Given the emerging biofuels era in agriculture, I've received quite a few phone calls recently from ranchers looking at retaining their weaned calves to grow them on forage-based programs.
My current Projected Planning Prices and Management Information Simulation (PPL-MIS) model suggests a $62/head profit potential for running yearlings (600-800 lbs.) on grass in 2008. But the problem with making spring-born calves into grass yearlings is how to get today's fast-track, spring-born calves to grass-yearling stage without them being too heavy at grass turnout. Modern calves are bred and built to grow, and are just too big by the next year's grass season.
In Wyoming, ranchers target going on grass around May 1 with feeders weighing 600-625 lbs. But how do you grow calves weaned on Oct. 25 for 190-200 days and have them anywhere close to the desired weight to go on grass on May 1?
A profit center analysis
Table 1 summarizes data I compiled for a South Dakota rancher considering a calf grower profit center, and compares it to traditional marketing programs for spring-born calves. While the bottom three lines summarize this rancher's proposed plan for a forage-based grower profit center, the top four lines summarize:
Selling at weaning at 553 lbs.
Backgrounding from 553 to 800 lbs. at a high rate of average daily gain (2.54 lbs.) targeted for a January market.
Finishing those 800-lb. backgrounded calves to 1,250 lbs. in a commercial feedlot for a June harvest.
Feeding as 553-lb. calf-feds to 1,175 lbs. in a commercial feedlot targeting an early May harvest.
Each of these marketing opportunities is evaluated as a separate profit center, which is the economically correct way to evaluate marketing alternatives. Many ranchers, however, erroneously combine the cowherd and backgrounding enterprises into one profit center, which typically leads to erroneous management conclusions.
The buy/sell margins reported in Table 1 project the marketing loss on the original weight going into the feedlot. By multiplying the buy/sell margin times the weight of the animals entering each profit center, you calculate the marketing loss that occurs on the initial weight of the animals. For example, the -$15 buy/sell margin ($114-$129) on the backgrounding profit center suggests an $83 marketing loss (5.53 x -$15) for the initial 553 lbs.
The 66¢ cost of gain (COG) for the backgrounding marketing alternative in Table 1 illustrates the COG for the 247 lbs. added in this particular backgrounding profit center. This COG can be directly compared to the $114 projected selling price to calculate the $118 profit from the pounds added in the profit center.
The profit/head column combines the marketing loss on the initial weight and the profit from the pounds added (-$83 +$118 = $35). I typically use these three numbers (buy/sell margin, COG and profit/head) to summarize marketing alternatives.
Of course, behind each marketing alternative summary is a detailed budget incorporating my latest cattle price forecasts, a set of typical resources used and projected resource costs associated with executing that particular profit center. Space precludes my publishing the detailed budgets here.
Let me summarize the traditional marketing alternatives from my latest planning price projections. The profit/head column in Table 1 shows I project the beef cowherd to generate $31 in earned returns to the unpaid family and operator labor, management and equity capital. This is down substantially from the 2005 and 2006 calf crops.
Backgrounding at a high rate of gain (2.54 lbs./day) is projected to generate another $35/calf.
Backgrounding at a low rate of gain is projected to lose money.
The finisher of these backgrounded calves is projected to lose $53/head.
If enrolled in a custom calf-fed program and pushed hard, the calves would generate a $38/head profit.
Forage-based profit center
Now let's look at the forage-based grower profit center. The biggest problem with marketing this rancher's 553-lb. weaned calves in a forage-based grower program is they become too heavy to take advantage of next summer's grass. These calves were wintered at a 1.25-lb. average daily gain (ADG) for 160 days, with a projected early April weight of 725 lbs. (a month before normal grass turnout). Guess what they would weigh if grown for 198 days and turned on grass on May 1?
I put these 725-lb. feeders on grass (a month early) aiming at 850 lbs. by late June (1.5 lbs. ADG on grass). In late June, the calves then go to a feedlot for harvest in early November 2008.
Based on my model, I project a $52 loss in wintering these calves, a $35 gain for the short time they're on grass and a $70 loss in finishing these feeders off grass. Thus, the economics of executing a forage-based grower profit center based on fast-track, spring-born calves isn't favorable with the current relative prices of weaned calves, and feeder and slaughter cattle.
This suggests the traditional marketing programs are still ranchers' highest profit potential marketing alternatives for marketing of 2007 calves.
Harlan Hughes is a North Dakota State University professor emeritus. He lives in Laramie, WY. Reach him at 701-238-9607 or [email protected].
|Marketing strategy||Buy/sell margin||Cost of gain (COG)||Profit/head|
|Spring calving 2006||ND-FBM-06|
|Sell at weaning||xxxxxxx||$112||$31|
|Backgrounded high ADG||-$15||$0.66||$35|
|Finish backgrounded steers||-$19||$0.74||-$53|
|Grow & finish||-$29||$0.68||$38|
|Forage-based grower profit center — 2007 born calves|
|Winter '07 @ ADG=1.25 lbs.||-$14||$1.05||-$52|
|'07 steers on grass '08||-$2||$0.75||$35|
|Finish '07 grass steers||-$18||$0.76||-$70|