dairy calf
January 11, 2017

Holstein Bull Calf Market Takes Big Hit

 |  By: Fran Howard

After years of decline, the beef market is looking up, but that likely won’t translate into prices for Holstein bull calves or dairy cull cows that were as high as those seen a couple of years ago.

Live cattle futures prices hit bottom in mid-October, and have since rallied nearly 20%. At the same time, lean beef prices have stabilized.

“In late December, lean beef prices climbed above prior-year levels for the first time since July 2015, but they still are below the high levels that prevailed from 2012 to 2015,” says Sarina Sharp, agricultural economist with the Daily Dairy Report.

“Dairy producers should not expect cull cow values to climb to heights reached in 2014 and 2015, but their checks from the sale of cull cows should at least stop shrinking,” Sharp adds. “Typically, rising beef prices translate into higher bull calf prices, but that market remains in the doldrums.”

The value of Holstein bull calves continues to drop. Currently, these calves are only bringing about $100 at birth. “Dairy-breed bull calves are suddenly out of fashion,” Sharp notes.

Until recently, three major Midwest slaughterhouses—Tyson in Joslin, Ill., JBS in Plainwell, Mich., and Green Bay Dressed Beef, in Green Bay, Wis.— took fattened Holstein steers. However, Tyson announced recently that it will focus on beef breeds.

“Tyson will not be writing new Holstein contracts at its Joslin facility. Cattle feeders who have already contracted to sell Holstein steers to Tyson can count on their slot, but all other Holstein steers will have to find shackle space elsewhere,” Sharp says.

She notes that dairy beef accounts for about 20% of U.S. beef production, with 6% of total beef output from culled dairy cows and 14% from dairy calves that are fed for beef.

Since Tyson has pulled out of the market, the basis—or the difference between the futures price and the price that packers pay for Holstein steers—has gotten much steeper. Historically, the basis for Holstein steers has been about a negative $7 to a negative $10/cwt., or $7 to $10 under, notes Sharp.

“Cattle feeders can contract to sell Holstein steers later in the year for a $13/cwt. discount, but the opportunity is limited,” she says. “In some months, there are no remaining slots available. Some cattle sold without a contract have changed hands at a $40 under basis.”

A negative$40/cwt. basis translates into a hit of about $450/head compared to the historical discount, she adds. And the difference between a –$7 basis and a ­–$13 basis is a drop in value of nearly $100/head for a finished steer.

“Cattle feeders are only willing to purchase Holstein feeder calves at a price that reflects the new lower return for fattened cattle. Holstein bull calf values—an important source of income for dairy producers—are likely to remain depressed,” Sharp says.