University of Kentucky Department of Agricultural Economics
Economic & Policy Update Featured Articles: Beef Cow Numbers Down, Heifer Retention Up –Kenny Burdine
Volume 14, Issue 2
Edited by: Kevin Heidemann & Will Snell
Beef Cow Numbers Down, Heifer Retention Up - Kenny Burdine
The end of January always brings the annual cattle inventory report. This year’s numbers U.S. Farm Economy were heavily impacted by calf prices, weather challenges, strong corn and soybean prices in Outlook for 2014 the spring of 2013, very high cull cow prices, and –Will Snell many other factors. All told, cattle numbers decreased during 2013, but to a much smaller USDA Releases extent than was seen during 2012. Estimates Preliminary 2012 are shown in the table below and include both Census Data 2013 and 2014 figures. –Will Snell
Farm Bill Decisions for Program Crops –Will Snell
February 26, 2014
USDA January 1, 2014 Cattle Inventory Report
Source: NASS, USDA US beef cow inventory was estimated at just over 29 million, which was down almost 1% from 2013. Continued decreases in beef cow numbers
were seen in TX, however, increased heifer retention was also observed. Other general areas where cow numbers fell included the Northern Plains and Upper Mid-west, western states, and several southeastern states. Sizeable increases in cow numbers were noted in Kansas, Missouri, and Oklahoma. Some of this was no doubt cattle moving across states. A lot of attention will likely be given to a 2% increase in the number of heifers held for beef cow replacement. Much like last year, it is important to put these numbers in the perspective of overall beef cow numbers. Remember, cow numbers and heifer retention can’t be compared on a simple percentage basis because of the magnitude of the differences between the two numbers. The 2% increase in heifer retention amounts to around 90,000 more heifers being held for beef cow replacements this year. As a percentage of the 29 million US beef cow herd, this would be about 0.3%. So, these heifer retention numbers alone, while significant, are not going to result in major changes in beef cow numbers next year. While much of the focus on expansion is usually centered on heifer retention, I think it is very prudent to consider the current dynamics of the cowherd and note that cow culling patterns can also have a huge impact on cattle numbers. Drought has forced many areas to cull very deep over the last several
University of Kentucky Department of Agricultural Economics: Economic & Policy Update View all issues online at http://www2.ca.uky.edu/agecon/index.php?p=209
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years. It is reasonable to expect that a larger share of older cows were slaughtered as a result of drought in recent years. Further, strong cull cow prices are providing additional incentive to cull older cows a bit sooner than they might have been several years ago. These two factors have both resulted in a rapid decrease in cow numbers, but have also likely led to a slight decrease in the overall age of the US beef cow herd. If the US beef herd has gotten younger over the last few years, it is important to understand the likely implications. First, a smaller proportion of a younger cow herd is likely to be culled in a typical year. Multiple years of extremely deep culling may well be followed by several years of lighter culling as the younger herd ages. This will be especially true if weather conditions are more favorable and / or if cull cow prices move down from their current high levels. A potential for decreased culling in the coming years could have just as much impact as heifer retention on total beef cow numbers. When heifers are held for expansion, there is a time lag between when they are held and when they start weaning their first calves. However, if culling patterns change, the size of calf crops could be
affected sooner. Also relevant to the discussion is the fact that many areas, especially the Southern Plains, are likely to be very anxious to add cows, if the weather permits. Texas alone has seen a 22% decrease in beef cow numbers from 2011 to 2014, a decrease of over 1.1 million cows. It’s hard to imagine that such areas won’t grow their herd quickly once weather allows them to do so. It is very possible that the combination of a younger beef cow herd, an increase in beef heifer retention, and some catchup expansion could result in relatively rapid expansion, once expansion does begin. The Kentucky numbers came in pretty close to most expectations. USDA estimated Kentucky beef cow numbers down about 1.5%, and estimated that fewer heifers were being held for replacements in the state. Kentucky cow inventory estimates have bounced around quite a bit, but current estimates place Kentucky beef cow numbers at just over one million head, down by 195,000 (-16%) since January of 2007.
U.S. Farm Economy Outlook for 2014 - Will Snell USDA held its annual Agricultural Outlook Forum (http:// usda.gov/oce/forum/index.htm) this past week, which is attended by approximately 2,000 individuals from across the nation and globe. Highlights of USDA’s outlook for the 2014 U.S. farm economy included the following:
U.S. net farm income is projected to be down 25% in 2014; amidst lower crop receipts and government payments offsetting modestly higher livestock receipts and lower production costs. Government payments received by U.S. farmers in 2014 will be lower, by nearly 50% compared to recent years, due to elimination of direct payments in the 2014 farm bill. Lower feed and fertilizer prices will help push down production expenses for U.S. farms for only the second time in the last ten years. Growth in U.S. farmland values will tend to moderate in the midst of anticipated lower farm income and modest increases in interest rates. Overall, the farm balance sheet for US agriculture remains strong entering 2014; with debt to asset ratios around 10.5%, compared to debt to asset ratios exceeding 20% during the farm financial crisis in the mid 1980s.
Global consumption of grains/oilseeds continues to grow in order to accommodate increasing global production. U.S. agricultural exports are expected to increase to a record $142.6 billion in FY2014. This is in response to higher export volumes more than offsetting lower prices. China continues to account for a larger percentage of U.S. agricultural trade. China is now our number 1 agriculture export customer. U.S. corn use for ethanol will increase modestly in the near future, in response to higher blends of corn -based ethanol in the domestic market and additional ethanol exports. The ethanol industry will purchase around 35% of U.S. corn production for the foreseeable future, down from more than 40% in recent years, with approximately 1/3 of this corn transferred back to U.S. agriculture in the form of distiller’s dried grain (DDGs) used for livestock feed. Despite increasing global grain production, global grain stocks remain relatively tight and, consequently, could result in noticeable up-side pressure on prices if significant supply shocks occur in major grain producing areas.
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Lower anticipated prices will cause U.S. crop acres to decline modestly (-0.9%) in 2014: U.S. corn acres (3.5%), U.S. soybean acres (+3.9%), wheat (-1.2%). USDA projects the following crop prices for crop year 2014/15: corn ($3.90/bu), soybeans (9.65/bu), and wheat ($5.30/bu). Livestock remains the positive outlook for U.S. agriculture amidst tight supplies (e.g., cattle/calf numbers lowest since 1951), improved feed/price ratios, and expanding meat exports.
Livestock prices are expected to remain near or above record high levels; steers ($1.36/lb, +8%), hogs ($0.63/ lb, -2%), broilers (97.5 cents/lb, -2.2%), and milk ($21.20/cwt, +6%). Food price inflation is expected to be 2.5% to 3.5%, which will be greater than the overall inflation rate.
For a full copy of the USDA Chief Economist’s presentation on the U.S. farm economy, go to: http://usda.gov/oce/ forum/2014_Speeches/Glauber_Speech.pdf.
USDA Releases Preliminary 2012 Census Data - Will Snell The USDA released a portion of the national and state 2012 US Census of Agriculture data on February 20, 2014, with the remaining data (including county-level data) due in May. The preliminary data reveals: United States The number of U.S. farms (still defined as $1000 or more of sales) totals 2.1 million, down 4.3% from the 2007 Census of Agriculture. The average U.S. farm size increased from 418 acres in 2007 acres to 434 acres in 2012. The average U.S. farm market value of U.S. crops and livestock sold was up nearly 40% compared to 2007. The average age of the U.S. farmer was 58.3 years, up 1.2 years since 2007. The number of beginning farmers (less than 10 years of farming) was down almost 20% since the 2007 Census. Kentucky The number of farms in Kentucky totaled 77,064, down nearly 10% from the 85,260 farms reported in the 2007 Census of Agriculture.
Kentucky’s ranking fell from 4th to 6th in terms of the largest number of farms among U.S. states. The average Kentucky farm was 169 acres in 2012 compared to 164 acres in 2007. The only farm size category to increase from the last census was the number of farms totaling more than 1,000 acres, which totaled 1,928 Kentucky farms in 2012 compared to 1,745 farms in 2007. The average market value of crops and livestock sold by Kentucky farms was $65,755 in 2012, up 16% compared to 2007. 86% of Kentucky farms had less than $50,000 of sales in 2012, with 1,837 farms having sales exceeding $1,000,000. The average age of the principle operator for Kentucky farms was 57.6 years, with only the 65 and older categories increasing. The number of female operators totaled 8,100 compared to 9,110 in 2007. The number of beginning farmers (less than 10 years of farming) totaled 17,257, down 24% since the 2007 Census.
For the entire report, go to http://agcensus.usda.gov/ Publications/2012/Preliminary_Report/Full_Report.pdf
Source: Ag Census
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Farm Bill Decisions for Program Crops - Will Snell Last month’s Economic and Policy Update Newsletter contained an overview of the 2014 Farm Bill in anticipation that the Senate would follow the House in passing the farm bill, and then the President would sign the bill into law. Following passage, USDA, FSA, NRCS, and other government agencies are scrambling to interpret and implement the bill for the 2014 crop year. Sign-up and specific details are not currently available, but farmers are asking a lot of questions related to the program crop provisions. As reported last month, the 2014 farm bill:
Replaces the current (countercyclical) price and revenue support (ACRE) programs with new programs called the Price Loss Coverage (PLC) and the Agricultural Risk Coverage (ARC) programs. Requires farmers to make a one-time-choice of EITHER the PLC or ARC programs for individual program crops; which, for Kentucky, are primarily corn, soybeans, and wheat. Allows producers the option to update base acres (based on the 2009-2012 planted acres) and payment yields (90% of the average yield per planted acre during the 2008 through 2012 crop years). Establishes fixed/higher price protection levels (now called reference prices vs target prices) under the PLC program – corn $3.70/bu, wheat $5.50/bu, and soybeans $8.40/bu. Allows those who select the PLC program the option
of purchasing additional subsidized insurance protection, called Supplemental Coverage Option insurance, beginning in 2015. For producers selecting the ARC option, actual revenues will be compared to a rolling 5 year average of either farm or county revenue guarantees (with high and low revenue years excluded). The decision on the county ARC option is made on a program crop by crop basis, but the individual farm ARC is a whole farm, not an individual crop, program. County ARC payments will be based on 85% of program base acres, while individual farm ARC payments will be based on 65% of program base acres.
Obviously, the decision of which option to select will depend greatly on one’s price expectations for the next five crop years, along with individual farm and county level data. Currently, there are several decision-aid calculators being developed to assist producers in this decision, which will have implications for the next five years. We will make producers aware of these decision aid tools when they become available. An excellent resource on these options and some specific producer examples can be found on the University of Illinois farm.doc site. http://farmdocdaily.illinois.edu/2014/02/ arc-and-plc-in-2014-farm-bill.html.
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