Beef Marketing Update Kenny Burdine UK Agricultural Economics Economics

Outline for Discussion Overview of current market –Focus on more recent developments Forecasts for 2016 General thoughts on the upcoming year New Resources Economics

Nearby CME© Feeder Futures (Jan April 2016)

Current KY Market 550# steers in mid-$150’s –Large groups still in $160’s 850# steers in mid-$130’s 550# heifers in mid-upper $130’s

Data Source: USDA-ERS & USDA-FAS Livestock Marketing Information Center Economics Beef exports down 13% for 2015

Data Source: USDA-AMS Livestock Marketing Information Center Economics

CME© Live Cattle Futures (5-3-16)

Data Source: USDA-NASS Livestock Marketing Information Center Economics

Data Source: USDA-NASS, Compiled & Analysis by LMIC Livestock Marketing Information Center Economics

Data Source: USDA-NASS, Compiled & Analysis by LMIC Livestock Marketing Information Center Economics

Data Source: USDA-AMS & USDA-NASS Livestock Marketing Information Center Economics

CME© Corn Futures (5-3-16) We’ve added about $0.40 to spot market and $0.30 to new crop

Jan 2016 Cattle Inventory Economics

Cattle Cycles and Competitive Markets Calves brought around $300 - $400 less in fall 2015 Price levels still above costs for most cow- calf operations –We tend to expand until profit is gone, weather permitting Calf crops will get progressively larger Economics

Data Source: USDA-NASS Livestock Marketing Information Center CHANGE IN BEEF COWS THAT CALVED JANUARY 1, 2016 (1000 Head) Economics TX still down 600K cows from 2011

Other Factors Impacting Beef 2016 Outlook Expect another 2% increase in cow #’s –Overall beef production up 4+% Production growth continues in competing meats –Pork production up 2-3% –Poultry up 2-3% USDA forecasting sizeable increase in exports for all meats

Feeder Cattle Futures (5-2-16)

Fall Planning Prices Fall board in low-$140’s (5-2-16) Historical basis and seasonality would put market lower than I will predict Fall Market –550# steers $135-$155 per cwt –550# heifers $120-$140 per cwt

Thoughts for 2016 Market is not that far off “normal” Avoid low / high market mentality Don’t let the current market drive your decisions –Works in both directions The little things will matter a lot more –Everyone will not be profitable this year Focus on things you can control

KY Auction Prices 550# Steers

High Market Mentality Recent market covered up a lot of mistakes –Cow-calf and backgrounding Producers tend to take less risk in high markets –Retained ownership Some producers cut corners in high market –Bulls vs. steers Economics

Low Market Mentality Producers cut costs when prices are low Historical versus recent low? Can costs be cut too much? –Mineral, nutrition, health Think long term on breeding stock

Bred Heifer Profit Estimator (Halich, Burdine, Kindred; 2015) Enter basic cost and production info: –Heifer / calf price, cow costs, life, weaning rate Depreciates heifer over productive life –Added to variable costs Reports expected return above variable costs and breeding stock depreciation

Don’t chase prices Breeding stock is a long-term capital investment –Likely 8-12 years Current only matters so much –Danger with single annual budget approach Expectations get bid into female values Economics

Can I expand in this market? If you can effectively manage costs If you can do so without becoming financially vulnerable If you are efficient –5% increase in weaning rate - $30 - $50 per cow per year –50 lbs in weaning weight - $30 - $50 per cow per year Economics

Invest in things that decrease your costs Grazing Improved pasture, higher utilization rates, etc. Hay feeding Improved storage, improved feeding systems Overhead costs Pay down/refinance debt, re-think equipment and facilities Establish increased working capital Upgrade your herd High cull cow prices, attractive capital gains If expansion doesn’t make sense… Economics

Cow-calf Cost Targets Our budgets usually $400 to $500 for variable costs –2.5 tons of hay, 2 pasture acres, vet / med, mineral, breeding, commission, etc. Fixed costs / overhead costs are usually wildcard –Buildings, facilities, equipment, fencing, operator labor –$100 to $300 not at all uncommon

Cow-calf Cost Estimates per Cow Hay (2.5 $70 per ton)$175 Pasture maintenance (2 $30)$60 Mineral (91.25 $20 / bag)$36 Vet / Medicine$25 Breeding $60 Commission$35 Misc, fuel, etc.$20 Interest (3%)$20 $431

Sensitivities From Heifer Profitability Tool 5% increase in weaning rate - $40 - $50 per year 50 lbs in weaning weight - $30 - $40 per year $50 reduction in cost- direct impact

Lot Size Impacts (Halich and Burdine, 2015) Data: Bluegrass Stockyards CPH Sales

Final Thoughts on 2016 We aren’t all going to make money –Management usually “pays”, but… Focus on things you can control –Costs, quality, marketing plan Take long term view on long term investments Learn to manage price risk like any other risk on your operation Economics

Resources UK has a well-stocked Ag Econ department Regular articles in Off-the-Hoof, EPU,CCN, etc. Publications: –Futures and options (3), LRP insurance Price and basis data, budgets, etc. Rainfall Insurance – Pasture, Rangeland, and Forage (RI-PRF)

Contact Information Kenny Burdine UK Agricultural Economics (859)