This month, I’ll evaluate post-weaning marketing alternatives for 2013 calves, and I’ll provide a worksheet for readers to do a quick ballpark profit projection.
There are three keys to this process:
- Price your calves at weaning regardless of your marketing decision.
- Generate a set of planning prices to evaluate alternative marketing strategies.
- Have an estimated cost of gain (COG) for each marketing alternative evaluated.
It is all-critical to calculate the annual profit that would be generated by the beef cowherd as if your calves were sold at weaning. My last two columns focused on that analysis.
In my study herd of 250 cows, I calculated a $183/cow profit for the production of 2013 calves. Evaluation of any marketing alternative should be based on the projected “added” profit to that $183 figure.
I’ve talked to many ranchers over the years about marketing alternatives, and we’ve frequently arrived at quite different analyses. I suspect that’s because some ranchers combine the profit from running their beef-cow enterprise with the profit from the marketing alternative they execute. Doing so generally makes any post-weaning marketing alternative positive, which provides a distorted picture. In fact, my analyses suggest that most of the ranch profit in recent years has been made from running the cows, not from post-weaning marketing alternatives.
Alternative marketing strategies should be compared back to the weaning profits. This is done by asking, “How much additional profit is projected to be generated beyond my weaning profit by executing this alternative marketing strategy?”
Note that the emphasis must be on the “additional” profit. You trigger this focus on additional profit by pricing your calves into post-weaning marketing evaluations at the going market price at weaning. Do not use the cost of producing the weaned calves in post-weaning marketing evaluations, which I think many ranchers do.
My last few columns focused on the beef-cow profit center producing 2013 calves. This month, I’ll provide a generalized procedure for evaluating the growing of 2013 calves. First, however, we need a set of planning prices to use in analyzing the marketing alternatives for 2013 calves.
Latest price analysis: My mid-December analysis of Nebraska sale-barn prices again indicates record steer calf prices, though the upward trend in calf prices has slowed. The feeder steer-calf price line for my mid-December feeder-steer price analysis is virtually the same as my mid-November price line. There’s nothing wrong with that, however, as both indicate record calf prices.
Figure 1 presents the mid-December price line for western Nebraska feeder-steer prices: 550-lb. steers averaged 45¢ short of $200/cwt., and 800-lb. feeder steers averaged $166/cwt. USDA reports that calf and feeder-cattle receipts included 63% steers, with nearly 64% of the run over 600 lbs.
Let’s look at suggested planning prices for post-weaning marketing strategies. Since most alternative post-weaning marketing strategies are executed into 2014, I present my current price projections for 2014 in Figure 2. These planning prices are summarized into five critical marketing months, which we’ll use to evaluate a post-weaning marketing alternative.
Let’s first evaluate growing my study herd’s weaned calves in a high average daily gain backgrounding enterprise. We’ll grow them to 800 lbs., and market them as feeders in January 2014. Figure 3 evaluates this marketing alternative.
Figure 2 indicates the buy price for growing these calves would be $201/cwt., and the January 2014 sell price is projected to be $167/cwt. These two prices were entered into the left-hand side of Figure 3. The buy/sell weights and prices are used to calculate the negative $34 buy/sell margin and $187 marketing loss.
The 250 lbs. of gain on the original 550 lbs. from growing these feeders is valued at $418 (250 lbs. x $167/cwt.), which generates a breakeven COG of 92¢/lb. ($231/250 lbs.). But can I actually put on these 250 lbs. of gain for 92¢/lb.? Since my study rancher projects his COG at 89¢/lb., his projected profit is $7.50/head, which we’ll round to $8. What would your COG be?
This suggests that the backgrounding marketing alternative will add another $8/calf over selling at weaning. That’s not great, but it’s positive, at least. Remember that a $183/cow profit has already been confirmed from the beef-cow enterprise, so this $8/calf is added profit.
Figure 3’s right-hand section will allow readers to evaluate their projected profit. For example, let’s say you can grow your calves on grass rather than backgrounding them in a lot for a projected COG of 72¢/lb. If your buy/sell margin stays at the projected $34, your projected profit would be $50/head. If the buy/sell margin goes to a minus $29 in your region, your profit is projected at $77.50/head.
I’ve generalized Figure 3 to allow readers with their own planning prices and COG projections to enter their figures and project their profit per head from growing 2013 calves. By doing this, you can quickly generate the “added” profit projections from your set of alternative marketing strategies tailored to your ranch. Give me a call and let’s discuss your numbers.
Harlan Hughes is a North Dakota State University professor emeritus. He lives in Kuna, ID. Reach him at 701-238-9607 or firstname.lastname@example.org.
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