What's your “optimal” marketing strategy for your 2009 weaned calves and 2009 grass cattle? The late June price charts suggest dramatic change in the livestock markets. For example, feeder-cattle prices were strong around grass time (May 2009) but fell in early June. After a dramatic fall in feeder prices in late May and early June, tumbling corn prices led to a substantial increase in feeder-cattle prices.
I currently project a $118 weaning price for fall 2009, 550-lb. weaned calves leading to a projected $81/cow earned net return when selling at weaning (Figure 1). This is the highest earned profit projection I've generated so far this year for selling 2009 calves at weaning.
Clearly, the markets are transferring profit potential from the cattle-feeding sector to the beef cow sector. This is good for ranchers but not for backgrounders, stocker operators and cattle feeders.
Corn prices were trending upward from March 2009 into early June. Then USDA reported in late June that U.S. farmers had planted an extra million acres of corn over last year — the second-largest corn crop ever planted. Corn prices tumbled and costs of gain (COG) beyond the ranch gate changed overnight.
My latest monthly market analysis projects COG for retaining 2009 calves may now be only in the high $60s or low $70s; unfortunately, cattle market price adjustments still compel me to project a $34 loss with retained ownership of 2009 calves (Figure 1). This projected $34 loss is really a beef cow profit center subsidy to the retained ownership profit center.
Two key points exist in deciding how to market weaned calves.
Don't transfer your weaned calves into post-weaning profit centers at “cost of production” for the weaned calves; use their “market value.” It's critical that weaned calves be priced so as to identify their optimal marketing strategy; otherwise, you can't know whether you're subsidizing the retained ownership profit center.
Traditional backgrounding of 2009 calves to sell as 800-lb. feeders after the first of the year is still projected as unprofitable. My analysis suggests $119 calves going into the background lot and $92/cwt., 800-lb feeders coming out. The negative $27 buy/sell margin for backgrounded calves just can't be offset with 68¢ COG. I calculate a $94/head loss for calves backgrounded at a 2.5-lb. average daily gain.
June live-cattle futures prices peaked in early January and trended lower into June. Live-cattle prices, however, turned up to finish in the mid $80s by the end of June. Thus, I project a buy/sell margin for retained ownership of 2009 calves at a -$29. A 69¢ COG just can't override this projected $159 marketing loss in the initial 550-lb. weaning weight.
I have retained calves being marketed in May 2010 (missing the April 10 seasonal high price) at $90/cwt. A $2.90 price premium is needed to project a breakeven with retained 2009 calves. For those with quality cattle, this premium might be a possibility, but feeding cattle to breakeven isn't very exciting.
Given recent changes in the corn and cattle markets, I still predict negative buy/sell margins to eat up all profits gained in adding weight beyond weaning. Feeder cattle are still over-priced relative to slaughter cattle given current corn prices. I suggest ranchers seriously look at selling at weaning.
Let's look at marketing options available for yearling steers currently on grass. Figure 2 presents suggested planning prices covering all of 2009. The “Spring 09” prices were used to price steers going on grass in the spring; the “Sep 09” prices were used to price long yearlings off grass. This suggests 660-lb. grassers going on grass at $112 and 850-lb. feeders coming off grass at $87. In turn, these 850-lb. feeders were finished in a custom feedlot with a harvesttime price of $90. These two marketing alternatives are summarized in Figure 3.
The buy/sell margin for the grass cattle is projected at -$16 and the COG on grass is 53¢/lb. gained. Once again, the large negative buy/sell margin negated the profit from the gain. These grass cattle are projected to generate a -$14 earned net return.
The person who buys these steers off grass is projected to earn a $35/head profit finishing them in a commercial feedlot. This is profitable due to the projected smaller negative $7 buy/sell margin. If the same person owns the grass cattle and finishes them, I project a $21 (-$14 + $35) profit/head from grazing and finishing 2009 grass cattle.
In summary, I project a small positive profit from running short yearlings on grass and finishing them this year. Maybe, just maybe, profits are ever so slowly returning to the post-weaning profit centers.
Check out my 2009 grass cattle finishing budgets at beefmagazine.com.
See Figure 4
Harlan Hughes is a North Dakota State University professor emeritus. Reach him at 701/238-9607 or [email protected].