Cattle producers see payday with escalating prices

Farm Forum

Climbing prices are putting smiles on faces and hefty checks in pockets of cattle producers at local sale barns. As the cows and calves move through the ring, the mood is adrenaline-charged. Sellers know they have excellent quality cattle and in return, prices are providing them a handsome payday.

“Cattle numbers are way, down and producers know it’s time to get them back up,” Kevin Larson at Aberdeen Livestock said. Weather events have stressed many operations. It has taken a ridiculous amount of work to make a dime according to those in the industry, he said, and there are fewer and fewer people who want to do the work.

Now that corn prices are so low, people know that raising cattle is where the money is. Larson believes there are plenty of cattle available for those willing to do the work.

“Prices will be going higher” as producers seek to find animals to feed, resulting in eventual profits, Larson said. “What did the corn farmers think was going to happen when they tore up all those pastures?” he asked. “Cattle farmers need this. It’s time they have a couple of years when they can make a profit. Rents have gone up; they’ve fed $7 corn and ended up with years of higher expenses that they have to recoup.” He said cattle producers have seen balers and tractors get more expensive, so it’s time for them to catch up with the costs they have incurred.

Rate of gain

At Hub City Livestock, Ross and Annette Ulmer watched last week’s sale intently as they waited for their calves to come through the ring. Ross Ulmer, a Frederick cattle producer, admitted, “I get more nervous when I’m selling than when I’m buying.”

The Ulmers brought almost 300 head of grass-fed calves to the sale on Sept. 24.

Cost of gain is important to producers, and while crop farmers are not happy with the price of corn, it has worked to provide cheap feed to those in the business of putting pounds on beef. In 2012-2013, Ross Ulmer said feed costs were out of line with a cost of gain at $1 per pound. During the last part of 2013 and into 2014, cost of gain dropped to the 70-cent range.

Ulmer said he used to be able to get a “potload” (about 55,000 pounds) of calves, 100 calves that weighed around 550 for $50,000. With prices this fall, that same potload will likely be more than $150,000.

Ulmer feeds calves, has a cow-calf operation and raises bred heifers. He sold calves last week but will return later this fall to replace the calves he’s sold and put them in his feedlot. In addition to low-priced corn, there is an abundance of hay this year. Last week, the Ulmers finished cutting silage, and they’ll cut earlage (a variety of corn that has a white cob that makes it easier for cattle to digest) this week. They supplement that with distillers grains from the ethanol plant.

Ulmer doesn’t believe the market will go much higher. He’s concerned that if it does, consumer demand may drop. Then shoppers may turn to lower cost protein such as chicken and pork. He noted that when beef is on sale in the grocery stores, most times the store runs out before the sale concludes. To him, that’s a sign that the desire for beef remains high.

The demand for bred heifers will be big, especially in October. Some may sell fall calves and buy bred heifers so they can get another calf in 8 or 9 months. Cows are the factories for the cattle industry.

“It’s about time. The cow-calf people have had some tough years,” Ulmer said. “Now they’ll have some funds to update some equipment and catch up with finances.”

Many producers got out of the cattle business in this area in the past few years. According to the National Farmers Union, rural America has lost 34 percent of beef operations. With current prices, those who would like to get back in the business are facing a tremendous cost, Ulmer said. If they have to restructure lots, pour concrete and put up fencing, it can take a lot of funds. He said it will likely take 7 to 10 years to get production levels back up to respectable levels.

According to a recent report, South Dakota’s livestock industry provides more than 29,000 jobs and contributes $7.3 billion to the state’s economy.

“Change is a good thing, even in the cattle business,” Ulmer said. “Producers are doing more and more DNA testing to identify and improve the profitability of certain traits in herds. That’s now an important part of the operation, even in feeder cattle. Many didn’t do that 5 years ago.”

Strong market

Sale rings across the state are seeing pretty good numbers this fall, Jerry Vogeler of S.D. Livestock Marketing Association said. There are 31 livestock markets in 2014, compared to 45 in 1996-97.

Those animals coming into the sale rings across South Dakota go for a high dollar value. Some from other states bring their animals to South Dakota to sell at livestock barns.

“Aberdeen has a strong market,” Vogeler said. “It’s almost unheard of to have two such strong livestock barns such as Aberdeen Livestock and Hub City in one location. They have great people to service customers, and both are well-respected. They are strong, even though they are surrounded by good markets in surrounding towns.”

With a lot of competition out there, resulting prices are good for the producer. Those at the barns want the producers to get the top dollar.

To put things in perspective, in 2009, Vogeler sold 157 steers, weighing around 1,000 lbs. each for $150,490. In today’s market, that’s the amount that 800 lbs. steers would bring in the ring. In other words, the finished fat steer got the same price in 2009 as an 800 lb. steer ready to go to the yard would bring today.

“We know this state can have some nasty winter conditions,” Vogeler said. “Those producers are out in their storms, ice, rain, wind whatever, taking care of those animals. It’s time for them to get a big payday.”

Where will the market go?

In referencing the market, Steve Hellwig of Hub City Livestock in Aberdeen said, “The market is strong, but I don’t think it has hit its high yet. Where will it stop? That’s what everyone wants to know.”

Markets have climbed in the last two months. An example of the good prices from last week at Hub City had 790 lb. calves selling at $2.49 a lb. and 900 lb. animals at $2.285 a lb.

Hellwig expects to see a good showing of bred heifers at the barn this week. Replacement heifers and bred females will be strong as producers seek to build up their herds. With local corn prices around $2 to $2.50, anyone who can feed animals will try to feed animals.

“Cattle producers have worked hard to get where they are at,” Hellwig said. “There is a lot of pride in the cattle business. The producers use better bulls, pay more attention to animal health and provide better nutrition programs. They want to feed their animals the best they can. As a result, there are outstanding cattle grown in this area, due to a lot of effort put into them by producers.”