My current monthly planning prices suggest that the key to post-weaning profits in marketing 2002 calves is harvest timing. For example, early-weaned calves placed in a feedlot in mid-September and pushed hard with a target harvest date in early April 2003 are projected to generate $83 profit/head. Contrast this with similar calves weaned in late October, then placed in an aggressive feeding program with a late May target harvest date. These calves are projected to generate a $41 profit/head.
The reason for the price difference is market timing. One group of calves is targeted for harvest at the seasonal price peak, while the other is targeted for harvest after the seasonal price peak.
The beef industry needs to borrow a term from crops people and talk about marketing “new-crop” cattle (calf-feds) versus “old-crop” cattle (2001 yearlings). We tend to run out of old-crop cattle to market in the first quarter of the year. The number of 2001 yearlings on grass in 2002 was below normal. Thus, we should have fewer old-crop cattle to harvest in the fourth quarter of 2002 and particularly the first quarter of 2003.
Indeed, the current lower cattle on feed numbers are causing market analysts to project some price strengths in slaughter cattle during these two quarters. As this is written in late September, April 2003 Futures were above $73/cwt.
The key to profitably marketing 2002 calves is to be the first to market new-crop 2002 calves as slaughter animals. As the slaughter harvest of 2002 calves progresses beyond April 2003, harvest numbers will increase substantially, and seasonal prices will turn downward into the summer slump.
Based on past industry experiences, most 2002 calves will be harvested in June-August 2003. Economic rewards, however, go to producers who participate in a production system that harvests cattle some time other than June, July and August.
The first new-crop calves, fall calving, summer calving and running summer yearlings on grass are all alternative production systems with higher profit potential. Traditional spring-born calves harvested during the summer 2003 don't have as much profit potential.
Spring-born calves dominate the U.S. beef cowherd, with those calves mostly being harvested the following summer. Bunched calving leads to bunched marketings, a traditional marketing pattern that isn't a recipe for generating high profits from spring-born calves.
Seasonal Patterns Are Important
The economic tool for planning marketing timing is seasonal price patterns. A seasonal price pattern is based on average prices summarized over several years.
Figure 1 presents seasonal price patterns based on 1985-1994 prices. Three market indices are presented — West Fargo, ND; Omaha, NE; and northern Texas. Note that all three markets representing the Northern Plains, Central Plains and Southern Plains follow a very close seasonal pattern.
There's been a dynamic shift in the seasonal price peak time period over the years. Figure 2 illustrates two seasonal price patterns — one calculated for 1975-1984 and another for 1985-1994. In the earlier time period, the price peak occurred in May. In the later one, the peak came in April.
When the seasonal price peak was in May, astute cattle feeders recognized this and tried to be the first to market new-crop cattle in April. But in the past two years, prices have peaked in March. Some cattlemen have reacted and were financially rewarded by producing new-crop cattle in March the past two years.
Additional seasonal price patterns for feeder cattle, cows and bulls are available at http://www.ext.nodak.edu/extpubs/agecon/market/ec763w.htm. I encourage ranchers to integrate seasonal price patterns into their production and marketing programs.
The Right Stuff
Calf feds placed on an aggressive feeding program in September have a chance of hitting the projected April seasonal highs. By aggressive I mean a target average daily gain (ADG) of 2.5 lbs./day or higher while growing the calves and a 3.25 lbs. ADG or higher when in the finishing phase for a 2.9 or higher total post-weaning gain.
Calves placed on an aggressive program in October tend to be harvested in May, but May's average seasonal prices are lower than April's. The financial rewards are not as high for May harvested cattle, and profits are typically even lower for those harvested in June, July and August.
Typical Backgrounding Programs
Let's take a look at a typical Northern Plains backgrounding program. Fast-track calves are weaned in late October and placed in a backgrounding program with a target of 1.5 lbs. ADG. The target is 1.5 lbs ADG because that's the gain obtained with the quality of feeds the rancher has in inventory.
Northern Plains ranchers generally background with their own farm-raised feeds rather than sell their lower quality feeds and buy back the high-quality feeds that would emphasize the genetic potential of their fast-track cattle. The net result of this slowed growth is that it ensures that whoever owns their calves at slaughter harvests them in June, July or August during the seasonal price lows.
Given this typical Northern Plains production system, my budgets project these 2002 calves to reach their 800-lb. target marketing weight in early April 2003. The cattle feeder that buys these April feeders will harvest them 120 days later — a projected August harvest date.
In addition to marketing at the seasonal low, my analysis suggests that backgrounding for a 1.5-lb. ADG is a high-cost production system. High costs and low harvesting prices are not a good recipe for high post-weaning profits.
A more profitable strategy would be to background for a higher target ADG — even if it means selling low-quality feeds to buy back higher quality feeds that can emphasize the cattle's fast-track genetics. Timing is what it's all about!
Harlan Hughes is a North Dakota State University professor emeritus. He lives in Laramie, WY. Reach him at 701/238-9607 or [email protected].