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.