Dillon Feuz: Economic forces now favor yearlings
January 28, 2011
With the current price of corn in Omaha, NE over $6 per bushel and futures market projections showing it may stay there for some time, and with feedlot total cost per pound of gain now approaching $1.00, there are new incentives to try and add weight to calves outside of feedlots. I now hear people in the cattle industry talking about wanting to place feeder cattle in the feedlot at 1,000 pounds. I must be getting older; it doesn’t seem that long ago that 1,000 pounds was an acceptable slaughter weight. But back to the point, if cattle enter at 1,000-pounds and are on feed for 90-120 days, they will likely be between 1,300- and 1,450-pounds at harvest with carcass weights of less than 950 pounds. That carcass weight is acceptable by most beef packers.
The question then arises of how best to get a calf from 550-pounds to 1,000-pounds outside of a feedlot and without much corn in the ration. Actually, there are many different ways to accomplish this and it has been happening for years. With few exceptions, the cheapest way to add weight outside of a feedlot usually involves the calf harvesting the feed rather than man harvesting the feed and then feeding it to the calves.
Winter pasture grazing in California and parts of the South are one option for producers in those areas. Wheat pastures have long been a heavily-utilized resource to add weight to calves. This resource is heavily-dependent upon adequate fall- and winter-moisture, but when that moisture is there, few resources can compete to add weight more economically than on wheat pastures.
Corn stalk grazing is another valuable and often under utilized resource for adding weight to calves. In many parts of the country, stalks are disked under rather than being grazed. Research at the University of Nebraska-Lincoln has shown that calves can gain about 1 pound per day on stocks with no supplement, or with a protein supplement gains can increase to 1.5-1.75 pounds per day. Nebraska research has also shown that there is no adverse effects on subsequent crop yields from corn stalk grazing. Depending upon the initial weight of the calf and upon the daily gain and length of the grazing period, calves will likely weigh between 600-850 pounds in the spring of the year.
In the past, the lighter end of these calves probably found their way to summer grazing programs, but the heavier end likely went into the feedlot. It would seem now that even these heavier calves will be more profitable if they can spend some additional time on summer grass before going to the feedlot.
In November, I wrote a column about the economic versus financial cost of a backgrounding program. As a quick refresher, I stated that most of the time when I value all feed resources at market price and charge for labor, yardage, interest and other costs, then generally I conclude that backgrounding is not profitable. However, I noted that many of you may have feed resources that really are valued less than my assumed market price and your other costs may be substantially less than what I assumed. Hence, backgrounding may be profitable for you. However, I now want to illustrate how higher corn prices and higher cost of gain in the feedlot is altering the economics of backgrounding.
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I am going to assume a background program involves calves gaining 2.0 pounds per day for 150 days. The ration I used was an alfalfa/grass hay and corn grain ration, where 16.5 pounds of hay and 5 pounds of corn are fed each day to a 550-pound calf. The end weight of the calf would be 850 pounds. This ration is actually quite expensive on a cost per pound of gain basis. I then assume that calves are placed on summer grass for 120 days at 1.5 pounds per day and gain an additional 180 pounds to come off grass weighing 1,030 pounds. As I mentioned, this is a fairly costly winter ration and the projected gains for the summer are conservative. I charged market price for the hay and corn and used the Northwest Nebraska grazing rental rate to value the grazing. I also included a charge for yardage, veterinary supplies, interest on the cattle, and death loss.
I evaluated this background-grazing program over three different time periods and compared the total cost of gain to the total cost of gain in a feedlot for the same time period. The three time periods are: 1) 2004-2006; 2) 2007-2010; and 3) fall 2010/winter 2011. During the 2004-06 time period, corn prices in Omaha, NE averaged $2.41 per bushel and the total cost of gain in a feedlot was projected at $0.52 per pound of gain. The total cost of gain for the background-grazing program was $0.65 per pound. That is why during this time period, and for years before that when corn was relatively cheap compared to forages, the industry pushed for heavier weaning weights and calves were sent directly to the feedlots where cost of gain were cheaper.
In the 2007-10 time period, Omaha, NE corn price averaged $4.40 per bushel and feedlot cost of gain was projected at $0.74 per pound of gain. During that time period the total cost of gain for the background-grazing program would have averaged $0.75 per pound of gain; essentially equal to feedlot total cost of gain. Under this scenario, I am sure many producers could have used a less expensive winter background ration and had a lower total cost of gain.
With prices over the last four months, corn has averaged $5.42 per bushel and total feedlot cost of gain is projected to be $0.89 per pound of gain. With fall hay prices and projected prices for 2011 grazing, I project a total cost of gain for the background-grazing program of $0.81 per pound.
The point I want to make is this: if a fairly expensive background-summer grazing program costs less to add weight to calves than a feedlot, then there must be a number of different yearling systems that will fit almost any resource scenario and that will now be more profitable than sending lighter calves directly to the feedlot.