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The Economics of Herd Expansion2015 UF Beef Cattle Short CourseGainesville, FL, May 13-15, 2015

Chris PrevattRSA, Livestock and Forage Economist

Range Cattle REC, Ona, FL

Finally…….

We are getting paid for what we do!

• Historical Expansion Period• US Long-Term Price Projections• Florida 10-Year Price Projections• Florida 10-Year Revenue Projections• Florida 10-Year Cost Projections• Florida 10-Year Profit Projections

The Economics of Herd Expansion

These are the basic projections that we are using in this analysis. If they are different than yours, you simply need to modify the information for your operation.

The Economics of Herd Expansion

Current Situation:

• On average 2015 annual feeder calf prices are expected to set a new record.

• 2015 beef production costs have stabilized and in some cases moved lower (such as lower feed, fuel, and fertilizer prices).

• The majority of cow-calf producers are profitable in 2015. (Finally we are getting paid for what we do!)

• Beef herd expansion is underway as of 1/1/2015.

What should we expect when we expand U.S. beef production?

Will it be smooth sailing or rough waters?

The Economics of Herd Expansion

The Economics of Herd Expansion

What Goes Up, Eventually Comes Down

Current Situation

• Historically High Margins (2012, 2013, 2014)

• Positive Profits are expected for the next several years…

80

85

90

95

100

105

110

115

-100

0

100

200

300

400

500

600

1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013

Mil. Head

Thou

sand

s

$ Per Cow

COW-CALF RETURNS AND CATTLE INVENTORYU.S., Annual

Cow-Calf Returns Cattle Inventory Jan 1

The Economics of Herd Expansion

90,095

87,730 87,700 87,900 88,281

89,613

90,878

92,52593,419 93,634 93,984 94,127

86,00087,00088,00089,00090,00091,00092,00093,00094,00095,000

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

head (in thousands)

Figure 3. U.S. Cattle Inventory, USDA Long-Term Projections 2013-2024

U.S. Cattle Inventory

What should we expect when we expand U.S. beef production?

Beef

Price

Beef Quantity

S2015

D

P2015

Q2015

What should we expect when we expand U.S. beef production?

Beef

Price

Beef Quantity

S2015

D

P2015

Q2015

S2016 S2018S2017

P2016

P2017

P2018

Q2018Q2016 Q2017

The Economics of Herd Expansion

Future Situation:****Record high feeder calf prices will not likely continue.

• Beef herd expansion will likely continue but is expected to be limited due to:– a) fewer pasture acres– b) average age of cattle producers and their

perceptions of risk – c) high capital requirements for expansion – d) uncertain domestic and foreign economies– e) other factors.

Future Situation:• Average annual feeder calf prices are expected to move lower

as herd expansion and beef tonnage increases.

• Outliers such as adverse weather, terrorist events, weaknesses in domestic and foreign economies, wars, etc. will alter future production and market price levels.

• Future beef production costs are likely to increase over time.

• The majority of cow-calf producers should be profitable for the next three or four more years and then incur losses until cattle producers reduce inventory and beef tonnage levels.

The Economics of Herd Expansion

The Economics of Herd Expansion

Future Situation:

Let’s look at long-term beef price projections made by:

• The Food and Policy Research Institute (FAPRI)• United States Department of Agriculture (USDA)

$115

$130

$145

$160

$175

$190

$205

$220

$235

$250

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

$/cwt.

FAPRI Long-Term Beef Price Projections, 2015-2024FS - FAPRI LC - FAPRI

$125

$140

$155

$170

$185

$200

$215

$230

$245

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

$/cwt.

USDA Long-Term Beef Price Projections, 2015-2024FS - USDA LC - USDA

$150.00

$160.00

$170.00

$180.00

$190.00

$200.00

$210.00

$220.00

$230.00

$240.00

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

$/cwt.

Oklahoma City Feeder Steers, 650 lbs.

Long-Term Beef Price Projections, 2015-2024FAPRI USDA

Units 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

$/cwt. $220 $207 $188 $176 $166 $162 $163 $165 $168 $172

$/hd. $1,157 $1,088 $985 $924 $874 $852 $857 $864 $881 $902

$/truckload $110,228 $103,603 $93,846 $88,002 $83,243 $81,176 $81,576 $82,271 $83,896 $85,911

Table 2. Projected Florida Feeder Calf Prices, Med. & Lg., #1-#2, 525 lbs.

After modifying the average Oklahoma City Feeder Steer Calf Prices for weight, sex, and handling and transportation costs, the following annual average feeder calf prices were projected for Florida over a 10-year period.

$220

$207

$188

$176

$166$162 $163 $165 $168

$172

$120

$130

$140

$150

$160

$170

$180

$190

$200

$210

$220

$230

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

$/cwt.

Florida Feeder Calf Prices500-550 lbs., 10-Year Price Projections (2015-2024)

$1,157

$1,088

$985

$924

$874$852 $857 $864

$881$902

$700

$750

$800

$850

$900

$950

$1,000

$1,050

$1,100

$1,150

$1,200

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

$/hd.

Florida Feeder Calf Prices500-550 lbs., 10-Year Price Projections (2015-2024)

$984

$925

$838

$785

$743$724 $728 $734 $749

$767

$670

$720

$770

$820

$870

$920

$970

$1,020

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

$/cow

Projected Florida Feeder Calf Revenue Per Brood Cow 500-550 lbs., 10-Year Revenue Projections (2015-2024)

$1,157

$1,088

$985

$924

$874$852 $857 $864 $881

$902

$984

$925

$838

$785$743 $724 $728 $734 $749 $767

$670

$720

$770

$820

$870

$920

$970

$1,020

$1,070

$1,120

$1,170

$1,220

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Projected Florida Feeder Calf Revenue 500-550 lbs., 10-Year Projections (2015-2024)

$/calf $/brood cow

$984

$925

$838

$785

$743$724 $728 $734 $749

$767

$670

$720

$770

$820

$870

$920

$970

$1,020

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

$/cow

Projected Florida Feeder Calf Revenue Per Brood Cow 500-550 lbs., 10-Year Revenue Projections (2015-2024)

If you can keep your Calf Production Costs Per Brood Cow at less than $725 per brood cow, you will be profitable all 10 years.

The Economics of Herd Expansion

Next we need to address cow-calf production costs?

0

100

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900

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1985 1988 1991 1994 1997 2000 2003 2006 2009 2012

$ Per Cow

ESTIMATED AVERAGE COW CALF COSTSIncludes Pasture Rent, Annual

Data Source: USDA-AMS, NASS, Analysis by LMIC

Livestock Marketing Information Center

Dr. Harlan Hughes – Beef MagazineProjected Cost of Production

$750

$670

$700

$730

$760

$790

$820

$850

$880

$910

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

$/cow

Projected Florida Financial Calf Production Costs Per Brood Cow

500-550 lbs., 10-Year Cost Projections (2015-2024)

*The Projected Florida Financial Calf Production Costs Per Brood Cow

were assumed to increase 2 percent annually.

$750$765

$780$796

$812$828

$845$862

$879$896

$670

$700

$730

$760

$790

$820

$850

$880

$910

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

$/cow

Projected Florida Financial Calf Production Costs Per Brood Cow

500-550 lbs., 10-Year Cost Projections (2015-2024)

$700.00

$750.00

$800.00

$850.00

$900.00

$950.00

$1,000.00

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Feeder Calf Revenue/Brood Cow

$700.00

$750.00

$800.00

$850.00

$900.00

$950.00

$1,000.00

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Feeder Calf Revenue/Brood Cow Calf Production Costs/Brood Cow

$700.00

$750.00

$800.00

$850.00

$900.00

$950.00

$1,000.00

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Feeder Calf Revenue/Brood Cow Calf Production Costs/Brood Cow

Profits

$700.00

$750.00

$800.00

$850.00

$900.00

$950.00

$1,000.00

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Feeder Calf Revenue/Brood Cow Calf Production Costs/Brood Cow

Losses

Profits

$700.00

$750.00

$800.00

$850.00

$900.00

$950.00

$1,000.00

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Feeder Calf Revenue/Brood Cow Calf Production Costs/Brood Cow

Losses

Profits

BREAKEVEN

$234

$160

$57

-$200-$150-$100

-$50$0

$50$100$150$200$250$300

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

$ p

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loss p

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Projected Florida Profit/Loss Per Brood Cow500-550 lbs., 10-Year Profit Projections (2015-2024)

$234

$160

$57

-$10

-$69-$104 -$117 -$127 -$130 -$130

-$200-$150-$100

-$50$0

$50$100$150$200$250$300

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

$ p

ro

fit/

loss p

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(wit

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Projected Florida Profit/Loss Per Brood Cow500-550 lbs., 10-Year Profit Projections (2015-2024)

$234

$160

$57

-$10

-$69-$104 -$117 -$127 -$130 -$130

$86

$21

-$68

-$128-$180

-$212 -$226 -$237 -$242 -$245-$300

-$200

-$100

$0

$100

$200

$300

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

$ p

ro

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(wit

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Projected Florida Profit/Loss Per Brood Cow500-550 lbs., 10-Year Profit Projections (2015-2024)

FL Baseline Prices FL Baseline Prices -15%$/cow

$381

$298

$183

$107

$43$5

-$7 -$17 -$18 -$15

$234

$160

$57

-$10-$69

-$104 -$117 -$127 -$130 -$130-$200

-$100

$0

$100

$200

$300

$400

$500

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

$ p

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(wit

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Projected Florida Profit/Loss Per Brood Cow500-550 lbs., 10-Year Profit Projections (2015-2024)

FL Baseline Prices +15% FL Baseline Prices$/cow

Future Cow-Calf Management Strategies:

Work on increasing production levels per brood cow.• LBS. OF CALF PRODUCTION PER BROOD COW

• Getting More Cows BRED• REDUCING the Number of Open Cows• Weaning Heavier Calves• Selling Heavier Calves

The Economics of Herd Expansion

Future Cow-Calf Management Strategies:

Work on lowering or controlling production costs per brood cow.• Increasing the Number of Days of Grazing

• Increasing the Stocking Rate (acres/head)• Stockpiling Forages

• Competitively Buying Inputs• Reducing Waste!

The Economics of Herd Expansion

Future Cow-Calf Management Strategies:

Work on improving feeder calf and cull animal prices received.• Improving Quality

• Frame Score• Muscle Score

• Marketing Practices• Weight• Timing• Marketing Outlet

The Economics of Herd Expansion

Future Cow-Calf Management Strategies:

Work on increasing production levels per brood cow.

Work on lowering or controlling production costs per brood cow.

Work on improving feeder calf and cull animal prices received.

Some combination of the above cow-calf management strategies.

The Economics of Herd Expansion

The Economics of Herd Expansion2015 UF Beef Cattle Short CourseGainesville, FL, May 13-15, 2015

Chris PrevattRSA, Livestock and Forage Economist

Range Cattle REC, Ona, FL