Georgia cattlemen faced with parched pastures and short hay supplies are likely asking "is it worth holding on to the herd?" The answer to that questions involves knowing your holding cost as well as expected returns. The cost is an individual situation likely to change from farm to farm. But the return side is really dependent on long term price prospects. Believe it or not - the price prospects are actually encouraging provided a few things fall in to place. Here's a run down on just what to be looking for:
 

Cattle Herd Now at 1990 Levels

The U.S. beef cow herd is now back at the levels of the early 1990's. After increasing by 5 percent from 1990 to 1996, beef cows dropped by a like percent from 1996 to 1999. Cow numbers will be down again in 1999, as female slaughter is greater than female retention. This is in large part due to the numbers of heifers being place on feed. When cattle producers begin to hold a few more heifers in their herds rather than sending them to the feedlots, beef supplies will drop noticeably. The time for such a change is usually about 3 years after the low price in a cattle cycle. We are now 3 years past the low of 1996, so history says a change may be close at hand. The point is that we should be entering a phase of the cattle cycle within the next year or so where beef supplies drop noticeably, laying the foundation for a move to a higher calf price level. In the meantime, a few short term factors can sway the price pendulum slightly lower but likely higher.
 

Can Cattle Slaughter Weights Get Any Higher?

Heavier cattle slaughter weights contributed most of the increase in beef supplies in 1998 and have been a culprit in holding prices in check for the first of 1999. For instance, from January to June, slaughter weights average 12lbs. per head higher than in 1998, and in 1998 they were 29 lbs. higher than in 1997. Cattle slaughter,on the other hand, was 1% higher from January to June in 1999 and 3% lower in 1998 than 1997. Beef supplies were 3 % higher in 1999 and 1.5 % higher in 1998 all as a result of weights.

The good news is that weights aren't likely to get a whole lot heavier over the next year so that as cattle slaughter comes down, beef production will also. The bad news is that weights will remain high.
 

Corn Prices Can Drop Further

Grain prices are an important factor in determining what feeder cattle prices will be. It is looking more and more likely that the grain market hasn't reached bottom yet as rains and warm weather hit the mid west - often. Another large corn crop could drop prices another .20 to .30 per bushel lower than last year. Usually, every .10/ bu. decline in the corn market adds about $1.5/cwt. to calf prices in Georgia. While the story is not complete in the grain markets, at this point it looks promising for the grain market to support higher calf prices.
 

Exports - the good and bad

Most people think beef exports have been in the dumper with the Asian economies just now recovering from their 1998 flu (Japan is our main beef customer). However, nothing could be further from the truth. Beef exports were up 3 % in 1998 and another 17% the first of 1999. So, beef export markets remain strong. The culprit is the part of cattle that's not the beef - hides, blood and guts. By product values are down significantly since 1997. For instance, the by product value of an slaughter animal is about $36 per head lower than in 1997. Again, the good news is that these values aren't likely to fall further, and in fact may pick up some as the importing countries such Korea recover. Russia, a big part of the heart, liver and tallow market, will likely not recover, however.
 

The Bottom Line -

is that the calf markets are on the edge of a swing to a higher level. If a few of the items mentioned above swing in our favor, the higher price level could happen soon. If not, 2000 may be what we're looking at. At any rate, odds favor higher rather than lower prices and Georgia cattlemen should plan accordingly.
 

Marketing Implications

Marketing is the same when prices are low as when they are high - get the most possible for what you produce. The problem with most of the marketing solutions proposed today is that you need to know the cost of a strategy, not just the increase in market price. Here are a few random thoughts on some of the marketing solutions being bantered around today.

Retained ownership may or may not be a good marketing strategy. If the cost of carrying cattle to slaughter is higher than the expected returns - don't do it. It is true that the only way to be fully compensated for genetics etc. is to carry cattle to the end point. If you are going to retain ownership of a lot of cattle, be sure to look at pricing alternatives such as futures or options to manage the price risk. Make pricing decisions based solely on profit objectives. The best way to have a train wreck in retained ownership is to try to out guess the markets (or rely on some "expert" to guess for you). Over the last several years, we have had good opportunities to lock in reasonable retained ownership profits at or close to the time cattle were placed in feedlots or on pasture.

Take advantage of the Georgia Beef Challenge or the West Georgia Cattle Feeding program to find out how your cattle will feed and to build a reputation for your cattle. Reputation is important in the market environment we are in. The difference between the kind of cattle preferred in the market and those not is wide and is getting wider. Once the base for a "reputation" is in place, you have to market cattle in ways that you can get paid for the type of cattle you are producing. This may mean being are part of an alliance or simply marketing through large group sales where individual management practices are recognized.

Some management practices are simply not being rewarded despite their recommendation. As one cattlemen with very accurate records pointed out to me recently, weaning and short backgrounding before marketing has been a breakeven proposition at best. The cost simply have not been offset by higher prices for this particular practice.

Good-doing cattle that fit specific markets will bring more, but heifers from those kind of herds will do even better. When cattle folks return to rebuilding, breeding replacement markets will find the greatest price gains. The market is likely to expand as small producers get a handle on how much it really cost to develop their own replacement stock, not to mention the problems in matching up genetics and breeding seasons (you do have one of these don't you!). Several cattle groups across the state are considering special commercial heifer sales as a way to capture part of this market. The other side of this is to consider buying replacement stock as a producer group. Not only may you benefit from large purchase deals, but it is a good way to set the foundation for a producer group which can market together due to similar genetics and breeding seasons.

Be careful in making to many decisions based on market prices alone. What does it matter if a change in genetics will get you $10/cwt. more if it cost you $50 per head to make the change? No commercial herd decisions (other than perhaps individual cow culling) should be made solely on feed out data. If you don't know what it cost you to produce a calf, you shouldn't be worrying about herd changes until you solve the cost problem first. The winner of the game is the one who puts the most money in the bank, not the one who gets the highest price!

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