Record Cattle Prices At Calving
DR. ANDREW P. GRIFFITH
KNOXVILLE, TENNESSEE
At the time of this writing, cattle prices continued to set new records for most every class and weight group of cattle commonly traded in the United States. Figure 1 displays weekly Tennessee prices for 550-600 pound medium and large frame number one muscled steers from January 2023 through the end of March 2025. The price of this weight steer has more than doubled in 27 months. In fact, the price has actually increased 108 percent over that time. The way to think of cattle prices over the past couple of years is like the trajectory of a space ship launching. Prices have essentially been on a straight up trajectory. This escalation in prices has been welcomed by many cow-calf producers who are finally reaping the rewards of many years of hard work, while also requiring other sectors of the industry to rely more heavily on capital to sustain the business.
Despite the extremely strong cattle prices, most everyone knows what goes up must come down. The hope of cow-calf producers and many in the industry is that the coming down part is more like NASA astronauts Suni Williams and Butch Wilmore being at the International Space Station where a few days trip turned into a 286-day luxury vacation with no gravity. Thus, they stayed elevated for a while, like the cattle industry envisions for cattle prices. Alternatively, the cattle industry does not want to have the Space X experience of a lift off and a sudden explosion with all the pieces on fire and falling to the ground in a matter of minutes.
There is no way to say with certainty the market will travel a similar path to either of the aforementioned analogies, but just like the two astronauts and the Space X shuttles, cattle prices will come back to Earth at some point. It is just difficult to figure out what condition the market will be in when it occurs. Will it be a soft landing with everyone in one piece, or will it be an explosion with millions of shattered pieces? It is important to begin preparing for a decline in cattle prices now instead of waiting for a situation where panic mode decisions making commences.
This brings the thought to the new calf crop that many producers now have on the ground and the plans for the 2025 breeding season as many producers will soon turn bulls out with the cow herd. There are essentially two calf crops that producers can consider as marketing opportunities in the current time period. The first of course is the calves that are a few months old and will be sold toward the end of 2025 and the second is the one produced next year from this breeding season.
It is easier to think about marketing calves that are actually alive. Thus, the focus here is going to be on Livestock Risk Protection insurance (LRP) as this is a tool to manage price risk and effectively market the calf crop before it is ready to be sold. As the example, a producer selling 550-pound steers at the end of October in Tennessee could protect a price of $318.54 per hundredweight at a cost of $11.28 per hundredweight. In other words, a person could pay $62 per head to protect a total value of $1,752 per head. In essence, this would guarantee a producer $1,690 ($1,752-$62) per head for each steer they plan to sell in October. Less expensive alternatives are available, but they will not secure as high of a floor value as the example. A similar calculation would hold for heifers.
Cattle prices are expected to hold firm for a few years, but it is impossible to predict a black swan such as “Mad Cow disease” (i.e. BSE), coronavirus, or some other random event. Additionally, it is difficult to predict human behavior in some instances and circumstances as consumers influence cattle prices every day. The purpose of managing price risk is to avoid negative impacts from a price implosion or explosion. ∆
DR. ANDREW P. GRIFFITH: University of Tennessee