CATTLEFAX TRENDS

CASH COW COSTSRecord

CattleFax recently conducted its annual “Cow-Calf Survey” to analyze data from 2021. First off, thank you to those who took the time to complete the survey, it is greatly appreciated. Results came from across the country, with the Central Plains and Southeast regions making up the largest samples. The average herd size of 461 cows is well above the U.S. average, but the findings represent more operations that truly try to make ends meet from a financial standpoint. The results benefit the industry by providing insight regarding trends for management practices, marketing strategies, expansion or liquidation, and many other key metrics. More importantly, producers can utilize the findings as benchmarks to compare against their own operation. Obviously, there are extensive variations within the cow-calf segment. All the analysis may not directly apply to your enterprise. Nonetheless, the following discussion and insights should at least be thought provoking.

Not only did the cattle markets experience volatility in 2021, but major inputs for cow-calf operations did as well. Inflationary pressures, continued supply chain challenges, and drought, strained producers when it came to procuring the required inputs to run an operation.

As expected, cash cow costs increased from the prior year. In fact, cow costs set a record in the CattleFax dataset that dates to the late 1980s. At $613/head in 2021, cash cow costs increased $18 from 2020. It is important to note this measurement does not include depreciation or returns to management. Because of the diversification in environments and business models for cow-calf operations there is a big range around the average. Not only from region to region, but also between operations in the same state or even county. However, it is very likely that record costs in 2021 applies to most operations.

The Southeast and South Plains, which each accounted for 30 percent of the survey responses, continue to report the lowest cash cow costs. Aside from the Corn Belt, the South and Southeast posted the smallest year-over-year increases in costs. A smaller adjustment to feed expenses is likely the main driver. Hay prices, excluding alfalfa, in the South Plains and Southeast were $8 and $11/ton above 2020, respectively. While the North Plains and West hay markets averaged $27 and $19/ ton higher, respectively. While the West region reported the biggest annual change of $47 per cow, elevated grazing/land expenses keeps the North Plains at the top once again for cash cow costs. Drought through 2021 certainly impacted the expense side of the ledger for both regions. In 2020, pasture made up the largest percent of expenses for both areas, followed by feed costs. Last year those two line items flipped. In the North, feed costs accounted for 33 percent of all costs, while pasture

was at 31 percent. Feed expenses contributed 34 percent of all expenses in the West, while pasture made up 29 percent. This is mostly a function of higher prices for grain or grainbased products, and hay, coupled with potentially feeding more due to the drought. In the last two surveys, participants were asked how many tons of hay per cow is consumed each year. The average between both regions increased about 0.8 tons per cow from 2020 to 2021.

Lastly, the Corn Belt was tied with the West at $631 per cow in 2021 and reported the only annual decline. However, cash costs remained consistent the last three years. What makes the Corn Belt region unique compared to the others is how much feed costs contribute to overall costs. The last two years, feed costs made up 43 and 41 percent, respectively, of all expenses.

While calf and feeder cattle prices have improved dramatically compared to a year ago, expenses and feed resources remain a significant headwind for a lot of cow-calf producers. Unfortunately, La Nina weather patterns persist causing the West region to struggle with dry conditions. Some parts of the North Plains, especially east, have received some much-needed relief through the fall and winter but are not out of the woods yet. Over the last several months, producers in the South have started to really feel the wrath of mother nature with drought becoming very prominent. Through February, 54 percent of the U.S. beef cowherd was in moderate or worse drought – the highest since March 2013. With the clock ticking for spring turnout, the spring weather forecast remains generally bleak for much of the already drought-stricken regions. While it is not what anyone wants to hear, producers need to be prepared.

Coming into 2022 there were concerns the high inflation environment would continue. So far inflation remains a challenge, and the recent global events with the Russian invasion of Ukraine has only compounded inflation risks. How long the turmoil lasts and the severity of it will have a significant impact on the magnitude of inflation.

Feed and energy costs were expected to remain elevated in 2022 and have up to this point. In fact, spot corn futures pushed up about a $1.50/bu in two weeks to a high of $8.00 on the Russia-Ukraine news. Energy markets have been and will likely continue to be extremely volatile.

With the drought and the historical relationship between hay and corn prices, the hay market should be well supported through 2022. There will certainly be some regional differences not only between prices but also the yearover-year changes, depending on regional precipitation and demand. U.S average hay prices, excluding alfalfa, started the year with an increase of $11/ton compared to the beginning of 2021.

When considering all the factors, the odds favor the record cash costs in 2021 will be broken in 2022. It is difficult to forecast how much of an increase to expect. But producers need to budget for higher costs, on average, if they have not done so already.

Like 2021, the calf market is expected to make year-overyear gains in 2022 to help offset the increase in costs. In the latest survey, participants reported calf revenue was $30/ head higher in 2021, compared to 2020, for an average of $870/head for both steers and heifers. This year’s calf market has already posted larger year-over-year gains. While costs continue to rise, the calf market should increase at a faster rate to improve profitability for the cow-calf segment in 2022.

Thanks again to those that took the time to complete the recent survey. This unique dataset provides valuable insights for not only the industry, but more importantly to producers invested in the day-to-day operations. While the last couple of years were a challenge, there are a lot of opportunities just around the corner for cow-calf operations. However, it will still be critical that producers stay focused on the variables that maximize an operation’s bottom line.

There is a lot more information from the cow-calf survey related to weaning and marketing strategies, advantages of different vaccination protocols, the benefits of genetics, and more, that provides a unique perspective for producers to consider. Stay tuned for more Trends articles that will expand on those important topics.

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