Modest gains in the SEP, OCT, and NOV 10 have been largely followed by a lagging cash market. If this lag continues this week, expect some really good buys, especially in the heavier classes. I can't imagine however, that this cash market is going to continue to lag behind board this much so be looking to move early in the week.
As has been the case over the last month, mid- to heavy-weight heifers have been moving at fire-sale prices. I expect this trend to continue, but they might be a little more spendy by the end of the week. When you are looking at $75-$100+/head profits on mid- to heavy heifers, I can't see this yard sale lasting much longer.
The other thing to watch for is light heifers and steers, they are overvalued for the most part as far as grass and backgrounding goes. If you are looking to feed fat cattle they may pencil for most. But if you are in for a short-turn around, I'd steer clear for now.
Buy steers, medium 1, 626# @ $121.00
Lock 'em in on the NOV 10 @ $112.65
Grass for 65 days @ $0.72/day
Feed for 60 days @ $0.70/lb of gain
Sell at 864#
Breakeven: $107.74
Profit $42.34/head less basis and commissions
Buy steers, medium 1, 842# @ $110.39
Lock 'em in on the NOV 10 @ $112.65
Grass for 65 days @ $0.72/day
Feed for 60 days @ $0.70/lb of gain
Sell at 1029#
Breakeven: $105.27
Profit $72.79/head less basis and commissions
Buy heifers, medium 1, 664# @ $117.25
Lock 'em in on the NOV 10 @ $112.65
Grass for 65 days @ $0.72/day
Feed for 60 days @ $0.70/lb of gain
Sell at 876#
Breakeven: $107.66
Profit $43.65/head less basis and commissions
Buy heifers, medium 1, 766# @ $110.65
Lock 'em in on the NOV 10 @ $112.65
Grass for 65 days @ $0.72/day
Feed for 60 days @ $0.70/lb of gain
Sell at 953#
Breakeven: $105.07
Profit $72.18/head less basis and commissions
Buy heifers, medium 1, 830# @ $104.50
Lock 'em in on the NOV 10 @ $112.65
Grass for 65 days @ $0.72/day
Feed for 60 days @ $0.70/lb of gain
Sell at 991#
Breakeven: $102.46
Profit $100.97/head less basis and commissions
The last thing I'd look for this week is this scenario: A pretty fair jump in the NOV 10 early to mid-week and a lag in the cash. This scenario woudl be ideal for a grass/backgrounding outfit with potentially $100+/head profits. It will be a very small window to act upon but if that window opens, be prepared to cash-in on it. I would look for a $2.50-$3.00 jump on the board with little to no movement in the cash market. I think the mid- to heavy-weight calves are still going to work best and heifers might do a little better than steers in this scenario.
Example:
Buy heifers, medium 1, 766# @ $110.25
Lock 'em in on the NOV 10 @ $115.42
Grass for 65 days @ $0.72/day
Feed for 60 days @ $0.70/lb of gain
Sell at 991#
Breakeven: $102.46
Profit $128.42/head less basis and commissions
A big spread between the board and the cash may or may not happen, but if it does, I would look for this type of scenario.
Monday, June 28, 2010
Friday, June 25, 2010
Backgrounding Calves
A conversation from earlier this week:
Rancher: "Why is it that so many West River ranchers background their calves every year and most East River ranchers don't?"
Me: "The market won't pay for what East River ranchers are backgrounding their cattle on."
Rancher: "Well, we have all the feed here and they have little to none extra out there and ours is a lot cheaper."
Me: "It's cheaper per unit, but E. River ranchers are feeding too much of it for what they are getting on the return."
So we went on to discuss the core economic conundrum of what he was asking, which is a really good question and as he pointed out, is a little counter-intuitive until you have a full grasp of what the market will pay for and what it won't.
Example:
650# East River weaned steers off the cow goes straight to the lots and are fed a backgrounding ration for 90 days.
East River guys typically shoot for about 3 lbs. of gain per day. Why? Because that's what cattle feeders do...and here-in lies the problem. The market won't pay for what it costs them to put 3 lbs./day on those calves. Data from the 2008 SDSU Cow-Calf Business Report shows that the average gain for backgrounders East River is 2.76 lbs./day at a cost of $0.69/lb.
2.76 lbs./day x 90 days = 248 lbs. of gain
248 lbs. of gain x $0.69/lb. = $171.39
650 lb. weaned steer + 248 lbs. of gain = 898 lbs. (Today the market is paying about $103.50)
248 lbs. of gain x $103.50 = $256.68 gross return on gain/head
$256.68 gross return on gain - $171.39 total cost of gain = $85.29 net return on gain/head
Now let's look at a typical West River system:
650# weaned steer off the cow goes straight to the lots and fed a backgrounding ration for 90 days.
West River guys typically shoot for about 1.5 lbs./day gain. Why? That's all the feed they have on hand will produce and most won't buy supplements to increase gain because they have learned indirectly that the market won't pay for it anyway.
So we'll call it 1.5 lbs./day at $0.52/lb of gain ($0.35/day).
1.5 lbs./day x 90 days = 135 lbs. of gain
135 lbs. of gain x $0.52/lb of gain = $47.25
650 lb. weaned steer + 135 lbs. of gain = 785 lbs. (Today the market is paying $115.17)
135 lbs. of gain x $115.17 = $155.48 gross return on gain/head
$155.48 gross return on gain - $47.25 total cost of gain = $108.22 net return on gain/head
In summary,
East River net return on gain was $82.21/head
West River net return on gain was $108.22/head
Both of the net returns on gain in this example are pretty good, but when you consider that a $0.69/lb. cost of gain is just an average and there are some who are running a COG of $0.80/lb. of gain, it's no wonder some of these calves don't get backgrounded.
So how did the West River calves have a higher net return on the gain with less total gain?
It is simply a function of how the gain put on the calves is valued in the market place compared to what it cost to put the gain on.
So the WR calves had a cheaper cost of gain and that gain was valued higher in the market place.
In fact, to get the same economic performance, the ER calves would have needed a $0.60 cost of gain to net the same return as the WR calves, eventhough they were outperforming them nearly 2:1.
The two biggest miscalculations guys make when backgrounding calves is, 1) how to value the gain they put on and 2) the difference between gross and net.
We just looked at valuing the gain in the example above, however, the common mistake is looking at gross return per head rather than net return on the value of the gain.
Example
If you take the ER and WR calves from the example above after the 90 day backgrounding period and calculate gross return:
ER - 898 lbs. @ $103.50 = $929.43
WR - 785 lbs. @ $115.17 = $904.08
So on a gross return basis, of course the heavier cattle gross more because they are heavier. But gross says nothing about what it cost to get to that weight.
So when you think about backgrounding your calves consider how your cost of gain is going to be valued in the market place. Feeding cheaper feed and sacrificing performance can actually improve the economic efficiency in some situations. That is where the money is made in backgrounding.
Rancher: "Why is it that so many West River ranchers background their calves every year and most East River ranchers don't?"
Me: "The market won't pay for what East River ranchers are backgrounding their cattle on."
Rancher: "Well, we have all the feed here and they have little to none extra out there and ours is a lot cheaper."
Me: "It's cheaper per unit, but E. River ranchers are feeding too much of it for what they are getting on the return."
So we went on to discuss the core economic conundrum of what he was asking, which is a really good question and as he pointed out, is a little counter-intuitive until you have a full grasp of what the market will pay for and what it won't.
Example:
650# East River weaned steers off the cow goes straight to the lots and are fed a backgrounding ration for 90 days.
East River guys typically shoot for about 3 lbs. of gain per day. Why? Because that's what cattle feeders do...and here-in lies the problem. The market won't pay for what it costs them to put 3 lbs./day on those calves. Data from the 2008 SDSU Cow-Calf Business Report shows that the average gain for backgrounders East River is 2.76 lbs./day at a cost of $0.69/lb.
2.76 lbs./day x 90 days = 248 lbs. of gain
248 lbs. of gain x $0.69/lb. = $171.39
650 lb. weaned steer + 248 lbs. of gain = 898 lbs. (Today the market is paying about $103.50)
248 lbs. of gain x $103.50 = $256.68 gross return on gain/head
$256.68 gross return on gain - $171.39 total cost of gain = $85.29 net return on gain/head
Now let's look at a typical West River system:
650# weaned steer off the cow goes straight to the lots and fed a backgrounding ration for 90 days.
West River guys typically shoot for about 1.5 lbs./day gain. Why? That's all the feed they have on hand will produce and most won't buy supplements to increase gain because they have learned indirectly that the market won't pay for it anyway.
So we'll call it 1.5 lbs./day at $0.52/lb of gain ($0.35/day).
1.5 lbs./day x 90 days = 135 lbs. of gain
135 lbs. of gain x $0.52/lb of gain = $47.25
650 lb. weaned steer + 135 lbs. of gain = 785 lbs. (Today the market is paying $115.17)
135 lbs. of gain x $115.17 = $155.48 gross return on gain/head
$155.48 gross return on gain - $47.25 total cost of gain = $108.22 net return on gain/head
In summary,
East River net return on gain was $82.21/head
West River net return on gain was $108.22/head
Both of the net returns on gain in this example are pretty good, but when you consider that a $0.69/lb. cost of gain is just an average and there are some who are running a COG of $0.80/lb. of gain, it's no wonder some of these calves don't get backgrounded.
So how did the West River calves have a higher net return on the gain with less total gain?
It is simply a function of how the gain put on the calves is valued in the market place compared to what it cost to put the gain on.
So the WR calves had a cheaper cost of gain and that gain was valued higher in the market place.
In fact, to get the same economic performance, the ER calves would have needed a $0.60 cost of gain to net the same return as the WR calves, eventhough they were outperforming them nearly 2:1.
The two biggest miscalculations guys make when backgrounding calves is, 1) how to value the gain they put on and 2) the difference between gross and net.
We just looked at valuing the gain in the example above, however, the common mistake is looking at gross return per head rather than net return on the value of the gain.
Example
If you take the ER and WR calves from the example above after the 90 day backgrounding period and calculate gross return:
ER - 898 lbs. @ $103.50 = $929.43
WR - 785 lbs. @ $115.17 = $904.08
So on a gross return basis, of course the heavier cattle gross more because they are heavier. But gross says nothing about what it cost to get to that weight.
So when you think about backgrounding your calves consider how your cost of gain is going to be valued in the market place. Feeding cheaper feed and sacrificing performance can actually improve the economic efficiency in some situations. That is where the money is made in backgrounding.
Tuesday, June 22, 2010
This Week In Grass Cattle
A fairly strong week in the cash market. As we look forward, the grass window has closed for the most part. However, I do see some opportunities to capitalize on the 75 days remaining in the grazing season season and a 60 backgrounding period.
The keys will be to get the right kind of cattle bought right. Poor converting cattle and cattle that are too big aren't going to work. The heavies should probably go straight to feed as even with our good growing season, grass quality is declining rapidly and performance on grass just isn't going to suppport the financials.
Let's look at how some of this pencils:
Buy steers, medium 1, 622# @ $122.25
Lock in a NOV 11 @ $111.22
Grass for 75 days @ $0.72/day
Background for 60 days with a cost of gain of $0.70/lb.
Weight out: 884#
Breakeven: $106.20
Profit $44.40/head less basis and commissions
Buy steers, medium 1, 781# @ $115.17
Lock in a NOV 11 @ $111.22
Grass for 75 days @ $0.72/day
Background for 60 days with a cost of gain of $0.70/lb.
Weight out: 1020#
Breakeven: $105.62
Profit $57.17/head less basis and commissions
Buy heifers, medium 1, 665# @ $114.11
Lock in a NOV 11 @ $111.22
Grass for 75 days @ $0.72/day
Background for 60 days with a cost of gain of $0.70/lb.
Weight out: 900#
Breakeven: $103.20
Profit $72.16/head less basis and commissions
Buy heifers, medium 1, 742# @ $110.00
Lock in a NOV 11 @ $111.22
Grass for 75 days @ $0.72/day
Background for 60 days with a cost of gain of $0.70/lb.
Weight out: 959#
Breakeven: $103.70
Profit $72.07/head less basis and commissions
At this stage of the game, grass alone isn't going to pencil, however, grass and 60 days on a grow diet can result in some significant black ink.
As has been the case for the last month, heifers are really undervalued. This is a definate advantage to those that are paying attention.
I would still stay away from the heavier cattle unless you are going to go straight to feed with them.
The keys will be to get the right kind of cattle bought right. Poor converting cattle and cattle that are too big aren't going to work. The heavies should probably go straight to feed as even with our good growing season, grass quality is declining rapidly and performance on grass just isn't going to suppport the financials.
Let's look at how some of this pencils:
Buy steers, medium 1, 622# @ $122.25
Lock in a NOV 11 @ $111.22
Grass for 75 days @ $0.72/day
Background for 60 days with a cost of gain of $0.70/lb.
Weight out: 884#
Breakeven: $106.20
Profit $44.40/head less basis and commissions
Buy steers, medium 1, 781# @ $115.17
Lock in a NOV 11 @ $111.22
Grass for 75 days @ $0.72/day
Background for 60 days with a cost of gain of $0.70/lb.
Weight out: 1020#
Breakeven: $105.62
Profit $57.17/head less basis and commissions
Buy heifers, medium 1, 665# @ $114.11
Lock in a NOV 11 @ $111.22
Grass for 75 days @ $0.72/day
Background for 60 days with a cost of gain of $0.70/lb.
Weight out: 900#
Breakeven: $103.20
Profit $72.16/head less basis and commissions
Buy heifers, medium 1, 742# @ $110.00
Lock in a NOV 11 @ $111.22
Grass for 75 days @ $0.72/day
Background for 60 days with a cost of gain of $0.70/lb.
Weight out: 959#
Breakeven: $103.70
Profit $72.07/head less basis and commissions
At this stage of the game, grass alone isn't going to pencil, however, grass and 60 days on a grow diet can result in some significant black ink.
As has been the case for the last month, heifers are really undervalued. This is a definate advantage to those that are paying attention.
I would still stay away from the heavier cattle unless you are going to go straight to feed with them.
Economics of Early Weaned Calves
Early weaning calves is a tremendous opportunity for cow calf outfits to optimize value potential and flexibility in their calf crop. Now, I did not say it was a more profitable practice, I just said that it creates more potential to be profitable. Whether or not it actually is depends on how you play the game in the market place.
To effectively market these calves we first need to recognize that there are really only three scenarios from which to base this analysis on:
1) Sell an early weaned calf off the cow.
2) Grow the calf on a backgrounding ration, protect your investment on the board, and sell at some future price break threshold.
3) Retain ownership on that calf to slaughter.
To set up this analysis we'll compare our three scenarios to a control, which will be selling 205 day calves at an average of 512 lbs. on October 1. We'll assume an adjusted cost per calf of $473 which gives us a breakeven of $0.92/lb. We'll also assume an October 1 calf price of $1.18/lb. on 5 wt. calves for a gross income per head of $604.16. Net income per head would be $141.16
Scenario 1: Sell an early weaned calf off of the cow.
Example
We will wean these calves at 105 days (July 1) at 310 lbs. Early weaning at 105 days will save us about 18% in costs.
The following table shows calf cost, sale weight, sale price, gross income, net income per head and net income per lb. at four different days of age (105, 125, 150, 175).
We can see from teh table that there is a definate price break threshold using today's values at 175 days. This is the point where the weight of the calf and the value in the market optimizes economic efficiency. Of course, as prices in the market move, so does the price break threshold. So in this example we gain $14.12/ head by optimizing weight value with the early weaned calf.
Scenario 2: Grow the calf on a background ration and sell at a future price break threshold.
Scenario 2 is a littel trickier, but adds additional profit potential because of the ability to maximize weight value.
Example
We'll take the four different aged early weaned calves and grow them to a specific price break based on futures prices. Let's say OCT 10 at $109.95, NOV 10 at $109.70, and JAN 11 at $108.60. So now we want to optimize our 90 day cost of gain tot ake advantage of a fixed price end point. We'll use the same cost structure as in teh previous example and set ADG at 2.9 lbs/day and a cost of gain at $0.42-$0.52/lb.
This scenario gains anywhere from $34.48 to $65.56/head over selling the 205 day calf at weaning.
Scenario 3: Retain ownership on the calf until slaughter.
Now we'll take the four different aged early weaned calves and background them for 90 days and ship them to a yeard to be finished to 1350lbs. Let's say FEB 11 at $93.67 and APR 11 at $95.00. We'll use the same cost structure as in previous examples and set finish ADG at 3.6 lbs./day and a finish cost of gain at $0.86/lb.
In this example, we don't gain a heck of a lot from retaining these early weaned calves. Calves weaned at 175 days and fed to finish only net $25.47/head more than selling that calf off the cow at 205 days. Furthermore, backgrounding those calves without finishing appears to be more profitable in this example. $25.47/head isn't chicken feed by any means but the point is you really have to understand where the inherent inefficiencies in the market are and capitalize upon them.
I hope you can see from this analysis how much flexibility a tool like early weaning can introduce to your marketing system. I didn't even look at comparing these options with backgrounding the 205 day calf or finishing the 205 day calf. That's another analysis for another day.
To effectively market these calves we first need to recognize that there are really only three scenarios from which to base this analysis on:
1) Sell an early weaned calf off the cow.
2) Grow the calf on a backgrounding ration, protect your investment on the board, and sell at some future price break threshold.
3) Retain ownership on that calf to slaughter.
To set up this analysis we'll compare our three scenarios to a control, which will be selling 205 day calves at an average of 512 lbs. on October 1. We'll assume an adjusted cost per calf of $473 which gives us a breakeven of $0.92/lb. We'll also assume an October 1 calf price of $1.18/lb. on 5 wt. calves for a gross income per head of $604.16. Net income per head would be $141.16
Scenario 1: Sell an early weaned calf off of the cow.
Example
We will wean these calves at 105 days (July 1) at 310 lbs. Early weaning at 105 days will save us about 18% in costs.
The following table shows calf cost, sale weight, sale price, gross income, net income per head and net income per lb. at four different days of age (105, 125, 150, 175).
We can see from teh table that there is a definate price break threshold using today's values at 175 days. This is the point where the weight of the calf and the value in the market optimizes economic efficiency. Of course, as prices in the market move, so does the price break threshold. So in this example we gain $14.12/ head by optimizing weight value with the early weaned calf.
Scenario 2: Grow the calf on a background ration and sell at a future price break threshold.
Scenario 2 is a littel trickier, but adds additional profit potential because of the ability to maximize weight value.
Example
We'll take the four different aged early weaned calves and grow them to a specific price break based on futures prices. Let's say OCT 10 at $109.95, NOV 10 at $109.70, and JAN 11 at $108.60. So now we want to optimize our 90 day cost of gain tot ake advantage of a fixed price end point. We'll use the same cost structure as in teh previous example and set ADG at 2.9 lbs/day and a cost of gain at $0.42-$0.52/lb.
This scenario gains anywhere from $34.48 to $65.56/head over selling the 205 day calf at weaning.
Scenario 3: Retain ownership on the calf until slaughter.
Now we'll take the four different aged early weaned calves and background them for 90 days and ship them to a yeard to be finished to 1350lbs. Let's say FEB 11 at $93.67 and APR 11 at $95.00. We'll use the same cost structure as in previous examples and set finish ADG at 3.6 lbs./day and a finish cost of gain at $0.86/lb.
In this example, we don't gain a heck of a lot from retaining these early weaned calves. Calves weaned at 175 days and fed to finish only net $25.47/head more than selling that calf off the cow at 205 days. Furthermore, backgrounding those calves without finishing appears to be more profitable in this example. $25.47/head isn't chicken feed by any means but the point is you really have to understand where the inherent inefficiencies in the market are and capitalize upon them.
I hope you can see from this analysis how much flexibility a tool like early weaning can introduce to your marketing system. I didn't even look at comparing these options with backgrounding the 205 day calf or finishing the 205 day calf. That's another analysis for another day.
Monday, June 14, 2010
This Week In Grass Cattle
The SEP 10 gained some ground over the last week largely due to seasonally short supplies of feeder cattle. This may result in some real values this week if you can catch the cash market asleep at the wheel. For the most part, the window to buy grass cattle is about closed with only about 90 days left in the grazing season.
However, guys may be able to pick up some really good values, especially on the heavier end of both steers and heifers, if backgrounding this fall is an option. You could lock them in the NOV 10 or JAN 11, grass them for 90 days or so, and feed them on a moderate energy diet for 45-60days and and do pretty well.
Mid- and light-weight cattle are really over valued right now for any grass activities and I would probably stay away from them. The exception might be mid-weight heifers that you can get bought right.
The heavies are a pretty good value right now, but performance on grass at this time of the year will be a problem and we don't want to rely too heavily on a background diet to put all the weight on them or your cost of gain will negate any potential profits on the turnaround. The wet, cool weather we are having right now will help, but eventually the sun will shine, the grass will start drying up, and heavier heifers will only be gaining 0.6-0.7 lbs./day at best.
Values to stay away from:
Buy steers, medium 1 594# @ $127.12
Lock 'em in on the board for SEP 10 @ $110.42
Run on grass for 90 days @ $0.72/day
Allow $20/hd for operating costs
Sell 729# in September
Breakeven $115.21
Profit $<34.89>/hd less basis and commissions.
Buy steers, medium 1 733# @ $117.21
Sell 841# in September
Breakeven $112.24
Profit $<15.27>/hd less basis and commissions.
Buy heifers, medium 1 618# @ $115.00
Sell 735# in September
Breakeven $108.23
Profit $16.12/hd less basis and commissions.
Values to look for:
Buy steers, medium 1 886# @ $102.5
Sell 967# in September
Breakeven $102.68
Profit $74.85/hd less basis and commissions.
Buy heifers, medium 1 776# @ $106.00
Sell 857# in September
Breakeven $105.87
Profit $38.98/hd less basis and commissions.
Buy heifers, medium 1 828# @ $100.32
Sell 891# in September
Breakeven $102.74
Profit $68.43/hd less basis and commissions.
I didn't include the backgrounding phase on these sets of cattle because some pretty reasonable profits can be made simply on the turnaround value of these cattle. I'll start doing the grass/backgrounding analysis next week because I expect much of the grass value in feeder cattle will have bled out of the margins by then.
However, guys may be able to pick up some really good values, especially on the heavier end of both steers and heifers, if backgrounding this fall is an option. You could lock them in the NOV 10 or JAN 11, grass them for 90 days or so, and feed them on a moderate energy diet for 45-60days and and do pretty well.
Mid- and light-weight cattle are really over valued right now for any grass activities and I would probably stay away from them. The exception might be mid-weight heifers that you can get bought right.
The heavies are a pretty good value right now, but performance on grass at this time of the year will be a problem and we don't want to rely too heavily on a background diet to put all the weight on them or your cost of gain will negate any potential profits on the turnaround. The wet, cool weather we are having right now will help, but eventually the sun will shine, the grass will start drying up, and heavier heifers will only be gaining 0.6-0.7 lbs./day at best.
Values to stay away from:
Buy steers, medium 1 594# @ $127.12
Lock 'em in on the board for SEP 10 @ $110.42
Run on grass for 90 days @ $0.72/day
Allow $20/hd for operating costs
Sell 729# in September
Breakeven $115.21
Profit $<34.89>/hd less basis and commissions.
Buy steers, medium 1 733# @ $117.21
Sell 841# in September
Breakeven $112.24
Profit $<15.27>/hd less basis and commissions.
Buy heifers, medium 1 618# @ $115.00
Sell 735# in September
Breakeven $108.23
Profit $16.12/hd less basis and commissions.
Values to look for:
Buy steers, medium 1 886# @ $102.5
Sell 967# in September
Breakeven $102.68
Profit $74.85/hd less basis and commissions.
Buy heifers, medium 1 776# @ $106.00
Sell 857# in September
Breakeven $105.87
Profit $38.98/hd less basis and commissions.
Buy heifers, medium 1 828# @ $100.32
Sell 891# in September
Breakeven $102.74
Profit $68.43/hd less basis and commissions.
I didn't include the backgrounding phase on these sets of cattle because some pretty reasonable profits can be made simply on the turnaround value of these cattle. I'll start doing the grass/backgrounding analysis next week because I expect much of the grass value in feeder cattle will have bled out of the margins by then.
Thursday, June 10, 2010
Optimizing Cull Cow Value
As you are probably aware, 15-30% of the income from the cow-calf enterprise comes from the sale of the cull cow. So it goes without saying that the more value you we can milk out of a cull, the more initial development cost we can offset simply by optimizing value at the time of disposal.
As I’ve talked about frequently in our discussions here, and will continue to discuss into the foreseeable future, this is a critical concept for cow-calf outfits.
Optimizing the value of cull cows is certainly not news. However, understanding the economics behind optimizing value is worth taking a look at.
For a refresher on some of the pertinent literature associated with the logistics behind feeding cull cows, check out this article written by Cody Wright from SDSU.
http://beef.unl.edu/beefreports/symp-2005-20-XIX.pdf
The real leverage point in economically feeding cull cows lies with understanding how slaughter cows are valued in the market place. As Dr. Wright described in his article, generally cows are valued based on overall supply/demand, age and flesh.
The following market trend of slaughter cows at Sioux Falls is very telling, but not that surprising:
The window to maximize price comes roughly between March and August.
Now, back to how slaughter cows are valued. Typically, the average price is based on the average cow, we’ll call her a 1150# @ $59.50/cwt. So she’s a little thin and gangly, but in pretty good shape.
What is important to understand is that as this cow becomes fleshier, she is worth more, but only up to a point. After the price break threshold, she in effect becomes discounted for being too fleshy.
Example:
Our average cow at 1150# @ $59.50 yields $684.25/head
Now let’s say we take this 1150# cow and put her on feed for 60 days.
She’ll gain about 3 lbs/day with a cost of gain of $0.75/lb.
Now that we have put an extra 180 lbs. on her and she’s weighing about 1330lbs. she’ll probably valued somewhere around $65.50/cwt.
So she will now gross 1330lbs. @ $65.50 yields $871.15
Using our Return on Feed Value calculator we see that with a $0.75 cost of gain, she nets about $51.90 more than she would have if we didn’t feed her.
So, if adding 180 lbs. to her before we sell her is good, then adding 350 lbs. to her is better right? Not so much.
Here’s why:
Once she has been fed to a fleshy appearance and she falls within the weight/value grid, any additional weight is paid for at the market place at the same price. Meaning, there is a price threshold where the market doesn’t pay additional value.
Example:
Same average cow at 1150# @ $59.50 yields $684.25/head
Now let’s say we take this 1150# cow and put her on feed for 120 days.
She’ll gain about 3 lbs/day with a cost of gain of $0.75/lb.
Now that we have put an extra 360 lbs. on her and she’s weighing about 1510lbs. she’ll still be valued somewhere around $65.50/cwt.
So she will now gross 1510lbs. @ $65.50 yields $989.05
Using our Return on Feed Value calculator we see that with a $0.75 cost of gain, now she only nets about $34.80 more than she would have if we didn’t feed her.
So we lost about $17.10/head because we fed her more feed than what the market was willing to pay for.
So in effect our additional feed bill chewed up any margin made on the extra weight.
The other thing you have to watch out for is the spread between thin and fleshy. In our example the spread was about $6.00/cwt. That is pretty typical this time of year when supply is pretty tight, but towards fall when supply increases, not only will the value drop, but the spread will tighten. You have to take this into consideration.
Let’s look at the exact same example, but now the spread will shrink to $4.00/cwt.
Just by shrinking the spread between thin and fleshy, our additional profit over not feeding these cows shrank from $37.80/head to $4.60/head. Now feeding these cows is probably not worth the hassle.
As a general rule, putting 180-220 lbs. on an average cow is probably going to most effectively optimize her value. You can adjust rate of gain with what you feed her so you have some market time flexibility built in to your system to take advantage of price point thresholds and thin/fleshy spreads.
As I’ve talked about frequently in our discussions here, and will continue to discuss into the foreseeable future, this is a critical concept for cow-calf outfits.
Optimizing the value of cull cows is certainly not news. However, understanding the economics behind optimizing value is worth taking a look at.
For a refresher on some of the pertinent literature associated with the logistics behind feeding cull cows, check out this article written by Cody Wright from SDSU.
http://beef.unl.edu/beefreports/symp-2005-20-XIX.pdf
The real leverage point in economically feeding cull cows lies with understanding how slaughter cows are valued in the market place. As Dr. Wright described in his article, generally cows are valued based on overall supply/demand, age and flesh.
The following market trend of slaughter cows at Sioux Falls is very telling, but not that surprising:
The window to maximize price comes roughly between March and August.
Now, back to how slaughter cows are valued. Typically, the average price is based on the average cow, we’ll call her a 1150# @ $59.50/cwt. So she’s a little thin and gangly, but in pretty good shape.
What is important to understand is that as this cow becomes fleshier, she is worth more, but only up to a point. After the price break threshold, she in effect becomes discounted for being too fleshy.
Example:
Our average cow at 1150# @ $59.50 yields $684.25/head
Now let’s say we take this 1150# cow and put her on feed for 60 days.
She’ll gain about 3 lbs/day with a cost of gain of $0.75/lb.
Now that we have put an extra 180 lbs. on her and she’s weighing about 1330lbs. she’ll probably valued somewhere around $65.50/cwt.
So she will now gross 1330lbs. @ $65.50 yields $871.15
Using our Return on Feed Value calculator we see that with a $0.75 cost of gain, she nets about $51.90 more than she would have if we didn’t feed her.
So, if adding 180 lbs. to her before we sell her is good, then adding 350 lbs. to her is better right? Not so much.
Here’s why:
Once she has been fed to a fleshy appearance and she falls within the weight/value grid, any additional weight is paid for at the market place at the same price. Meaning, there is a price threshold where the market doesn’t pay additional value.
Example:
Same average cow at 1150# @ $59.50 yields $684.25/head
Now let’s say we take this 1150# cow and put her on feed for 120 days.
She’ll gain about 3 lbs/day with a cost of gain of $0.75/lb.
Now that we have put an extra 360 lbs. on her and she’s weighing about 1510lbs. she’ll still be valued somewhere around $65.50/cwt.
So she will now gross 1510lbs. @ $65.50 yields $989.05
Using our Return on Feed Value calculator we see that with a $0.75 cost of gain, now she only nets about $34.80 more than she would have if we didn’t feed her.
So we lost about $17.10/head because we fed her more feed than what the market was willing to pay for.
So in effect our additional feed bill chewed up any margin made on the extra weight.
The other thing you have to watch out for is the spread between thin and fleshy. In our example the spread was about $6.00/cwt. That is pretty typical this time of year when supply is pretty tight, but towards fall when supply increases, not only will the value drop, but the spread will tighten. You have to take this into consideration.
Let’s look at the exact same example, but now the spread will shrink to $4.00/cwt.
Just by shrinking the spread between thin and fleshy, our additional profit over not feeding these cows shrank from $37.80/head to $4.60/head. Now feeding these cows is probably not worth the hassle.
As a general rule, putting 180-220 lbs. on an average cow is probably going to most effectively optimize her value. You can adjust rate of gain with what you feed her so you have some market time flexibility built in to your system to take advantage of price point thresholds and thin/fleshy spreads.
Tuesday, June 8, 2010
Article from Mike Rowe
Many of you have probably already seen this, but in case you haven't, it's a pretty good article written by Mike Rowe, the host of Dirty Jobs.
http://www.mikeroweworks.com/2010/06/the-future-of-farming/
http://www.mikeroweworks.com/2010/06/the-future-of-farming/
Monday, June 7, 2010
This Week In Grass Cattle
The cash market continues to sag in response to low demand and a strengthening dollar. The futures however, have held their ground pretty well.
Look for heifers to remain pretty undervalued in the market as demand appears to be really heavy for lighter weight steers which is putting upward pressure on prices.
Buy steers, medium 1 673# @ $121.00
Lock 'em in on the board for SEP 10 @ $108.25
Run on grass for 100 days @ $0.72/day
Allow $20/hd for operating costs
Sell 863# in September
Breakeven $105.02
Profit $27.86/hd less basis and commissions.
Buy heifers, medium 1 676# @ $113.50
Sell 854# in September
Breakeven $100.97
Profit $62.13/hd less basis and commissions.
Buy steers, medium 1 790# @ $112.93
Sell 958# in September
Breakeven $103.10
Profit $49.28/hd less basis and commissions.
Buy heifers, medium 1 773# @ $109.40
Sell 920# in September
Breakeven $102.31
Profit $54.63/hd less basis and commissions.
Buy steers, medium 1 871# @ $110.66
Sell 962# in September
Breakeven $105.15
Profit $31.17/hd less basis and commissions.
Buy heifers, medium 1 822# @ $100.40
Sell 937# in September
Breakeven $98.22
Profit $93.95/hd less basis and commissions.
Light (<700#) and heavy (>850#)heifers seem to have the advantage this go around. It will be interesting to see how the cash market pans out this week.
In the middle weights, it seems to be about a wash...decent potential on both.
I'd shy away from the light and heavy steers if you are going to grass with them unless you can get them bought right. Light weights are pretty over valued for grass and you won't get enough performance out of heavy weights on grass this late in the season. There might be some value to capture if they go straight to the feedbunk, but you'll need to keep your pencil pretty sharp to make these work on grass.
Look for heifers to remain pretty undervalued in the market as demand appears to be really heavy for lighter weight steers which is putting upward pressure on prices.
Buy steers, medium 1 673# @ $121.00
Lock 'em in on the board for SEP 10 @ $108.25
Run on grass for 100 days @ $0.72/day
Allow $20/hd for operating costs
Sell 863# in September
Breakeven $105.02
Profit $27.86/hd less basis and commissions.
Buy heifers, medium 1 676# @ $113.50
Sell 854# in September
Breakeven $100.97
Profit $62.13/hd less basis and commissions.
Buy steers, medium 1 790# @ $112.93
Sell 958# in September
Breakeven $103.10
Profit $49.28/hd less basis and commissions.
Buy heifers, medium 1 773# @ $109.40
Sell 920# in September
Breakeven $102.31
Profit $54.63/hd less basis and commissions.
Buy steers, medium 1 871# @ $110.66
Sell 962# in September
Breakeven $105.15
Profit $31.17/hd less basis and commissions.
Buy heifers, medium 1 822# @ $100.40
Sell 937# in September
Breakeven $98.22
Profit $93.95/hd less basis and commissions.
Light (<700#) and heavy (>850#)heifers seem to have the advantage this go around. It will be interesting to see how the cash market pans out this week.
In the middle weights, it seems to be about a wash...decent potential on both.
I'd shy away from the light and heavy steers if you are going to grass with them unless you can get them bought right. Light weights are pretty over valued for grass and you won't get enough performance out of heavy weights on grass this late in the season. There might be some value to capture if they go straight to the feedbunk, but you'll need to keep your pencil pretty sharp to make these work on grass.
Friday, June 4, 2010
Economics of Creep Feeding Calves
There are only three things that matter when it comes to the effectiveness of creep feeding calves:
1) Feed conversion,
2) Cost of gain
3) Price slide in the market place
One and two you can control, number three you can’t do much about and you can’t predict it either, although it has a big impact on whether creeping calves pays.
Feed conversions
Knowing the feed conversion of different feeds used in a creep feeding program is important so you can calculate cost of gain. The problem is I figure you probably don’t know what the conversions are and neither do I.
What I can tell you is that from trials we’ve run out at SDSU Cow Camp, Purina’s AccuRation has a feed conversion that runs about 6:1 (6 pounds of feed will generate 1 pound of gain). Many other feeds run about 8:1 – 10:1.
Cost of gain
To calculate cost of gain, simply take the cost/pound of the feed ingredient and multiply it by the conversion rate. That will give you the cost per pound of gain.
Example 1
So if I take AccuRation for example, it runs about $290/T.
So if I take $290/2000 lbs. per ton = $0.145 per pound.
Now if I take that times a 6:1 feed conversion ($0.145 x 6lbs/lb of gain) = $0.87 per pound of gain.
Example 2
Let’s look at a mix of ½ corn and ½ soybean hulls that runs $180/T
$180/2000 lbs per ton = $0.09 per pound
At an 8:1 conversion you get $0.09 x 8 lbs per lb of gain = $0.72 per pound of gain
The following table has cost of gain based on several different feed conversions up to $220 per ton. Above that you’ll just have to calculate it yourself.
So, to calculate the returns to creep feeding your calves, take a look at the following example:
In this example, the calves that were creep fed netted $6.75 more per head than did the calves that weren’t creep fed. It is important to remember of course, there is a big difference between gross and net.
Intuition tells you that the heavier calves should have netted way more than $6.75/head when compared to the non-creep fed calves, but that price slide on the heavier calves negated much of the value gained through the supplemental feeding.
Remember though, we’re just estimating the slide, if you catch the slide at $8/cwt rather than the $11/cwt we used in this example, now the return per head jumps to $27 per head.
So, as you might be asking yourself, how do you know how much calves will gain from a particular feed? In short, you don’t and I don’t either. But there are a couple of guidelines to go by:
1) Our trials show that Accuration generally delivers a pretty consistent 2.5 lbs per day on calves less than 500 lbs. It can vary a little, but not much.
2) Our trials also show that pretty much any commonly used concentrate feed that is not 100% corn will deliver at least 1.7-2.0 lbs per day gain on calves less than 500 lbs. You might get more than 2.0 but usually not less, all things being equal.
It’s not an absolute, but those are some guidelines to follow.
The other thing to consider is the price slide as your calves gain extra weight. As I said before, there isn’t anything you can do about the slide, it is an inherent value discovery mechanism in the market. But you do need to accurately represent the slide in your analysis or you will accidentally pencil the projected return wrong.
As a general rule, you can expect a $10 per cwt slide for every 100 lbs of additional weight. Sometimes it’s more, sometimes it’s less, but that’s what it is on average.
To calculate your projected returns from creep feeding, use the following blank template.
You can view the article I just wrote on this subject by copying and pasting the following link you’re your web browser. http://agbiopubs.sdstate.edu/articles/ExEx2071.pdf
1) Feed conversion,
2) Cost of gain
3) Price slide in the market place
One and two you can control, number three you can’t do much about and you can’t predict it either, although it has a big impact on whether creeping calves pays.
Feed conversions
Knowing the feed conversion of different feeds used in a creep feeding program is important so you can calculate cost of gain. The problem is I figure you probably don’t know what the conversions are and neither do I.
What I can tell you is that from trials we’ve run out at SDSU Cow Camp, Purina’s AccuRation has a feed conversion that runs about 6:1 (6 pounds of feed will generate 1 pound of gain). Many other feeds run about 8:1 – 10:1.
Cost of gain
To calculate cost of gain, simply take the cost/pound of the feed ingredient and multiply it by the conversion rate. That will give you the cost per pound of gain.
Example 1
So if I take AccuRation for example, it runs about $290/T.
So if I take $290/2000 lbs. per ton = $0.145 per pound.
Now if I take that times a 6:1 feed conversion ($0.145 x 6lbs/lb of gain) = $0.87 per pound of gain.
Example 2
Let’s look at a mix of ½ corn and ½ soybean hulls that runs $180/T
$180/2000 lbs per ton = $0.09 per pound
At an 8:1 conversion you get $0.09 x 8 lbs per lb of gain = $0.72 per pound of gain
The following table has cost of gain based on several different feed conversions up to $220 per ton. Above that you’ll just have to calculate it yourself.
So, to calculate the returns to creep feeding your calves, take a look at the following example:
In this example, the calves that were creep fed netted $6.75 more per head than did the calves that weren’t creep fed. It is important to remember of course, there is a big difference between gross and net.
Intuition tells you that the heavier calves should have netted way more than $6.75/head when compared to the non-creep fed calves, but that price slide on the heavier calves negated much of the value gained through the supplemental feeding.
Remember though, we’re just estimating the slide, if you catch the slide at $8/cwt rather than the $11/cwt we used in this example, now the return per head jumps to $27 per head.
So, as you might be asking yourself, how do you know how much calves will gain from a particular feed? In short, you don’t and I don’t either. But there are a couple of guidelines to go by:
1) Our trials show that Accuration generally delivers a pretty consistent 2.5 lbs per day on calves less than 500 lbs. It can vary a little, but not much.
2) Our trials also show that pretty much any commonly used concentrate feed that is not 100% corn will deliver at least 1.7-2.0 lbs per day gain on calves less than 500 lbs. You might get more than 2.0 but usually not less, all things being equal.
It’s not an absolute, but those are some guidelines to follow.
The other thing to consider is the price slide as your calves gain extra weight. As I said before, there isn’t anything you can do about the slide, it is an inherent value discovery mechanism in the market. But you do need to accurately represent the slide in your analysis or you will accidentally pencil the projected return wrong.
As a general rule, you can expect a $10 per cwt slide for every 100 lbs of additional weight. Sometimes it’s more, sometimes it’s less, but that’s what it is on average.
To calculate your projected returns from creep feeding, use the following blank template.
You can view the article I just wrote on this subject by copying and pasting the following link you’re your web browser. http://agbiopubs.sdstate.edu/articles/ExEx2071.pdf
Wednesday, June 2, 2010
Could Sorghum Silage Replace Corn Silage for Cow Feed?
I was calculating our cost of production for the corn silage we grow out at SDSU Cow Camp in Miller, SD the other day and it really grabbed me that corn silage isn’t as competitive on a cost basis as it used to be.
It is still the cheapest forage feedstuff we have, no doubt about it, but when our cost runs $33.12/T, I realized we are going to have to start to do something a little different.
Don’t get too excited if you currently grow silage for your cows, we have fairly poor soils right where we are at and corn doesn’t yield very well, even in good years, so we have fewer tons to spread fixed costs over than most.
If you look at the average cost of growing corn silage East River from 2008, you can see that I am dealing with a little different situation than most. The 2009 data is currently being tabulated, but isn’t available yet:
In any event, even at $27/T, the average cost of corn silage is running about 37% higher than it was even 4 years ago. I expect the 2009 data will show that the cost has come down a little from 2008 as fertilizer prices have stabilized and fuel is a little cheaper. But still this is a problem that may need some attention.
The point is to show you an analysis I did in response to the fact that I don’t feel we can afford to grow corn for silage for cattle feed any longer at our location.
Last October I toured Richardson Seed Company in Vega, TX with the guys from Millborn Seeds in Brookings, SD. The Richardson outfit was a mecca of sorghum research. Not many universities or private companies do much research with sorghums anymore, but there was some real cutting edge stuff these guys were working on.
To make a long story short, the information I gathered led me to wonder if corn silage varieties could be replaced with sorghum varieties. I think there is some real potential here considering the following:
1) The seed is cheaper
2) It requires much less fertilizer
3) It requires much less water
4) It yields about the same
5) The new BMR trait varieties put forage quality on par with corn
Of course there are a couple of down sides:
1) It’s not round-up ready
2) Short-season varieties still run about 115 days (an 90 day would be nice,but I’m not sure there is one available)
When you look at the projected cost comparison it really starts to look attractive and a person might be able to overlook the down sides.
So when you compare the average cost of conventional corn silage to projected costs of sorghum silage, I am seeing a possible decrease in cost of 42%. Not bad.
I will be growing some test plots out at Miller this summer to test yield, quality, cost of production, etc. I’ll let you know what I find out.
The variety I will be using for the test is the MS7000 variety from Millborn Seeds in Brookings.
You can copy and paste this link into your web browser if you want to look at the spec sheet on it http://www.millbornseeds.com/documents/pasture_MS7000.pdf
It is still the cheapest forage feedstuff we have, no doubt about it, but when our cost runs $33.12/T, I realized we are going to have to start to do something a little different.
Don’t get too excited if you currently grow silage for your cows, we have fairly poor soils right where we are at and corn doesn’t yield very well, even in good years, so we have fewer tons to spread fixed costs over than most.
If you look at the average cost of growing corn silage East River from 2008, you can see that I am dealing with a little different situation than most. The 2009 data is currently being tabulated, but isn’t available yet:
In any event, even at $27/T, the average cost of corn silage is running about 37% higher than it was even 4 years ago. I expect the 2009 data will show that the cost has come down a little from 2008 as fertilizer prices have stabilized and fuel is a little cheaper. But still this is a problem that may need some attention.
The point is to show you an analysis I did in response to the fact that I don’t feel we can afford to grow corn for silage for cattle feed any longer at our location.
Last October I toured Richardson Seed Company in Vega, TX with the guys from Millborn Seeds in Brookings, SD. The Richardson outfit was a mecca of sorghum research. Not many universities or private companies do much research with sorghums anymore, but there was some real cutting edge stuff these guys were working on.
To make a long story short, the information I gathered led me to wonder if corn silage varieties could be replaced with sorghum varieties. I think there is some real potential here considering the following:
1) The seed is cheaper
2) It requires much less fertilizer
3) It requires much less water
4) It yields about the same
5) The new BMR trait varieties put forage quality on par with corn
Of course there are a couple of down sides:
1) It’s not round-up ready
2) Short-season varieties still run about 115 days (an 90 day would be nice,but I’m not sure there is one available)
When you look at the projected cost comparison it really starts to look attractive and a person might be able to overlook the down sides.
So when you compare the average cost of conventional corn silage to projected costs of sorghum silage, I am seeing a possible decrease in cost of 42%. Not bad.
I will be growing some test plots out at Miller this summer to test yield, quality, cost of production, etc. I’ll let you know what I find out.
The variety I will be using for the test is the MS7000 variety from Millborn Seeds in Brookings.
You can copy and paste this link into your web browser if you want to look at the spec sheet on it http://www.millbornseeds.com/documents/pasture_MS7000.pdf
Tuesday, June 1, 2010
This Week in Grass Cattle
Another soft week on the board last week which is spilling over to the cash market. Roughly $4 has been lost over the last couple of weeks on the SEP 10.
Margins are tightening considerably, largely due to uncertainy in the Eurozone which is driving down the value of the Euro and driving up the value of the dollar making U.S. exports less attractive to foreign buyers.
I expect this trend to continue throughout the summer.
If the International Monetary Fund continues to swap dollars for euros to prop up Euro banks, the the value of the dollar could skyrocket causing the softening of commodity values to intensify.
The cash market I think is fairly stable for now as there are still profits for the taking in the fats if feeders are bought right.
Interestingly, heifers seem to be the real deal right now as they appear to be pretty undervalued in the market place:
Buy steers, medium 1 664# @ $124.34
Lock 'em in on the board for SEP 10 @ $108.90
Run on grass for 105 days @ $0.72/day
Allow $20/hd for operating costs
Sell 863# in September
Breakeven $106.68
Profit $19.13/hd less basis and commissions.
Buy heifers, medium 1 680# @ $111.81
Lock 'em in on the board for SEP 10 @ $108.90
Run on grass for 105 days @ $0.72/day
Allow $20/hd for operating costs
Sell 858# in September
Breakeven $99.69
Profit $78.99/hd less basis and commissions.
Interesting!!
Buy steers, medium 1 773# @ $114.28
Lock 'em in on the board for SEP 10 @ $108.90
Run on grass for 105 days @ $0.72/day
Allow $20/hd for operating costs
Sell 941# in September
Breakeven $104.03
Profit $45.76/hd less basis and commissions.
Buy heifers, medium 1 767# @ $109.05
Lock 'em in on the board for SEP 10 @ $108.90
Run on grass for 105 days @ $0.72/day
Allow $20/hd for operating costs
Sell 914# in September
Breakeven $101.97
Profit $63.33/hd less basis and commissions.
Looking Good Girls!!
Buy steers, medium 1 826# @ $111.49
Lock 'em in on the board for SEP 10 @ $108.90
Run on grass for 105 days @ $0.72/day
Allow $20/hd for operating costs
Sell 962# in September
Breakeven $105.61
Profit $31.65/hd less basis and commissions.
Buy heifers, medium 1 841# @ $105.00
Lock 'em in on the board for SEP 10 @ $108.90
Run on grass for 105 days @ $0.72/day
Allow $20/hd for operating costs
Sell 956# in September
Breakeven $102.31
Profit $62.97/hd less basis and commissions.
Lots of demand for steers which is leaving the heifers pretty reasonable right now.
Margins are tightening considerably, largely due to uncertainy in the Eurozone which is driving down the value of the Euro and driving up the value of the dollar making U.S. exports less attractive to foreign buyers.
I expect this trend to continue throughout the summer.
If the International Monetary Fund continues to swap dollars for euros to prop up Euro banks, the the value of the dollar could skyrocket causing the softening of commodity values to intensify.
The cash market I think is fairly stable for now as there are still profits for the taking in the fats if feeders are bought right.
Interestingly, heifers seem to be the real deal right now as they appear to be pretty undervalued in the market place:
Buy steers, medium 1 664# @ $124.34
Lock 'em in on the board for SEP 10 @ $108.90
Run on grass for 105 days @ $0.72/day
Allow $20/hd for operating costs
Sell 863# in September
Breakeven $106.68
Profit $19.13/hd less basis and commissions.
Buy heifers, medium 1 680# @ $111.81
Lock 'em in on the board for SEP 10 @ $108.90
Run on grass for 105 days @ $0.72/day
Allow $20/hd for operating costs
Sell 858# in September
Breakeven $99.69
Profit $78.99/hd less basis and commissions.
Interesting!!
Buy steers, medium 1 773# @ $114.28
Lock 'em in on the board for SEP 10 @ $108.90
Run on grass for 105 days @ $0.72/day
Allow $20/hd for operating costs
Sell 941# in September
Breakeven $104.03
Profit $45.76/hd less basis and commissions.
Buy heifers, medium 1 767# @ $109.05
Lock 'em in on the board for SEP 10 @ $108.90
Run on grass for 105 days @ $0.72/day
Allow $20/hd for operating costs
Sell 914# in September
Breakeven $101.97
Profit $63.33/hd less basis and commissions.
Looking Good Girls!!
Buy steers, medium 1 826# @ $111.49
Lock 'em in on the board for SEP 10 @ $108.90
Run on grass for 105 days @ $0.72/day
Allow $20/hd for operating costs
Sell 962# in September
Breakeven $105.61
Profit $31.65/hd less basis and commissions.
Buy heifers, medium 1 841# @ $105.00
Lock 'em in on the board for SEP 10 @ $108.90
Run on grass for 105 days @ $0.72/day
Allow $20/hd for operating costs
Sell 956# in September
Breakeven $102.31
Profit $62.97/hd less basis and commissions.
Lots of demand for steers which is leaving the heifers pretty reasonable right now.
The Value of Replacement Heifers, Part IV
A few more words on this topic for two reasons, 1) I like this topic and 2) I have received a lot of questions and interest about it.
Just to be clear, in the previous discussions of replacement heifer value, I never meant to imply raising heifers was more appropriate than buying them from the market place. Nor was I advocating buying over raising them yourself, I was simply making a point (or trying to) that we can calculate the value of a replacement female based on the specs of an individual operation and determine her lifetime output in terms of dollars of profit.
Therefore, since we can make this calculation, we can also determine what an individual operation can afford to invest in a replacement female based on her lifetime output. Since we are able to establish the investment threshold in a set of replacement females we can then determine if those replacements should be raised out of the herd or purchased from the open market.
In this analysis however, we are going to work through it backwards based on herd size to determine the investment threshold to earn a fixed net income.
Let’s look at an example:
Rather than look at the analysis on a per head basis, let’s look at it on a whole herd basis, which may make some of the differences more apparent.
We will look at the total herd net return of females in three different herd sizes: 250 hd, 500 hd, and 1000 hd and at three different average levels of investment: $650/hd, $850/hd, and $1050/hd.
We will discount the net returns over an average economic life of eight years.
There are a couple of points to consider:
1)Obviously there is an economy of scale which works against the smaller producers. Even though a $200 average increase in average investment in a replacement female affects both the 250 head herd and the 1000 head herd equally on a percentage basis (25% drop in net return for both), the 250 head herd is obviously more sensitive to fluctuations in average investments and costs because there are fewer head to spread the dollars over.
2)Although it is equally important for any size herd to minimize average investment in replacement females, it is a critical control point for smaller herds.
3)If there were a list of three things, in order of importance that smaller herds need to focus most of their production and financial management on, the top of the list would be keeping average investment in replacements low.
4)There are few things an outfit can do that will have a bigger impact on their bottom line than this.
5)Knowing your raised replacements cost of development is critical to managing average investment.
Just to be clear, in the previous discussions of replacement heifer value, I never meant to imply raising heifers was more appropriate than buying them from the market place. Nor was I advocating buying over raising them yourself, I was simply making a point (or trying to) that we can calculate the value of a replacement female based on the specs of an individual operation and determine her lifetime output in terms of dollars of profit.
Therefore, since we can make this calculation, we can also determine what an individual operation can afford to invest in a replacement female based on her lifetime output. Since we are able to establish the investment threshold in a set of replacement females we can then determine if those replacements should be raised out of the herd or purchased from the open market.
In this analysis however, we are going to work through it backwards based on herd size to determine the investment threshold to earn a fixed net income.
Let’s look at an example:
Rather than look at the analysis on a per head basis, let’s look at it on a whole herd basis, which may make some of the differences more apparent.
We will look at the total herd net return of females in three different herd sizes: 250 hd, 500 hd, and 1000 hd and at three different average levels of investment: $650/hd, $850/hd, and $1050/hd.
We will discount the net returns over an average economic life of eight years.
There are a couple of points to consider:
1)Obviously there is an economy of scale which works against the smaller producers. Even though a $200 average increase in average investment in a replacement female affects both the 250 head herd and the 1000 head herd equally on a percentage basis (25% drop in net return for both), the 250 head herd is obviously more sensitive to fluctuations in average investments and costs because there are fewer head to spread the dollars over.
2)Although it is equally important for any size herd to minimize average investment in replacement females, it is a critical control point for smaller herds.
3)If there were a list of three things, in order of importance that smaller herds need to focus most of their production and financial management on, the top of the list would be keeping average investment in replacements low.
4)There are few things an outfit can do that will have a bigger impact on their bottom line than this.
5)Knowing your raised replacements cost of development is critical to managing average investment.
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