August 4, 2016

Cull-Cow and Beef-Calf Revenue Turns Corner

 |  By: Fran Howard

Dairy cull-cow values have finally started to recover following a steep 20-month decline. Cull-cow values peaked in November 2014, before tumbling week after week for a total loss of nearly 25%. Lean beef and bull-calf prices also plunged over the same period, but now the entire beef market appears, once again, appears to be either on the upswing or poised for a rebound.

“Seasonal trends and market fundamentals suggest that the bulls could finally triumph,” says Sarina Sharp, agricultural economist with the Daily Dairy Report. “This recovery is welcome news for dairy producers who—on top of depressed milk revenues—have suffered the sting of lower cull-cow and bull-calf values.”

According to USDA, lean beef prices as of July 29 were $216.26 per hundredweight, down 24% from a year ago and 28.7% lower than the all-time record set in late January 2015. “Lean beef prices have been sticky; they have yet to turn upward, but they seem poised to recover soon,” says Sharp.

For the week of July 25, quality Holstein bull calves sold for an average of $144.5 per hundredweight at auction in New Holland, Pa. For the comparable week in July 2015, quality bull calves were bringing more than $484 per hundredweight on average‑–more than three times as much as last week.

“While the fundamentals of the bull-calf market vary regionally, it is reasonable to assume that Holstein bull-calf values are down $300 to $400 per head from last year across the nation,” notes Sharp.

Revenue from the sale of cull cows is currently about $400 per cow lower than in mid-July 2015, based on USDA’s weekly lean beef price. Compared to the 2015 average, Sharp notes that year-to-date cull-cow revenues are down $334 per head, and bull calves sold in 2016 have brought $229 per head less than the average sale last year.

“The year-over-year differences detract meaningfully from dairy producers’ bottom lines,” Sharp notes. “If the year-to-date averages for cull and beef values hold through the end of the year, a dairy milking 1,000 Holsteins with a 35% cull rate would take in nearly $260,000 less than last year just on the sale of these animals.”

Sharp’s example assumes that 15% of bull calves die before they can be sold or are otherwise unmarketable. She also notes that if the cows on this hypothetical dairy farm produce an average of 75 lbs. of milk per day, the lost revenue from the sale of cull cows and bull calves at this year's prices vs. last year's would equate to 94 cents per hundredweight of milk.

“In a tough year like this one, these lost sources of revenue could represent the difference between red and black ink for dairy producers,” Sharp says.