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Livestock, Equine and Forage Outlook. Kenny Burdine UK Ag Economics. KY Equine Receipts and Keeneland Sales. Economics. 2011 / 2012 Equine Market. Keeneland sales show improvement September Yearling sale up over 12% November Breeding sale up 41%
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Livestock, Equine and Forage Outlook Kenny Burdine UK Ag Economics
KY Equine Receipts and Keeneland Sales Economics
2011 / 2012 Equine Market • Keeneland sales show improvement • September Yearling sale up over 12% • November Breeding sale up 41% • Pent up demand, tax incentives, large dispersals • Stud fees likely steady in 2011, but could show slight improvement in 2012 • Recreation, show, and pleasure markets still impacted by slow economic recovery • Changes in horse slaughter regs? Economics
US Dairy Production Economics
US All Milk Price Prices to average near $20 for year Nearly $4 above 2010, $7 above 2009 Increased production to pressure prices in 2012
2012 Expectations • Production likely to increase 1-2% • Prices likely to average $1-2 under 2011 • Expect $19-21 at farm level, likely stronger in the 1st half of the year • Weather in Oceana will be a major factor
2011 Hog Market Summary • Prices increase 50% from 2009, 20% from 2010 • Sow #’s decline, but production increases slightly • Domestic and export demand stronger • Sector remained generally profitable • Implications for 2012
2012 Market Expectations • Pork production expected to increase 2% from 2011 • Big change in 4th quarter • Exports to remain strong, but US per caps to increase slightly • Prices likely stronger in Q1, strong in summer, trending downward towards winter • I expect upper $80’s / $90’s in summer, into $70’s by Q4
Overview • Weather challenges in 07, 08, 10 • Competition for ground – row crops • Rising input costs • Markets – shrinking dairy / beef numbers, equine markets shaky • Rising feed prices = opportunity • Growing backgrounding industry in KY
KY non-Alfalfa Hay Production • Acreage decreases from 2.3 to 2.1 million
KY Alfalfa Hay Production Acreage increases from 230K acres to 250K acres
Kentucky has lost 212K beef cows since 2007 Livestock Marketing Information Center Data Source: USDA/NASS
Market Expectations • Calf market feeling pull from wheat and improving margins (feeder futures) • Calves are higher, but will strengthen towards grass • Typical seasonal peak occurs in early May • Fundamentals of supply look great • Heavy feeders • Supplies are really tight • Slides will widen again, tighten in spring • May be strange Q1 effects • Typical peak around August
What about Expansion • Generally, expansion questions are framed to be primarily about price • Outlook for next several years is very positive • Cattle cycle basics of expansion phase • Profit likely here for several years • Value of calves over next few years is going to be outstanding
Another look at expansion • To me, expansion is more a question of cost than price outlook • What does it cost YOU to maintain a cow for a year? • Very profitable now – expansion may make sense • Just becoming profitable – think about cost reducing investments
Do I always make more $ running more cows? • I have to be profitable to begin with • Not just profitable when steer calves are selling for $1.60 per lb • Even if profitable, it’s not that simple • Make more money by running more cows • Make more money by making more on each cow I run • Other enterprises – backgrounding, heifer development, etc.
If expansion doesn’t make sense… • Invest in things that decrease your costs • Grazing • Improved pasture, higher utilization rates, etc. • Hay production • Improved storage, improved feeding systems • Overhead costs • Pay down / refi debt, re-think equipment and facilities • Upgrade your herd • High cull cow prices, attractive capital gains
How will you expand? • Develop your own heifers • Consider her value as weaned calf • Cost of keeping her two years before weaning her first calf • Purchase bred heifers • Both are 10-14 year investments • Will she return the initial investment? Don’t forget her cull value and time value of money
Heifer Development Budget • Designed to track and plan expenses of developing heifers • Needs to be tweaked by user to consider appropriate time frame • I made some changes in 08 because they feed into cow-calf budgets • Variable Costs (pasture maintenance, feed, mineral, vet, breeding, etc.) • Fixed Cost (depreciation, taxes, insurance)
Where are we now? • Good 5wt heifers are in $140 - $160 range • Heifer calves are worth around $800 -$900 • What will it cost to develop and breed (12 months) – probably $300 to $400 • Interest considerations • Then, I need to winter her a second time to get first calf – she’s 2.5 when first calf is weaned
Other costs to think about… • Dollars spent on heifers that do not enter the cow-herd • Possible loss in weaning weight associated with calving ease and maternal bulls • Money made on calves that would have been sold from purchased bred heifers
Backgrounding Margins • 5wts in $160-$180 • Spring / summer feeder cattle futures around $159-$160 • 8wts in Kentucky likely around $146-$150 • 850 x $1.48 = $1,258 • 550 x $1.70 = $935 • Gross Margin = $323 to put on 300 lbs • Can we put gain on for $1.08 / lb?
Sensitivity of BE COG 850# feeder price 550# calf price
A few things to remember… • A $1 increase in deferred feeder cattle futures = $1.50 on BE bid price for 5wts • Look for over and under corrections • Work through budget / BE analysis • Comparing COG to sale price only works if no price slide • Consider COG affects of grass (3 months away) • Weigh short term vs. long term
Price Risk Management • Part of taking advantage of the market is not letting it get away • Volatility is both a challenge and an opportunity • Many price risk tools are out there • Forward Contracting, fixed basis contracts • Futures and Options • Livestock Risk Protection Insurance
Contact Information Kenny Burdine UK Agricultural Economics (859) 257-7273 kburdine@uky.edu