What to Expect from the May 27th Value Index Update
Genetic tools are only as good as the data that feeds them. That’s why each year the economic assumptions that power the American Angus Association’s value indexes undergo an update process.
At the end of May, 2014 will drop out of the 7-year rolling average for both cost and revenue on items like ration costs and grid values. It will be replaced by last year’s average.
It’s obvious that 2014 and 2021 were very different years in the cattle cycle, but not different enough that it will cause wide swings, says Kelli Retallick-Riley, president of Angus Genetics Inc.
“While we might see slight reranking, a little bit of shift, those animals are going to be very similar to what we see today,” she says.
To learn more about the process or the expected outcome, listen to the full interview or read transcript below.
MIRANDA REIMAN: So, today on the line, I have Kelli Retallick-Riley with me. And we're going to talk just a little bit about the value index updates. So Kelli, what's coming up the end of May. What kind of information do we need to give to breeders?
KELLI RETALLICK-RILEY: Yeah, that's a great question, Miranda. So, at the end of May, just like we do every single year, in this May, June period, we're going to do our annual update to our economic assumptions, that drive our dollar value indexes. So, you know that those dollar values are used as basically profit tools. So, we're trying to select animals that have more profit for one segment of the industry or the other. And one of the things that really weights those traits, weights those individual EPDs inside of those dollar values, those profit indexes, are basically the cost and revenues, that take place over the year. Whether that's cost and revenues, for instance, on weaned calf prices, versus your ration costs, versus your grid premium. We try to update those annually to make sure that we stay on par with what's happening in the industry overall.
REIMAN: Perfect. Can you give me just maybe a little bit of insight into the history of what goes into those, and why we've got to keep it updated?
RETALLICK-RILEY: Yeah. So, right now we update those economic assumptions annually, but they're based on a seven-year rolling average. So, you can imagine over the course of the years, we've had different price fluctuations, in calf prices and ration costs, and all those different types of inputs and outputs. And we base it on a seven-year rolling average, because we're trying to mimic that cattle cycle. Previous to this, we actually had it on a three-year rolling average and what was happening is, we were causing a lot of volatility in these profit tools that are supposed to be used to drive genetic change and genetic selection. And so, by having it on that seven-year rolling average, basically that allows us to make sure that we keep it updated, but steady, for not only our seedstock producers, but our commercial cattle industry, so they're able to make those really good decisions.
RETALLICK-RILEY: So this year, our seven year rolling average that we're going to be working off of, is 2015 to 2021. And so, basically we take the average cost and the average revenues throughout those seven different years, and sum them together, and then update those annually. So this year, we're going to be trading out 2014 with 2021. And so, for a lot of our producers, they can recall what was happening in 2014, when we had record high weaned calf prices, and really high ration costs, and those sorts of things. And we're going to trade it out with a year that, even though we have rebounded some from a weaned calf cost from 2021 to... Or excuse me, from 2020 to 2021, it's still not enough to overtake that really big weaned calf cost year that we had in 2014. And so, we're going to see just a little bit of change when we start to update these economic assumptions and these dollar values, coming here at the end of May.
REIMAN: Sure. When we think about 2014, it feels like an awful long time ago, but you're right. To a lot of us, it feels like a different time. You say a little bit of change. Are these going to be dramatic swings, or what can you tell us to expect?
RETALLICK-RILEY: Yeah. So, one of the biggest changes that we see in those economic assumptions, like we just talked about, is really the trade out of that weaned calf cost of 2014 to 2021. So, when we look at the seven-year rolling average, last year we inputted, for instance a weaned steer calf price of $183 per hundredweight. And this year, it's actually going to go down to $172 per hundredweight. So, because of that seven year rolling average again, even though like we mentioned, we rebounded a little bit on weaned calf costs year over year, it still wasn't enough to overtake that big year.
RETALLICK-RILEY: And so, we're going to see a little bit of fluctuation when we look at things like maternal weaned calf value, and weaned calf value. So, that $M and $W respectively, because the big profit driver in those indexes, are really how much we're going to basically make on each pound of weaned calves that we take off those cows in the fall or in the spring, whenever those individuals are being weaned. And so, while we are going to see a little bit of shift in that revenue source, the correlations across the board for maternal weaned calf value, and weaned calf value, $M and $W, are really, really high. So, they're well over 0.99 correlations. And so, while we're going to see a little bit of change, we're not going to see any huge reranking, come May 27th.
REIMAN: So, we can talk a lot about the numbers, and how they're replacing one year for another, but where are those numbers coming from, that you're inputting into that equation?
RETALLICK-RILEY: Yeah, that's a great question. So, we actually work with CattleFax, as a third party resource that we can come together. They track all of those changes throughout the year, and over the years. And they're actually able to help us deliver some of those costs and revenues to us. Then internally, we work with groups here, obviously at AGI, at the Association, as well as CAB, to really make sure that we have a full scope of what's happening.
And for example, in our grid value, which feeds our $B, which is our big terminal index. We look at grid premiums that happen throughout the year, and it's actually a blend of the weekly high, and the weekly average grid premiums that happened over 2022, for example. Those are the grid premiums that happened over 2021. So, when we look at Angus animals, we know that they can compete on an average quality grid. And so, what we actually do for our grid value and our $B, when we talk about the terminal side is, we actually blend the weekly high with the weekly average. And that allows us to make sure that our Angus animals, who are known for their quality, who are known for their impact in marbling, actually compete at a higher than average grid premium value, to make sure that we continue to drive home some of those quality-based characteristics, that have really allowed the Angus breed to excel in those terminal traits.
REIMAN: And as we talk about $B, what kind of changes are we expecting as you talk about values in relation to that?
RETALLICK-RILEY: So, when we look at the $B, those are going to be basically, once we wean those calves off, send them to the feedyard, and then hang them on a quality based grid. And so, you can imagine the things that affect $B. You're going to be talking about days on feed, ration costs, along with those grid premiums that we just mentioned. So again, year over year, our seven-year average increased the time on feed, for calf-fed and yearling fed steers, to 246 days, and 170 days, respectively. And we actually, while we lost a pretty big ration cost year in 2014, we exchanged it with 2021 where we all know that we saw those ration costs continue to rise.
And so, our ration costs actually goes up by about, on average $7, in this seven-year cycle. And what that does is, it actually changes our $F just a little bit. Those high dry matter intake animals get knocked down just a hair, because the fact that obviously if you have to spend more time on feed, you eat a lot while you're in the feed lot and then you couple on higher ration cost prices, that's going to affect your overall profitability. Exchange that with a grid premium, that continued to climb in this seven-year cycle and so, the overall change in $B, because we went down a little bit in $F, we went up a little bit in $G. Our $B is actually staying fairly constant. On average, across the board, we see maybe a dollar decrease across the board, when we look at $B. But again, similarly to our $M, above 0.99 correlation. So, while we might see slight reranking, a little bit of shift, those animals are going to be very similar to what we see today.
REIMAN: Sure. That seems like to me, maybe it gives you an indication that the tools are working as intended, and the shifts are just reflective of the year. Not that we're making a big change to the tool?
RETALLICK-RILEY: Yeah, absolutely. Because it's really hard to make breeding decisions, even a lot of these dollar values. We're putting the economics in today, but these are going to be driving profit indexes that are going to allow people to make breeding decisions, for seedstock bulls in the coming years. And we're probably not going to wean some of these calves off for another 24 months on these individuals that we're making decisions on, whether or not we're going to select them to put into the breeding pool or not. And so, trying to keep those things a little steady, allows for seedstock and commercial breeders alike to really take the tool, and be able to use it effectively.
REIMAN: Excellent. If producers want to know, first off, what's the date that this is happening? And second, if they want to see if it's made any changes to their bulls, or bulls they've been looking at, where do they go to look at that [inaudible 00:05:53]?
RETALLICK-RILEY: So, we're going to make this change on Friday, May 27th. So, that will be the day that basically these new economic assumptions take effect. And if breeders log onto their AAA login, or if you're a commercial breeder, and you have that registration number of that individual bull of yours, you can go to Angus.org in the online pedigree lookup feature and you can actually see if those things have shifted or fluctuated. I will caution though, if you haven't looked at those in over a year, or maybe since you bought the bull, some of those changes and shifts may have happened, not because of just the economic assumption update, but because we've had a lot more data come in over the past year.
REIMAN: That's a good reminder that those are updating weekly.
REIMAN: Again, these annual updates will go live May 27th. Visit AAA Login for more information.