As we progress further and further through 2016, it becomes more and more apparent that the economics of running a beef cow herd in 2016 for a profit is going to be tough. As of late July, feeder cattle futures prices suggest that feeder calf prices are under considerable pressure well into 2017 (Figure 1). This does not bode well for beef cow profits with the production and selling of 2016 weaned calves.
Figure 2 presents my current price projections for fall 2016 weaning of 550-pound steer calves at $163 per cwt. This compares with $223 for the October 2015 weaning price. Figure 2 presents my price projections through spring 2017. The red numbers in Figure 2 are used in my grass cattle budgets.
What about production costs of my eastern Wyoming-western Nebraska study herd? I track Nebraska grass hay prices on a monthly basis (Figure 3). Since July 2013, the price trend has been downward, averaging about $80 per ton in 2016.
My calculated cost of gain on calves weaned has averaged $1.57 per pound of calf gain in 2014, $1.82 per pound gained in 2015, and a projected $1.54 per pound cost of gain in 2016. The big factor causing the change in my calculations has been the cost of replacement heifers.
The low market price projection in Figure 2 and the production costs just discussed suggest a projected earned net return of $29 per cow in 2016 for my eastern Wyoming-western Nebraska study herd, selling at weaning. This compares to $204 per cow in 2015 and $808 in 2014. The economics of beef cowherds in this current cattle cycle is changing — and changing fast.
It is not just beef cow producers who are facing a challenge this year. My current budget for running short yearlings on grass in 2016 with a projected sale price of $137 per cwt shows a projected negative return for 850-pound grass yearlings. A second budget for finishing these steers coming off grass in late September and slaughtered in February 2017 at 1,300 pounds at a projected sale price of $107 per cwt is also projected with a negative return.
This is a year for ranchers to focus on other marketing alternatives. As in previous cattle cycles, as calf prices turn downward, ranchers need to explore some form of retained ownership beyond weaning. My analysis suggests this appears to be another one of those years.
Figure 4 summarizes my current projections for my study herd of four different marketing alternatives for 2016 fall-weaned calves:
- Sell at weaning.
- Background in dry lot with a cost of gain at 61 cents per pound and selling at 875 pounds in February 2017.
- Custom finish these 875-pound feeders with a cost of gain at 69 cents per pound and harvest at 1,300 pounds in June 2017.
- Custom grow and finish weaned animals with cost of gain at 58 cents per pound, and sell at 1,300 pounds in May 2017.
The key to evaluating post-weaning marketing alternatives is to price your feeders at each step of the marketing program and calculate your profits for each marketing step. Do not subsidize the next marketing step with the profits of the previous step. I am convinced this goes on in a lot of coffee shops.
These marketing alternatives are additive. That is, weaned calves are projected to generate a $29 profit per cow (not per calf) for my 250-cow study herd, generating a projected herd net return of $7,157.
If my study herd’s weaned calves are assumed sold to the backgrounding enterprise at market price, current projections are to generate another $37 per calf (or $7,157) by growing them from weaning to 875 pounds and then marketing them.
If these 875-pound background calves are sold at market price to the custom finishing enterprise, they are projected to lose $34 per head (a minus $7,809) for my study herd.
If the weaned calves are custom grown and finished in the same custom feedlot, they are projected to finish earlier, are projected to hit a better May 2017 harvest price, and generate another $102 per head ($21,579). He who can produce slaughter cattle in May tends to win year in and year out. Easier said than done.
In summary, backgrounding or custom growing and finishing of 2016 calves gets my attention as a marketing program this fall. What do your numbers show?
Harlan Hughes is a North Dakota State University professor emeritus. He lives in Kuna, Idaho. Reach him at 701-238-9607 or [email protected].