Cull cow prices are an important factor for many operations in the Southeast. Most operations wean calves in the fall months, and that is also when they select cows for culling and begin to sell them. As we approach the Fall, seasonal price behavior generally pushes cull prices lower. On average, cull cow prices in October through December each year are about 15 percent lower than during the summer months.
Cull prices in Mississippi are dependent upon prices around the country. Mississippi producers operate primarily cow-calf operations. The prices received for their cull stock are influenced by demand for cattle and beef (mostly lean trimmings) throughout the beef supply chain. If these factors cause prices to behave similarly throughout each year, a seasonal price index can be used to estimate the impact that the time of year can have on cattle prices.
To examine this, we can calculate a seasonal price index. A price index represents how much monthly average prices differ from annual average prices. This is calculated by dividing each month’s average price by the average annual price. Next, the monthly average across the years of data is calculated to obtain an average price index. The price index calculated in this article has a base value of 1. This implies that if a given months price index is 1, the average price in that month is equal to the average annual price. If a monthly index value is 1.05, then the average price in that month is five percent higher than the annual average.
As shown in the graph, cull cow prices in Mississippi follow a seasonal pattern of higher prices in the Spring and Summer months and lower prices in the Fall and Winter. The chart also shows the range of prices using an upper and lower standard deviation (+/- one S.D.). This range provides a confidence interval (68 percent) for expected prices. Price index values can be used to forecast expected prices by using the current month’s prices. For instance, the average price for boning utility cull cows in Mississippi during August was $67.63 per cwt. We can multiply this by the ratio of the December price index (0.908) and the August price index (1.042) to obtain a forecasted price of $58.93 per cwt for December 2017. Utilizing these methods can aid in planning and management decisions for any month in the year.
This article was co-authored by Robert Thompson, Graduate Research Assistant in Agricultural Economics at MSU.