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CME: US Calf Slaughter Up as Dairy Calf Market Shifts

30 November 2016

US - Commercial calf slaughter (typically Holstein bull or steer calves intended for veal) has been on the rise since May of this year, according to the latest Daily Livestock Report published by Steiner Consulting Group.

Based on the USDA-NASS monthly livestock slaughter report, through October, commercial calf slaughter was up 6 per cent (up 22,800 head) compared to the same timeframe in 2015. In fact, the monthly October calf slaughter number was the highest for any month since July of 2014.

The veal industry is not large, compared to the beef, pork, or chicken industry. In 2015, annual commercial calf slaughter was 453,000 head.

Consumers’ changing tastes and preferences have not been kind to the veal industry, which has been on a steady decline since the late 1980s. Since 2009 the industry has averaged a 10 per cent annual decline in total slaughter.

So why the recent uptick? This is a great example of how interconnected our livestock industries can become.

Most veal calves are male Holstein calves. Due to the decline of the veal industry, and the relative inventory growth in the dairy herd, many Holstein steer calves also go into feedlots and eventually into our beef supply.

While Holstein animals tend to quality grade relatively well with regards to their carcass, and the animals are very consistent due to intensive breeding practices in the dairy industry, they also have to be in a feedlot longer and usually have a poorer yield grade compared to beef type cattle.

As a result of this, prices for Holstein calves destined for a feedlot consistently bring discounts relative to their beef type counterparts. When cattle supplies started to tightened and prices were moving towards record highs in mid-2014, feeding out a Holstein steer became more attractive.

At that time, Holstein steer calves were still priced at a discount, but the overall price level was significantly higher than dairy producers had ever seen before. These higher dairy calf prices helped many dairy producers through a tough time in the industry when milk prices were moving lower.

Now, we are facing increasing beef cattle supplies and lower beef cattle prices. Additionally, Tyson announced in mid-September it would not be renewing any of its Holstein contracts with cattle feeders. While other companies will pick up some of this Holstein market, generally with increasing beef cattle supplies feeders will choose the beef type animal over the Holstein steer calf.

The industry shift taking place is apparent in veal slaughter numbers and also visible in Holstein bull calf prices. While Holstein bull calf prices are somewhat difficult to come by, the Producers Livestock Marketing Association publishes some calf prices out of Jerome, ID. Using this price series, as of the beginning of November Holstein bull calf prices were averaging about $25 per head (these calves are considered “day old” but could be up to a week old).

In November of 2015 these calves were averaging $100 per head, and November of 2014 they were $280 per head. Prior to 2014, the price for these calves would range from $20 to $65 per head.

What implications will this market shift have on the dairy industry? They will not have as good of a revenue source out of the bull calves, and therefore be more prone to milk price changes.

Additionally, this could hypothetically incentivise more dairy producers to use sexed semen and/or move towards using beef bull semen on dairy cows and heifers if they do not intend to use the offspring as replacements. It will be interesting to look back in a year or two and see if there are any changes that stem from this.


Daily Livestock Report - Copyright © 2008 CME. All rights reserved.


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