What’s up (down) with the cull cow market?
June 22, 2009
I have been following the cull cow market for 20 years and I have analyzed historical data since before I was born. Of all agricultural markets, this market is more consistent and more predictable than any others I have analyzed. I have looked at cull cow price data from Billings, MT to Amarillo, TX, from Salina, UT to Lexington, KY. The seasonal patterns are nearly identical.
Cull cow prices increase from January through about April, and then maintain or increase slightly in value through August and then prices decline rapidly into October. The prices remain seasonally low through November and then, here is the big unknown, sometimes they stay low in December and sometimes they increase in December. You can take that to the bank. The most reliable part of this seasonal pattern has been the decrease from August to November. In the last 20 years, there has only been one year when prices were higher in November than they were in August – 2003 – the year the border was closed to Canada and steer prices increased 50 percent in a couple of months time.
The typical decline from August into November is about 15 percent in most markets. In dollar values, that would be a decrease of almost $7 per cwt. if cows were at $45 in August to about $38 in November.
Surprisingly, cull cow prices have declined from the $48-49 level for Canner/Cutter grades in mid May to $41-42 this past week. Likewise, utility grade cow prices have declined from $54 to $46 over that time period. That is the 15 percent decline I would expect to occur in September and October.
Why have we experienced a 15 percent decline in the cull cow market in the last three weeks? I know you think you have the answer; it is all those dairy cows flooding the market from the CWT herd buyout program. If that is the reason, then it is mostly psychological at this point in time because the numbers do not support it. In the last few weeks, we have been slaughtering about 111,000 cull cows and bulls per week. That is only up about 1,500 head from the March/April average weekly kill, and that is below the year ago level of about 115,000 head per week. Granted, dairy slaughter has increased from 44,000 per week last year to about 50,000 per week this year; an increase of 13 percent. However, beef cow slaughter has decreased from 71,000 head to 62,000 head. Just looking at the slaughter numbers, I would think we should be seeing near steady cow prices and that beef cattlemen could be justified in blaming their dairy cousins for cow prices not being higher.
In addition to the dairy CWT buyout program, what else might be pressuring cull cow prices lower? Fed steer and heifer prices have been on the defensive the last few weeks, but they have only decreased about four percent in price over the same time period. Choice box beef cutout values have declined about eight percent during that time and the Cutter Cow Cutout Value has declined seven percent. All of this points to a general weakness in beef demand at the moment that is contributing to the deterioration in cull cow prices.
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In my opinion, what is driving cull cow prices lower; 1) weakness in beef demand, 2) increased dairy cow slaughter, and 3) the psychological impact of the CWT buyout program.
Most cow-calf producers are not too concerned about cull cow prices at the moment. The volume of sales is always much less this time of the year than the volume in the fall. The big question then is what will the price be this fall? Perhaps prices will stabilize at these levels and then there will not be much of a decline from August into October. However, I suspect that dairy slaughter numbers will still be running above year ago levels and beef cull cow marketing will also increase seasonally. If nothing has improved in the general economy to increase the demand for beef, then this seasonal increase in supply will likely bring about more downward pressure on cull cow prices. With that scenario, many Canner/Cutter prices will be in the mid $30’s per cwt. and Bonner and Breaker cows will probably sell around $40 per cwt.
What can you as a producer do in this situation? My first suggestion would be to try and cull earlier rather than later in the fall. Prices are generally higher earlier, and typically cows lose weight and body condition in the late fall before being place on supplemental feed. If culling early is not an option, then perhaps there may be some profit in holding on to those cull cows and feeding them for 90 days. The price of hay and corn will have a big impact on how profitable that feeding enterprise is, but there may also be a greater than normal price rally in the cull cow market if the dairy CWT program has finished.