Given the global events of the past six months, marketing your 2001/2002 calves has to be the ultimate marketing challenge. Consider three key events:
The outbreak of bovine spongiform encephalopathy (BSE) in Japan resulted in an immediate 50% drop in Japanese beef consumption. U.S. exports were already under pressure due to the weak Japanese economy. After the outbreak, December U.S. beef shipments to Japan fell 34.7%.
In the aftermath of the Sept. 11 terrorist attack, consumers quit traveling and beef consumption dropped dramatically in restaurants.
Losses in these two, high-value markets have driven down domestic carcass values. Decreasing carcass values have, in turn, pulled slaughter cattle prices down.
The third key marketing event was cattle feeders' response to the drop in slaughter cattle prices. U.S. and Canadian cattle feeders responded by holding cattle, thus generating record carcass weights (Figure 1) and increasing beef supply.
Taken together, these three factors both increased beef supply and reduced beef demand.
Depressed slaughter cattle prices have generated huge equity losses in U.S. and Canadian cattle feeding. In the U.S., we already have one large feedlot system up for sale — National Farms with its 270,000-head capacity in seven feedlots. This may be just the tip of the iceberg.
Calf Producers' Dilemma
In the midst of all this, beef producers must market their 2001 calves and plot market strategies for their 2002 calves. Let's take a look at what producers might expect.
We'll begin by looking at my most current projected profit projections for marketing 2001 calves. Using these projections to evaluate traditional production/marketing alternatives for 2001 calves, we'll then compare the projected profits to actual profits generated from marketing year 2000 calves.
As a study herd, I use a typical Northern Plains (Integrated Resource Management) IRM beef cowherd running 153 cows with a 92% calf crop. This herd has a $70 average unit cost of producing a hundredweight of calf.
The top half of Figure 2 summarizes the actual production/marketing profits for my study herd on year 2000 calves. The table's bottom half presents the projected profits for this same study herd marketing 2001 calves, with various marketing alternatives represented by each line.
The first line in Figure 2's bottom half is selling at weaning. Year 2001 steer calves in the Northern Plains averaged $94/cwt. The calculated profit (earned net returns) for this herd selling at weaning is $113/cow or $17,221 for the 153-cow herd.
The second line transfers these 2001 calves into a backgrounding profit center (at the $94 weaning price). Grown at a high average daily gain (high-ADG) for sale at 800 lbs. and at $78/cwt. in January 2002, this profit center generated a negative $6/head. That reduces total earned net returns from 153 cows to $16,338.
The third line represents backgrounding at a medium average daily gain (med-ADG). This option pulled the total earned net returns from the 153-cow herd down even more to $12,807.
Line 4 summarizes the finishing of the high-ADG backgrounded calves. These calves went into a finishing profit center weighing 800 lbs. and valued at $78/cwt. They were harvested at 1,200 lbs., valued at $70/cwt. This profit center is projected to generate $38/head profit, leading to a total earned net returns from the 153 cows of $22,498.
Line 5 represents “calf-feds” originally targeted for the April seasonal high slaughter market but which ended up selling in late May for $72/cwt. This profit center generated the highest earned net returns from the 153 cows at $27,268. A weaning date 30 days earlier would have hit the April target and would have generated even higher projected earned net returns.
Line 6 represents running purchased yearlings on grass with $92 calves going on grass and $78 feeders coming off grass. This negative $14 projected buy/sell margin generates a projected breakeven situation.
In summary, the projected optimal traditional marketing program for 2001 calves generates $164/cow through a calf-fed profit center targeted to the April seasonal high market price. A total of 69% of these optimal marketing dollars were earned from the beef cow profit center, and 31% are projected to come from the calf-fed profit center.
For comparison purposes, the optimal production/marketing program for 2000 calves (top of Figure 2) generated an earned net return of $159/cow ($124 + $35). Obviously, the key to high beef cow profits is identifying the optimal marketing program early on. That's not an easy task to accomplish in these times of changing beef supply and beef demand.
What About 2002 Calves?
Figure 3 presents my Northern Plains price-line projection for fall 2002 feeder steers with comparative price lines for four previous falls. Fall prices are defined as October's monthly average Northern Plains prices.
February 2002's projections suggest that 500- to 600-lb. feeder steers in fall 2002 should range from $97-$113 with 550-lb. feeder steer calves averaging $104/cwt. (tan-tinted box in Figure 3). This is up $10 from the October 2001 Northern Plains $94 monthly average price.
The primary driving force for these stronger 2002 calf prices is the cattle cycle's projected reduced beef supply generated by a diversion of heifers from feeding to breeding. All that's needed to trigger this heifer diversion is green grass in cow country.
Harlan Hughes is a North Dakota State University professor emeritus. Retired in 2000, he lives in Laramie, WY. Reach him at 701/238-9607 or [email protected].