Cull Cow Marketing is Important to your Business
ISU Extension livestock economist
Cow culling time often brings tough decisions for producers. Deciding whether cows go or stay seems to require a sharp crystal ball that can see into the future. At times, the market offers guidance for culling and marketing decisions.
Profits and prospects matter. Cow-calf profit prospects improved since summer, as November 2019 feeder cattle futures rallied $13 per cwt from Sept. 4 to Nov. 22. Producers may also capture additional value from holding onto calves as backgrounding opportunities look promising. Deferred 2020 feeder cattle futures contracts advanced over $10 on average since early September. Those price gains are not strong signals to expand herds. But prices are not signaling to liquidate either.
Costs matter. The 2019 average rental rate for Iowa pastures was $59 per acre. This is a new record, up $5 from 2018. But rents likely have reached a plateau. The average sales value of Iowa pastureland is $2,720 per acre, down $70 from 2018. Iowa hay (excluding alfalfa) prices averaged $118.50 per ton through the first 10 months of 2019, about $10 higher than last year. Many expect feed prices to remain steady to lower for the next several years, pending a major weather impact.
Slaughter cow prices matter. And, they matter a lot. Research shows that cull cow income makes up 10% to 20% of the total revenue for a cow-calf operation. Management strategies alone can boost values by 25% to 40%. Producers can hike cull cow values by adding weight, improving quality, and marketing cows during seasonal price rallies.
The slaughter cow market price tends to wane during the fall, mostly on a rising supply of cows for slaughter as many cow-calf producers market cows at time of calf weaning. Prices typically rise into the new calendar year, often rather dramatically. But in some new calendar years, cow prices rally little, if any.
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Between December 2016 and the first several months of 2017, a very notable seasonal price rally existed (see chart below.) Prices gained $6 per cwt between December 2016 and January/February 2017; $15 December to March/April; and $20 December to May. Holding cull cows did not pay nearly as much from the fourth quarter of both 2017 and 2018 into the next year as the spring proved to be less supportive of the slaughter cow market.
We expect slaughter cow prices to rise into early 2020. Fed cattle prices are typically highest in the winter and early spring, which supports slaughter cow prices. The December to February live cattle futures spread is currently $5.
The Cow Sell Calculator decision tool, available on the Ag Decision Maker website at https://www.extension.iastate.edu/agdm/livestock/html/b2-35.html, compares opportunities for marketing cows now or incurring additional costs to target other (later) markets. The approach used calculates the value per animal or other assets to generate the same revenue as a sale at an earlier date.
Cow-calf producers who are set up to economically add weight to cull cows and then sell in the first few months of 2020 instead of this fall at the seasonal price low, might want to put a pencil to that soon. Correct decisions depend on the resources available and the degree of staying power or upside in deferred markets.
–Iowa State University Extension
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