Given the rightful wonderment surrounding this year’s drought and its game-changing potential, it pays to keep in mind that value of gain also ratchets up with grain prices as the market seeks pounds outside the feedlot.
In early August, Stan Bevers, Texas AgriLife Extension agricultural economist, ran a budget for fall stockers on wheat pasture. With pasture cost of gain penciled in at $60/cwt., the value of gain was staggering.
Derrell Peel, Oklahoma State University Extension livestock marketing specialist, explains value of gain averaged around $55-$60/cwt. between 1992 and 2006. It has hovered around $100 since then, and well north of that in many cases.
“I think the drought may be exaggerating that a bit currently, but I think the overall incentive to put weight on cattle outside of the feedlot will continue to be there going forward,” Peel says. “It means lots of opportunity for people who control forage.”
At the end of July, Peel offered the following example: Steers weighing 525 lbs. were averaging about $140/cwt. in Oklahoma. Adding 225 lbs. at 1.5-2.0 lbs./day would generate a 750-lb. steer by November. The November Feeder Futures price at the time was $144.90/cwt. With a zero basis, the gross margin was roughly $350/head or a value of gain of $1.56/lb.
“The extent to which this is a good market opportunity depends on the cost of production, but even with relatively expensive feed costs, a cost of production well under this value of gain is likely,” Peel explained.
Currently, the collapsing price roll-back between some weight classes offers added opportunity.