What are cows worth? What are values? Other thoughts on building a herd

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1 What are cows worth? What are values? Other thoughts on building a herd Ted McCollum III, PhD, PAS-ACAN Extension Beef Cattle Specialist Texas A&M AgriLife Extension Amarillo

2 Nationally How much will we rebuild? Locally How much will we restock? AND, How Fast?

3 What is a beef female worth? Worth the value of something measured by its qualities or by the esteem in which it is held SO, a cow/heifer can be worth different amounts depending on who is valuing her

4 CURRENT MARKET Texas Weekly Summary Week Ending July 26, Bred cows $ /hd Pairs $ /pr Are they overvalued, undervalued, just right?

5 Estimating value Net Present Value NPV value today based upon discounted future returns from production Need to know (GUESS??) productive life of female (# of calves weaned) estimated weaning weights weaning % cow salvage value (2-8 yrs from now) calf prices (1-8 yrs from now) discount rate

6

7 NPVs on 5 scenarios Weaning rates Heifers 92 % weaned 1 st, 82% second, 84% remainder Cows 95% first, 84% remainder Wean wts 524 str 509 hfr Cow wt 1150 Discount rate 5%

8 Prices used based on current average price of 255/cwt for the 5cwt str and projected based on FAPRI trends Price ProjectionsFAPRI & USDA Projection s are for OKC Feeder Steers FAPRI SB AVE

9 NPVs on 5 scenarios Retain weaned heifer calf and develop Buy bred heifer Buy bred cow with 3 calving opportunities Buy bred cow with 5 calving opportunities Buy a bred cow with a calf at side, calve 3 more times

10 NPVs on 5 scenarios NPV, $/hd Retain/buy weaned heifer calf, develop, 8 calves $1320 Buy bred heifer 8 calves $2289 Buy bred cow with 3 calving opportunities $2012 Buy bred cow with 5 calving opportunities $2158 Buy a bred cow with a calf at side, $2930 calve 3 more times So are current markets out of order?

11 Are current markets out of order? Not if the price projections and production parameters prove out BUT, what if? ARE THERE RISKS TO CONTEMPLATE?

12 Risks to Contemplate Market Risk Can we stay at these price levels for the yrs required to recoup the NPV promised? Consumer demand feed commodity prices declining more help for the competitors Ground beef is driving the price levels will demand hold? will an alternate supply arise?

13

14

15 BEEF PRODUCTION - SJ_LS711 7/26/2014 7/27/2013 Cow & Bull Slaughter 107, ,382 (-16.0%) Year to Date Totals 3,464,497 3,951,567 (-12.3%)

16

17 Beef primal and grind wholesale prices Unit Current Week Ago Year Ago Rib Choice % % Round Choice % % Chuck Choice % % Trimmings, 50% Trimmings, 90% Fresh % % Fresh % % Hide/Offal Live Steer % %

18

19 Risks to Contemplate Market Risk How fast and to what degree will. US producers expand numbers? Mexican producers recover? Imported beef fill the gap? Pork and poultry fill the gap?

20 Risks to Contemplate Production Risk Are your production costs higher or lower than those in the example? Are your preg rates and weaning rates? At these levels, managing health, nutrition, reproduction are more imperative and more rewarding Climate risk (1) Is the current drought over? (2) How variable will annual conditions be in the next 5-10 yr horizon?

21 Risks to Contemplate Production Risk Climate risk What does the future hold? How does this influence my decision to invest in cows? (1) Is the current drought over? (2) How variable will annual conditions be in the next 5-10 yr horizon?

22 Drought conditions Aug 12, 2014 Aug 13, 2013

23 Production Risk Short term climate (12 mo from now) Conditions have improved but still short to very short on soil moisture Chances of El Nino this winter/fall declining Forecast for wetter and colder fall/winter and possibly early spring Some models suggesting we move back into La Nina or harsher conditions next summer

24

25 ENSO 7/5/14 7/20/14 8/4/14

26 Production Risk Long term climate (12 mo to 10 yrs from now) Long term sea surface temperature cycles (30-50 yr duration) maintain higher likelihood of drier and warmer conditions over next 5-10 yrs(???)

27 Atlantic MultiDecadal Oscillation (sea surface temperatures, north Atlantic)

28 Pacific Decadal Oscillation 1900-Mar2014 (sea surface temperatures, north Pacific)

29 TODAY & several years ahead

30 Production Risk Long term climate (12 mo to 10 yrs from now) Long term sea surface temperature cycles (30-50 yr duration) maintain higher likelihood of drier and warmer conditions over next 5-10 yrs(???) This DOES NOT MEAN perpetual drought!!! BUT more variability and average conditions more trying than the 70 s-90 s

31 Building my numbers back Current cow markets not out of line with future projections How good are projections? What are risks market and production- and how do they influence decisions?

32 Building my numbers back Are cows the sole means of restocking? Better to have cows and some liquid cattle Are high priced cows the way to restock? There are cows that are not as pretty, not black, not as young, etc., that can be purchased at a lower price, AND given the markets in front of us, can be as good an investment at perhaps lower risk than other cows

33 Ted McCollum III, PhD, PAS-ACAN Diplomate, American College of Animal Nutrition Extension Beef Cattle Specialist Texas A&M AgriLife Extension Service Amarillo office cell

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