Tuesday, June 22, 2010

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.

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.

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.

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