kenny BurdineUK Ag Economics
KY Equine Receipts and Keeneland Sales
Economics
2011 / 2012 Equine Market
• Keeneland sales show improvement– September Yearling sale up over 12%– November Breeding sale up 41%– Pent up demand, tax incentives, large dispersals
• Stud fees likely steady in 2011, but could show slight improvement in 2012
• Recreation, show, and pleasure markets still impacted by slow economic recovery
• Changes in horse slaughter regs?Economics
Economics
US Dairy Production
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr40
42
44
46
48
50
2009
2010
2011
US All Milk Price
Prices to average near $20 for yearNearly $4 above 2010, $7 above 2009Increased production to pressure prices in 2012
2012 Expectations
• Production likely to increase 1-2%• Prices likely to average $1-2 under 2011• Expect $19-21 at farm level, likely stronger in
the 1st half of the year• Weather in Oceana will be a major factor
Milk Basis – Appalachian Order
2011 Class III vs. Class IV
KY Dairy Cow Inventory
The Hog Market
2011 Hog Market Summary
• Prices increase 50% from 2009, 20% from 2010
• Sow #’s decline, but production increases slightly
• Domestic and export demand stronger• Sector remained generally profitable• Implications for 2012
Eastern Corn Belt Hog Prices
DECEMBER 1 HOG BREEDING HERDU.S. Inventory
5.0
5.5
6.0
6.5
7.0
7.5
1986 1989 1992 1995 1998 2001 2004 2007 2010
Mil. Head
US Pork Production (million lbs)
Q1 Q2 Q3 Q44800
5000
5200
5400
5600
5800
6000
6200
6400
201020112012
2012 Market Expectations
• Pork production expected to increase 2% from 2011– Big change in 4th quarter
• Exports to remain strong, but US per caps to increase slightly
• Prices likely stronger in Q1, strong in summer, trending downward towards winter
• I expect upper $80’s / $90’s in summer, into $70’s by Q4
Forages
Overview
• Weather challenges in 07, 08, 10• Competition for ground – row crops• Rising input costs• Markets – shrinking dairy / beef numbers,
equine markets shaky• Rising feed prices = opportunity• Growing backgrounding industry in KY
KY non-Alfalfa Hay Production
• Acreage decreases from 2.3 to 2.1 million
KY Alfalfa Hay Production
Acreage increases from 230K acres to 250K acres
Dec 1 Kentucky Hay Stocks
Beef Cattle: Cow-calf and Stocker
TOTAL COW SLAUGHTERFederally Inspected, Weekly
85
95
105
115
125
135
145
155Thou. Head
Avg.2006-10
2011
2012
Cow slaughter up 4.3% through November
Livestock Marketing Information CenterData Source: USDA/NASS
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
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1965
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1967
1968
1969
1970
1971
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1977
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1979
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1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
70000
80000
90000
100000
110000
120000
130000
140000
JANUARY 1 TOTAL CATTLE INVENTORYU.S., Annual
Mil. Head
Kentucky has lost 212K beef cows since 2007
U S BEEF AND VEAL EXPORTSCarcass Weight, Monthly
70
95
120
145
170
195
220
245
270
295
JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC
Mil. Pounds
Avg.2005-09
2010
2011
Med / Large Frame #1 Steers500 to 600 lbs.
Med / Large Frame #1 Steers700 to 800 lbs.
Market Expectations• Calf market feeling pull from wheat and improving
margins (feeder futures)– Calves are higher, but will strengthen towards grass
• Typical seasonal peak occurs in early May– Fundamentals of supply look great
• Heavy feeders– Supplies are really tight– Slides will widen again, tighten in spring– May be strange Q1 effects– Typical peak around August
What about Expansion
• Generally, expansion questions are framed to be primarily about price
• Outlook for next several years is very positive– Cattle cycle basics of expansion phase– Profit likely here for several years
• Value of calves over next few years is going to be outstanding
Another look at expansion
• To me, expansion is more a question of cost than price outlook– What does it cost YOU to maintain a cow for a
year?• Very profitable now – expansion may make
sense• Just becoming profitable – think about cost
reducing investments
Do I always make more $ running more cows?
• I have to be profitable to begin with– Not just profitable when steer calves are selling
for $1.60 per lb• Even if profitable, it’s not that simpleA) Make more money by running more cowsB) Make more money by making more on each
cow I runC) Other enterprises – backgrounding, heifer
development, etc.
If expansion doesn’t make sense…
• Invest in things that decrease your costs• Grazing
– Improved pasture, higher utilization rates, etc.• Hay production
– Improved storage, improved feeding systems• Overhead costs
– Pay down / refi debt, re-think equipment and facilities
• Upgrade your herd– High cull cow prices, attractive capital gains
How will you expand?
• Develop your own heifers– Consider her value as weaned calf– Cost of keeping her two years before weaning her
first calf• Purchase bred heifers• Both are 10-14 year investments
– Will she return the initial investment? Don’t forget her cull value and time value of money
Heifer Development Budget
• Designed to track and plan expenses of developing heifers
• Needs to be tweaked by user to consider appropriate time frame– I made some changes in 08 because they feed into
cow-calf budgets• Variable Costs (pasture maintenance, feed,
mineral, vet, breeding, etc.)• Fixed Cost (depreciation, taxes, insurance)
Where are we now?
• Good 5wt heifers are in $140 - $160 range• Heifer calves are worth around $800 -$900• What will it cost to develop and breed (12
months) – probably $300 to $400– Interest considerations
• Then, I need to winter her a second time to get first calf – she’s 2.5 when first calf is weaned
Other costs to think about…
• Dollars spent on heifers that do not enter the cow-herd
• Possible loss in weaning weight associated with calving ease and maternal bulls
• Money made on calves that would have been sold from purchased bred heifers
Backgrounding
Backgrounding Margins
• 5wts in $160-$180• Spring / summer feeder cattle futures around
$159-$160– 8wts in Kentucky likely around $146-$150
• 850 x $1.48 = $1,258• 550 x $1.70 = $935• Gross Margin = $323 to put on 300 lbs• Can we put gain on for $1.08 / lb?
Sensitivity of BE COG
$140 $150 $160
$160 $1.03 $1.32 $1.60
$170 $0.85 $1.13 $1.42
$180 $0.67 $0.95 $1.23
550#
cal
f pric
e
850# feeder price
A few things to remember…
• A $1 increase in deferred feeder cattle futures = $1.50 on BE bid price for 5wts– Look for over and under corrections
• Work through budget / BE analysis– Comparing COG to sale price only works if no price
slide• Consider COG affects of grass (3 months away)• Weigh short term vs. long term
Price Risk Management
• Part of taking advantage of the market is not letting it get away
• Volatility is both a challenge and an opportunity
• Many price risk tools are out there– Forward Contracting, fixed basis contracts– Futures and Options– Livestock Risk Protection Insurance
