Feeding the calf crop
September 25, 2009
The cattle industry continues to be a dynamic and complex industry providing plenty of challenges and opportunities to producers. A year ago when cattle were selling in the mid 90s and a lower number of beef cows were in inventory, economic projections for this fall looked really good for both the cow-calf producer and the feeder. Unfortunately those predictions did not materialize.
Dr. Dillion Feuz, Economist at Utah State University, has discussed reasons why the predictions were so far off but basically it seems, as with everything else, blame it on the economy. We have of course seen tremendously low competing pork and poultry prices making it difficult to support higher beef prices. Jim Robb, Economist with Livestock Marketing Information Service of Denver, CO, recently commented at the University of Nebraska Gudmundsen Laboratory field day that, yes, the recession has ended or nearly ended, but warned those in attendance that it may be a year or longer before it would be reflected in agriculture. After looking at the tremendous losses the feeding industry has encountered the past three years it leaves little wonder why they are not currently excited to pay high prices for feeder cattle or calves. The comment is often made “we are not buying calves unless there is a clear view of profit this year.”
This may be a year where feeding your calves or at least a portion may offer some opportunity. I realize that tax implications is a part of the decision but calculated projections look pretty favorable this fall with current market conditions. As with any projections they are based on assumed costs – especially corn cost and the value of the feeder calf, plus of course, the sale price when finished – however future contracts allows for some of these risks to be minimized. It appears that we have a tremendous corn crop in the making and if harvest goes as planned it appears plenty of corn will be available for livestock feed and many feel the price may not be much above $3/bu. The ethanol market and export markets can swing the corn price rapidly, however currently they appear too lack luster. I don’t see much relief on the retail side of beef soon, unless a great export market develops, as we don’t see much, if any, cut back from competitive meats and as Dr. Feuz discussed last week, even though we see fewer fed cattle harvested we see higher carcass weights so we present about the same quantity of domestic beef to the consumer.
If I assume a 550 pound steer is valued at $1.10 a pound and can buy corn to feed the calves at $3 per bushel it looks to me like calves could make between $35-$50 per head if sale price is assumed to be June futures, minus basis. This assumes a cost of gain of $58 which includes $3 corn delivered, $.35 daily yardage, one percent death loss plus $17 added miscellaneous cost and seven percent interest on the value of the calf and half the feed and adding 650 pounds of gain from weaning to harvest. These assumed costs add a total of $374 to the value of the calf leaving the total value of the 1,200 pound calf to be $979 or needing $81.60 to break even.
If June futures of fed cattle are discounted $1.50 for basis (a critical figure) the sale price of the 1,200 pound calf would be $84.50 leaving a $35 profit. This assumes the cattle will sell at average price.
Many producers talk of their superior genetics plus the value of country of origin labeling which together may add another $50 to the sale of the fed animal that may not always be fully reflected in the price of feeder cattle. This is only one projection at one point in time. It is important for each producer to calculate their own break even and projected profit. Fortunately feedlots are more than happy to assist in calculating breakevens based on their feedlot performance. Feed industry specialists, extension beef specialists, some lending institutions, plus others are willing to assist also.
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Many producers are adverse to the risk of feeding their own cattle but much of this risk can be minimized with the futures markets or contracts plus many feedlots are willing to work some type of a partnership to allow only a portion of ownership. Of course as you ask others to assume a portion of the risk you also give up some profit potential but if profits are locked in it is difficult to go broke.
Plenty of grass appears to be available for fall and winter grazing, however, because much of it grew to fairly rank and mature stages its protein will be lower than in previous drought years leaving the potential need for protein supplementation. If you are planning to purchase protein supplement this winter it appears now may be a good time to price supplements and perhaps lock in at least some of it by contracting. Hope weaning goes well for all.