October 27, 2008
What a year – after paying record input prices for everything needed to raise a crop, the price drops substantially at harvest. Is this a function of the world economic crisis? Maybe, but it seems to happen every year to some extent. Now that many of you are ready to sell calves, that market has also taken a substantial downward turn.
In past articles we have discussed ways to decrease cost of production or increase dollars returned from each cow-calf pair you raise. One important way to increase value is through retained ownership of your calves all the way to slaughter. Cattle-Fax data shows that producers will make additional dollars five years out of six through retained ownership. This assumes you market on a normal cash market. If you have cattle which fit the grids, gain well, or are utilizing electronic identification, you gain 100 percent of the premiums paid at slaughter. Data also indicates most large herds in the United States retain ownership of their calves.
Here in South Dakota we have been at a definite disadvantage in retained ownership although our cattle quality is excellent. The primary problem was a slaughter house. With the closing of the bovine slaughter houses in South Dakota and most of the neighboring states we have been forced to transport our animals great distances. The high cost of transportation ate up most of the premiums we received. Our ‘light at the end of the tunnel’ is the new packing plant in Aberdeen. Hopefully it will be finished soon and help local producers reap benefits from the cattle they raise.
Secondly, there are few large feedlots in South Dakota. Government environmental programs have allowed several of my clients and others to build or improve feedlots. These lots are small, and run by your neighbors. They allow us to finish our cattle, feed our grain and market a finished product in the state greatly increasing our infrastructure and state economy while minimizing transportation expenses. Most of these small lots allow you to deliver your own grain to feed your calves. Hopefully we can develop a network of producers and feedlots willing to finish cattle locally.
The primary holdup in retained ownership is, “That’s just not the way we do it.” In the days when most of my clients were raising feeder pigs for a secondary income, it became evident that they were very susceptible to market swings. Swine producers who finished their hogs seemed to be more successful in handling the market swings and staying profitable. Most cow-calf producers are similar to these feeder pig producers.
Sometimes your banker can’t see the benefits. Now interest is relatively low and if we can keep those calves within the state hopefully they will be more helpful. One of my top end producers argued with his banker for years to retain ownership and finish his calves. Finally he ignored the banker and sent the calves to Kansas. When the producer took the check for finished cattle to deposit the banker said, “That’s the best idea we’ve had in a long time.” The calves have gone south every year since that day.
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Many of you background your calves to add extra pounds but need your pens for cow housing after the first of January. Now you are penalized because your calves are carrying ‘extra flesh.’ Rather than fight the market, take these calves to a close lot and finish them. These calves shouldn’t miss a day of feed. One of our larger producers backgrounds his own and purchases a large group of westerns. Around the first of January all these calves have moved to Nebraska. He has received good profits.
Retained ownership is a good way to increase value of your calves. Several changes in cattle production here in South Dakota have made it much easier to accomplish while locking in your inputs and your market prices. Hopefully you and your banker will agree on a strategy allowing you all the added value in your calves.
dave barz is a veterinarian at northwest veterinary supply in parkston, sd.