Trying to make sense of the current cull cow market Source: Dr. Kenny Burdine; UK Livestock Economist Despite the fact that calf prices ended 2018 roughly $8 per cwt lower than 2017, taking another bite out cow-calf returns, cull cow markets have been getting most of the attention as of late. Cull cow markets typically have one of our more predictable seasonal patterns.
Prices tend to be lowest late in the year and move up to make their highs in late spring or early summer. Let’s start by discussing why this is the typical seasonal pattern for cull cow prices.
First, we tend to sell more cull cows late in the year. The majority of our cows calve in the spring and cow-calf operators like to sell their cull cows when they sell their weaned calves. One could also argue that cows are likely in poor condition at that time, which may also affect the prices they receive. At the same time, there have always been individuals who purchase cull cows with the intention of keeping them for a short time and reselling them or trying to get another calf out of them. The cost of doing this is higher late in the year because we are several months away from pasture growth. This higher cost structure is reflected in lower values for those cows.
Admittedly, there has to be more than seasonality at play this year, as the drop has seemed to be larger than usual. Plus, I am hearing a lot of reports of much lower prices on given days at given locations. As I work to think through what is going on, I would point to three factors that are a bit unique to the current market.
First, we are seeing larger than normal cow slaughter. Cow slaughter in 2018 has exceeded 2017 levels in all 11 months for which data existed at the time of this writing. For the first 11 months, cow slaughter was 7.2 percent higher in 2018 than 2017. While beef cow slaughter is actually up by a larger percentage than dairy cow slaughter for the year, dairy slaughter was up by roughly 10 percent in both October and November. This basic supply comparison explains part of what is making the current situation unique.
Secondly, I think we have to acknowledge that weather is partly to blame here. Cold and wet conditions are never supportive to cattle prices and the last several months have been just that. In addition to affecting the demand for cull cows, weather like this also has an impact on their quality. Cattle are stressed, thin and simply are not as marketable.
Third, there is no denying that we are seeing increased production levels across beef, pork and poultry. My colleague in Oklahoma, Dr. Darrell Peel, made a good point in Oklahoma State’s Cow/Calf Corner newsletter back in the fall. He suggested that increased pork and poultry supplies may be having a disproportionately large impact on ground beef. I think this makes sense, given that the price levels for most pork and poultry products are more comparable to ground beef than middle meats. Since cull cows tend to be a largely ground beef market, it makes sense that cull cow markets would be more impacted than steers and heifers.
Regardless, I still view this cull cow market as a short-term phenomenon. Granted, we will have to contend with growing meat supplies and the bulk of winter still lies ahead. But, while the increased supply of cull cows could be a signal of the cycle turning, this level of year-over-year increase won’t be sustained. As often is the case in cattle markets, spring weather is probably the best cure for this problem.