Just as dairy farmers were seeing improved milk prices and lower feed costs, some may take a financial hit in another dairy enterprise – Holstein steers and bull calves.
The culprits: large fed cattle supplies and a major buyer exiting the Midwest Holstein steer market.
Latest USDA estimates put cattle and calves on feed in U.S. feedlots with capacity of 1,000 or more head at 10.6 million head on Jan. 1, up slightly compared to a year earlier.
December 2016 placements totaled 1.80 million head (1.74 million net), up 18 percent from a year earlier. December fed cattle marketings totaled 1.79 million head, 7 percent more than December 2015.
After declining for most of 2016, fed cattle prices saw a slight resurgence in late December. However, fed steer price increases are expected to experience headwinds during the first half of 2017, primarily due to the abundant supply of cattle on feed and expected higher year-over-year marketings during the first half of the year.
Like fed cattle prices, cutter-cow prices are expected to remain under pressure well into 2017 due to the expected increase in the supply of animals available to be marketed.
Tyson exits Holstein market
The larger U.S. beef cattle herd also allows beef buyers to become more selective. In late December 2016, Tyson sent a letter to buyers and customers saying it would no longer be purchasing Holstein steers, according to livestock market managers in northeastern Wisconsin.
Tyson’s slaughter plant in Joslin, Illinois, has been a major outlet for Holstein steers in the Midwest. Caroline Ahn, public relations manager with Tyson, declined comment for this article, saying the company’s marketing decisions are proprietary.
So, Holstein steer producers in some areas could now see the double whammy of lower beef prices and lost market outlets.
Based on latest USDA National Ag Statistics Service data released in April 2016, there were 641 federally inspected cattle slaughter facilities in the U.S. in 2015. Of those, 470 plants slaughtered fewer than 999 head per year.
Just 53 plants slaughtered 50,000 or more head in 2015 (including 13 plants slaughtering more than 1 million head per year), representing about 97 percent of all cattle slaughtered under federal inspection that year.
Some price history
U.S. average cull cow prices had peaked at $121 per hundredweight (cwt) in August 2014, holding at $110 per cwt or higher through August 2015. In addition to boosting dairy cull cow prices, the shrinking beef supply revitalized the Holstein steer market and created a strong demand for a ready supply of Holstein bull calves and feeder steers.
However, cull cow prices have been on the decline as the U.S. beef herd rebuilds. USDA-reported December 2016 U.S. average cull cow price (dairy and beef cows combined) was $61.90 per cwt, down about $20 from a year ago and the lowest since 2010.
The decline has also impacted other dairy beef prices. Holstein bull calves, which fetched between $500-$600 per head in 2014, are now selling for less than $100 – in some cases dramatically lower.
Typically, contracted Holstein steers have run at a $7 to $10 per cwt discount to beef breed steers. Discounts are now reported to be closer to $25-$35 per cwt, and absent of marketing contracts, finding profitable homes for those cattle could become a greater challenge.
Navigating in a new price environment
Less income from cattle sales will put a crimp in 2017 dairy budgets, said Matt Lange, business consultant with AgStar Financial Services in northwestern Wisconsin.
“The cattle sales are really going to hurt cash flows,” Lange said. “The values helped boost cash in 2015, and they helped ease the pain in 2016.”
When working with clients, Lange has been budgeting bull calf prices of $60-$75 per head in 2017. One Holstein steer feeder client saw a 25 percent decline in prices between the beginning and end of 2016, from $1,600 down to $1,200 per head.
Lange urged anyone feeding Holstein steers to take a hard look at their costs. Holstein steers generally take longer than beef breeds to reach market condition. Even with lower corn prices, steers will need to be out the door at 17-18 months to maintain any hope of profitability, he said.
Lange said he is working on a calculator for clients to plug in ration and overhead costs to evaluate costs per head per day and costs per daily rate of gain.
Bill Halfman, University of Wisconsin-Extension (Monroe County), recommended any dairy producers raising Holstein steers conduct a financial evaluation of that enterprise, including a look at overhead and labor costs. He said the enterprise can still be profitable for some producers thanks to low feed costs, but others may find it advantageous to sell off bull calves instead of feeding them out.
UW-Extension has developed a number of spreadsheets and evaluation tools for producers to use. They can be found at the Wisconsin Beef Information Center in the “Resources” section.
Halfman previously conducted analysis of dairy steer costs and returns in 2009. The information, collected from 117 farms in Minnesota and Wisconsin participating in the Center for Farm Financial Management’s database, found a $220 per head difference in direct costs and a $77 per head difference in overhead costs between high- and low-profit groups. When looking at the net returns per head when including direct, overhead, labor and management costs, the high net profit group saw a return of $186 per head profit, while the low net return group saw a loss of $408 per head.
Halfman updated the data in 2015, finding a $313 per head difference between high and low groups in direct costs and a $43 per head difference in overhead costs. After adding labor and management charges, the high-profit group had a net return of $492 per head, while the low-profit group saw a net loss of $572 per head.
Other management options
Dan Schaefer, professor of animal science at the University of Wisconsin-Madison, evaluated some other management options, including breeding and marketing. Schaefer, along with Hugh Chester-Jones, professor of beef and dairy production with the University of Minnesota, and Brenda Boetel, professor of ag economics and ag marketing specialist at the University of Wisconsin-River Falls, recently collaborated in the “dairy beef” chapter of the Large Dairy Herd Management e-book. The e-book, compiled by the American Dairy Science Association, covers the latest information about dairy management in large-herd systems. It will be published in spring of 2017.
For those considering crossbreeding programs, data contained in the e-book indicates about 4.5 percent of semen units used in dairy females come from native beef breeds (Angus, Simmental, Limousin, Simmental-Angus and Limousin-Angus). Among dairy breeds, highest use of beef semen occurs in Jersey females as a means to boost the value of bull calves.
Use of native breed semen in Holstein inseminations does not result in the same degree of bull calf value enhancement. Half-blood Holstein bull calves and steers present their own set of marketing challenges. Therefore, producers must design an individual marketing plan to optimize income.
For those looking for marketing alternatives, location and availability are critical. Wisconsin, with a large number of small cattle slaughtering plants, already offers one option – locally produced and marketed beef.
However, Schaefer warned, areas with fewer slaughter plants and those already at slaughter capacity will provide minimal benefits.
Producers who might look toward direct marketing to consumers will have to deal with “middle-man” functions of marketing, communication with clients, transportation and pricing. They’ll also need to deal with how to handle less desirable cuts of beef they cannot sell.
Despite the potential for less income from Holstein bull calves and steers, dairy producers should not skimp on management.
“Perhaps the most practical value-added option for a dairy operation is to guarantee that their bull calves receive the same quantity and quality of colostrum that heifer calves receive,” Schaefer said. “This is a practice that has value to the buyer of those bull calves, and then direct-market those bull calves with the reputation of the dairy herd attached to them.”
- Progressive Dairyman
- Email Dave Natzke