Supposing that you still have some calves left to sell — and never minding the assorted risks associated with keeping them longer — cow-calf producers still have a chance to net extra dollars by adding pounds to cattle between weaning and marketing.
“As long as heavy feeder prices remain at current levels, stockers are relatively underpriced, and the value of gain provides an opportunity for stocker production,” says Derrell Peel, Oklahoma State University Extension livestock marketing specialist.
For example, consider the potential of putting 250 lbs. on a 525-lb. steer worth $262/cwt. In this case, you might look at January-March feeder cattle futures, adjust for your local basis and figure a sale price of $218. The value of gain is $1.26/lb. (see example), which is calculated as the difference between the purchase price on one side of the equation and the selling price on the other, divided by the additional weight. The difference between the stocker value of gain and the stocker cost of gain are the potential dollars that can be had by adding the weight.
As Peel explains, the potential value of gain depends on the overall feeder price level, along with the price spread (rollback) between the purchase price of the stockers and the selling price of the feeders.
Peel points out stocker value of gain is usually a close reflection of feedlot cost of gain. Yet, by late summer, he explains, feedlot cost of gain declined to 80¢-85¢/lb. He adds that the expected record corn crop will likely push that price lower by another 10¢-15¢/lb.
That was before the September USDA World Agriculture Supply and Demand Estimates increased projected corn production to 14.39 billion bu. and reduced the season-average farm price to $3.20-$3.80/bu.
Stocker value of gain and feedlot cost of gain often regain equilibrium by virtue of stocker prices increasing relative to the price of heavy feeders, or by feeder prices declining relative to stocker prices, or by some combination of the two, Peel says.
“More often than not, with feed prices falling, lightweight stocker prices will rise until the value of gain drops to near the level of feedlot cost of gain,” Peel explains. “This happens because feedlots are willing to feed lighter animals when feed prices are lower. This additional demand for lightweight animals would push stocker prices beyond current record levels.”
Current reality suggests there may not be much room for calf prices to move lower, however.
“Stocker prices typically decrease seasonally in the fall, but the possibility of decent winter grazing prospects, combined with the likelihood of cheaper feed driving stronger feedlot demand for lightweight placements, may keep stocker prices steady or stronger this fall,” Peel says.
Prices for heavy feeder cattle could decline enough to bring stocker value of gain back into closer alignment with feedlot cost of gain, but that seems iffy, too.
“Though it is more common to have stocker prices adjust, heavy feeder prices are extremely high at the current time,” Peel says. “Heavy feeders placed today have feedlot breakevens of $165/cwt. or higher. These breakevens are well above live cattle futures levels this fall. That said, the reason heavy feeders are overpriced is because of the extremely limited supply of feeder cattle relative to feedlot demand, a situation that is not likely to change this fall.”
So, the sheer dearth of cattle and elevated price levels may keep stocker value of gain at a significant premium to feedlot cost of gain.
“Unless or until stocker prices push significantly higher this fall, the relatively high value of gain for stockers may persist for some time, with markets unable to correct feeder price relationships as quickly as normal,” Peel says.
Value of gain example:
Steer purchased at $262/cwt. and 525-lb. steer sold at 775 lbs. for $218/cwt.
Purchase price (525 lbs. X $2.62/lb. = $1,375.50) — sell price (775 lbs. X $2.18/lb. = $1,689.50) = $314.
$314÷ 250 lbs. of added weight = $1.26/lb.
You might also enjoy: