Some strength in the futures on feeder cattle this last week has really opened up opportunities for short turns on light calves that we haven't seen in the last couple of weeks. We can talk corn futures and feedlot placements until we are blue in the face, it doesn't really matter.
The only thing that really matters is that the spreads between the cash market on lighter calves and the futures on the MAR 11 are such that there are some pretty impressive profits to be made.
Examples:
Buy steers, medium 1, 530# @ $129.53
Short hedge MAR 11 @ $114.75
Feed for 120 days
COG $0.75/lb. @ 2.5lbs/day
Weight out: 830#
Breakeven: $109.82
Profit: $40.92/head less basis and commissions
Buy steers, medium 1, 573# @ $127.30
Short hedge MAR 11 @ $114.75
Feed for 120 days
COG $0.75/lb. @ 2.5 lbs./day
Weight out: 873#
Breakeven: $109.32
Profit: $47.33/head less basis and commissions
Buy steers, medium 1, 614# @ $123.69
Short hedge MAR 11 @ $114.75
Feed for 120 days
COG $0.75/lb. @ 2.5 lbs. day
Weight out: 914#
Breakeven: $107.70
Profit: $64.35/head less basis and commissions
The profit potential on short turns of heifers looks great, as it has all summer. Heifers are still way undervalued in the market.
Buy heifers, 522# @ $120.41
Short hedge MAR 11 @ $114.75
Feed for 120 days
COG $0.75/lb. @ 2.5 lbs./day
Weight out: 822#
Breakeven: $103.83
Profit: $89.70/head less basis and commissions
Buy heifers, 571# @ $116.76
Short hedge MAR 11 @ $114.75
Feed for 120 days
COG $0.75/lb. @ 2.5 lbs./day
Weight out: 871#
Breakeven: $102.37
Profit: $107.77/head less basis and commissions
Buy heifers, 611# @ $119.50
Short hedge MAR 11 @ $114.75
Feed for 120 days
COG $0.75/lb. @ 2.5 lbs. day
Weight out: 911#
Breakeven: $104.84
Profit: $90.22/head less basis and commissions
On these heifers, I think there are also some opportunities to run a 60 day turn on the JAN 11 and another short run on the MAR 11. It's hard to tell at this point where we will be at 60 days from MAR, but I think we will be in as good of a position or better than where we are at today.
We will see....
The other thing to watch is COG, this week I bumped COG to $0.75/lb. rather than $0.65/lb. I have been using. It should be no problem for most guys to squeeze a measley 2.5lbs./day out of a 500# calf for $0.65/lb. However, the cost of everything is up a little in the last month or so, so when I model my cost of gains, it is creeping towards the $0.75 level, so that's what I used.
I have received many questions about why 2.5 lbs. day, the simple answer is that when I do the price/performance thresholds on cost of gain, it breaks at about 2.5lbs./day at $0.75/lb.
If I go to 3lbs/day of performance, my COG is going to rise to $0.92 lb. in my COG model, mostly because I am going to need more corn to maintain that level of performance and I'll have more weight to haul at the end. The $0.92/lb. is assuming $3.65/bu. corn, which is what my data shows the average guy can grow it for. If you are buying corn, forget it, it's not going to work unless you had a long hedge on corn earlier this summer.
Same set of 530# steers at 3 lbs./day performance and a $0.92 COG
Buy 530# steers @ $129.53
Hedge MAR 11 @ $114.75
Feed for 120 days
COG $0.92 @ 3 lbs./day
Weight out: 890#
Breakeven: $115.15
Loss: -$3.63/head less basis and commissions.
Not every weight class is going to be a money loser of course, but the point is that overall the market isn't willing to pay for the additional corn...at least not yet.
Keep the rations simple and cheap.
Thank You and Have a Great Day!!
Monday, November 15, 2010
Wednesday, November 10, 2010
Economics of Protein Supplementation
One of the principal costs associated with wintering cows is protein supplementation. Winter range, harvested forages, and crop residues for the most part, contain plenty of energy to meet the needs of gestating cows during the winter.
The protein content of these energy sources however, tends to be fairly low which will ultimately reduce intake and digestibility of these types of forages.
The feed products typically used to supplement ruminant livestock can be broken down into two major categories:
1) natural vs. non-natural protein sources
2) Low labor vs. high labor delivery methods
These two classifications cover the majority of feed supplements on the market and largely determine how they are priced.
Natural proteins consist of things like alfalfa, oil seed meals (soybean, cottonseed, sunflower), corn by-product distillers grains, and the like. Non-natural protein are largely formulated to include urea.
Typically, natural proteins used in supplementing beef cows are more efficient and usually lower cost than urea-based supplements. However, natural protein source typically require more labor and equipment to deliver than urea-based products.
In essence, you are paying for the convenience factor with certain types of protein supplements.
The other thing you have to watch out for with protein supplements is sticker shock. Some supplements can seem very expensive on a per ton basis, but actually are relatively cheap on a per pound of crude protein (CP) basis because you don't have to feed very much of the bulk material to meet dietary requirements.
Therefore, it is essential that a manager knows how to calculate the cost of protein on a per pound basis so you can assess the convenience factor.
Example:
To calculate cost per pound of crude protein for a feed supplement use the following formulas:
A) Conversion from one ton of bulk product to pounds of protein in that ton
Pounds of CP in bulk product = 2000lbs. x % crude protein
If we take soybean meal (SBM) as an example, SBM contains about 46% CP and costs about $300 per ton on average over the last year-and-a-half or so.
2000 lbs. of SBM x .46 (% CP) = 920 lbs. of protein
B) Then we convert cost per ton to cost per pound of CP by dividing cost per ton by pounds of CP:
$300 per ton = $0.32 per lb. of protein
920 lbs. of protein
That's it!! You can make this calculation with any type of protein supplement.
Now you can compare the cost of different supplements based on a common denominator so you are comparing apples to apples.
Of course, prices change frequently on a per ton basis, which is going to change cost per pound of CP, so a person needs to recalculate these everytime they go to buy bulk product.
When you calculate the cost per pound of CP for a variety of supplements, then you have to assess how much you are willing to pay for convenience.
As an example, alfalfa is a tremendously cheap source of protein for livestock on a per pound of CP basis, however, after you figure in the cost of delivering the product to livestock, it may or may not look all that cheap anymore. On the other hand, lick tubs are really easy to deliver, but does the convenience justify the cost? You have to decide.
Table 1 shows the cost comparison of common protein supplements on a cost of CP basis using average per ton prices.
Product Cost per lb. of CP
Corn by-product distillers grains $0.25
Alfalfa $0.30
Soybean meal $0.32
Cottonseed meal $0.27
Sunflower meal $0.44
Commercial range cake $0.68
Lick Tubs $1.87
Now, you make the call on what works for you and what doesn't.
Thank You and Have a Great Day!!
The protein content of these energy sources however, tends to be fairly low which will ultimately reduce intake and digestibility of these types of forages.
The feed products typically used to supplement ruminant livestock can be broken down into two major categories:
1) natural vs. non-natural protein sources
2) Low labor vs. high labor delivery methods
These two classifications cover the majority of feed supplements on the market and largely determine how they are priced.
Natural proteins consist of things like alfalfa, oil seed meals (soybean, cottonseed, sunflower), corn by-product distillers grains, and the like. Non-natural protein are largely formulated to include urea.
Typically, natural proteins used in supplementing beef cows are more efficient and usually lower cost than urea-based supplements. However, natural protein source typically require more labor and equipment to deliver than urea-based products.
In essence, you are paying for the convenience factor with certain types of protein supplements.
The other thing you have to watch out for with protein supplements is sticker shock. Some supplements can seem very expensive on a per ton basis, but actually are relatively cheap on a per pound of crude protein (CP) basis because you don't have to feed very much of the bulk material to meet dietary requirements.
Therefore, it is essential that a manager knows how to calculate the cost of protein on a per pound basis so you can assess the convenience factor.
Example:
To calculate cost per pound of crude protein for a feed supplement use the following formulas:
A) Conversion from one ton of bulk product to pounds of protein in that ton
Pounds of CP in bulk product = 2000lbs. x % crude protein
If we take soybean meal (SBM) as an example, SBM contains about 46% CP and costs about $300 per ton on average over the last year-and-a-half or so.
2000 lbs. of SBM x .46 (% CP) = 920 lbs. of protein
B) Then we convert cost per ton to cost per pound of CP by dividing cost per ton by pounds of CP:
$300 per ton = $0.32 per lb. of protein
920 lbs. of protein
That's it!! You can make this calculation with any type of protein supplement.
Now you can compare the cost of different supplements based on a common denominator so you are comparing apples to apples.
Of course, prices change frequently on a per ton basis, which is going to change cost per pound of CP, so a person needs to recalculate these everytime they go to buy bulk product.
When you calculate the cost per pound of CP for a variety of supplements, then you have to assess how much you are willing to pay for convenience.
As an example, alfalfa is a tremendously cheap source of protein for livestock on a per pound of CP basis, however, after you figure in the cost of delivering the product to livestock, it may or may not look all that cheap anymore. On the other hand, lick tubs are really easy to deliver, but does the convenience justify the cost? You have to decide.
Table 1 shows the cost comparison of common protein supplements on a cost of CP basis using average per ton prices.
Product Cost per lb. of CP
Corn by-product distillers grains $0.25
Alfalfa $0.30
Soybean meal $0.32
Cottonseed meal $0.27
Sunflower meal $0.44
Commercial range cake $0.68
Lick Tubs $1.87
Now, you make the call on what works for you and what doesn't.
Thank You and Have a Great Day!!
Monday, November 1, 2010
This Week In Cattle
There is a lot of feed in the country this year with record levels of precipitation and pretty good growing conditions throughout the summer. With abundant feed and really decent cattle prices, I have received a lot inquiries from ranchers about bringing in calves to feed on a short turnaround to burn some extra feed and make a little cash on the side.
It's a pretty good idea, although getting them bought right is going to be a pretty tall order right now. The cash market is still pretty hot and it doesn't look like it is going to cool off anytime soon. Furthermore, the feeder futures are taking a beating from the big gains corn has made in the past month or so.
Over the short-term, I think there is some money to be made in some short turnarounds on some lightweight feeder calves. The big thing right now is to stay away from the real lightweight steers. High 4 wts. are running nearly $140.00 and I just can't make that pencil for most situations. Even mid-5 wts. are a little nip-and-tuck, so a person is really going to have to get them bought right to make them work. I think 6 wt steers and most classes of heifers are going to work pretty well.
A really good option for some guys wil be to find some mid-weight 7-8's. There aren't a lot of them around as most of them were placed in September and October, but there are a few stragglers out there if you can find them.
Buy steers, medium 1, 566# @ $128.00
Protect JAN 11 @ $110.80
Feed for 75 days
COG: $0.65 @ 2.5#/day
Weight out: 753#
Breakeven: $113.02
Loss: -$16.74/head less basis and commissions
Buy steers, medium 1, 606# @ $122.40
Protect JAN 11 @ $110.80
Feed for 75 days
COG: $0.65 @ 2.5#/day
Weight out: 793#
Breakeven: $1.08.83
Profit: $15.57/head less basis and commissions
Like I said, it's nip-and-tuck on the steers, getting them bought right is going to be the difference.
Heifers look a little better:
Buy heifers, medium 1, 558# @ $118.51
Protect JAN 11 @ $110.80
Feed for 75 days
COG: $0.65 @ 2.5#/day
Weight out: 745#
Breakeven: $105.05
Profit: $42.85/head less basis and commissions
Buy heifers, medium 1, 631# @ $112.00
Protect JAN 11 @ $110.80
Feed for 75 days
COG: $0.65 @ 2.5#/day
Weight out: 818#
Breakeven: $101.12
Profit: $78.30/head less basis and commissions
The alternative is to try to snag some heavier cattle that will look like this:
Buy heifers, medium 1, 753# @ $107.21
Protect JAN 11 @ $110.80
Feed for 75 days
COG: $0.75 @ 2.5#/day
Weight out: 940#
Breakeven: $100.78
Profit: $94.15/head less basis and commissions
These cattle are going to have a little higher cost of gain to get the performance out of them but you can see that pencil pretty nicely...if you can find them in large enough quantities to make them work.
The other thing to watch for is to hang on to some of these light to mid-weights for a little longer and cash in on the price slide:
Buy steers, medium 1, 566# @ $128.00
Protect MAR 11 @ $111.60
Feed for 150 days
COG: $0.65 @ 2.5#/day
Weight out: 941#
Breakeven: $103.45
Profit: $76.66/head less basis and commissions
So on that same set of 566# steers, we improved from a $16/head loss to a $76.66/head profit, just by hanging on to them a little longer. By using moderate performance goals at a pretty reasonable COG, we can catch the price slide advantage on the MAR 11.
Heifers look even better:
Buy heifers, medium 1, 558# @ $118.51
Protect MAR 11 @ $111.60
Feed for 150 days
COG: $0.65 @ 2.5#/day
Weight out: 933#
Breakeven: $97.00
Profit: $136.19/head less basis and commissions
So we jumped these heifers from a $42.85/head profit to a $136.19/head profit by holding down performance, keeping COG reasonable and catching the MAR 11.
If this strategy looks good, you might consider an LRP or option put rather than a short hedge so you can protect your bottom side and let the top side ride. It will probably save you a lot of margin calls we get closer to MAR.
Thank You and Have a Great Day!!
It's a pretty good idea, although getting them bought right is going to be a pretty tall order right now. The cash market is still pretty hot and it doesn't look like it is going to cool off anytime soon. Furthermore, the feeder futures are taking a beating from the big gains corn has made in the past month or so.
Over the short-term, I think there is some money to be made in some short turnarounds on some lightweight feeder calves. The big thing right now is to stay away from the real lightweight steers. High 4 wts. are running nearly $140.00 and I just can't make that pencil for most situations. Even mid-5 wts. are a little nip-and-tuck, so a person is really going to have to get them bought right to make them work. I think 6 wt steers and most classes of heifers are going to work pretty well.
A really good option for some guys wil be to find some mid-weight 7-8's. There aren't a lot of them around as most of them were placed in September and October, but there are a few stragglers out there if you can find them.
Buy steers, medium 1, 566# @ $128.00
Protect JAN 11 @ $110.80
Feed for 75 days
COG: $0.65 @ 2.5#/day
Weight out: 753#
Breakeven: $113.02
Loss: -$16.74/head less basis and commissions
Buy steers, medium 1, 606# @ $122.40
Protect JAN 11 @ $110.80
Feed for 75 days
COG: $0.65 @ 2.5#/day
Weight out: 793#
Breakeven: $1.08.83
Profit: $15.57/head less basis and commissions
Like I said, it's nip-and-tuck on the steers, getting them bought right is going to be the difference.
Heifers look a little better:
Buy heifers, medium 1, 558# @ $118.51
Protect JAN 11 @ $110.80
Feed for 75 days
COG: $0.65 @ 2.5#/day
Weight out: 745#
Breakeven: $105.05
Profit: $42.85/head less basis and commissions
Buy heifers, medium 1, 631# @ $112.00
Protect JAN 11 @ $110.80
Feed for 75 days
COG: $0.65 @ 2.5#/day
Weight out: 818#
Breakeven: $101.12
Profit: $78.30/head less basis and commissions
The alternative is to try to snag some heavier cattle that will look like this:
Buy heifers, medium 1, 753# @ $107.21
Protect JAN 11 @ $110.80
Feed for 75 days
COG: $0.75 @ 2.5#/day
Weight out: 940#
Breakeven: $100.78
Profit: $94.15/head less basis and commissions
These cattle are going to have a little higher cost of gain to get the performance out of them but you can see that pencil pretty nicely...if you can find them in large enough quantities to make them work.
The other thing to watch for is to hang on to some of these light to mid-weights for a little longer and cash in on the price slide:
Buy steers, medium 1, 566# @ $128.00
Protect MAR 11 @ $111.60
Feed for 150 days
COG: $0.65 @ 2.5#/day
Weight out: 941#
Breakeven: $103.45
Profit: $76.66/head less basis and commissions
So on that same set of 566# steers, we improved from a $16/head loss to a $76.66/head profit, just by hanging on to them a little longer. By using moderate performance goals at a pretty reasonable COG, we can catch the price slide advantage on the MAR 11.
Heifers look even better:
Buy heifers, medium 1, 558# @ $118.51
Protect MAR 11 @ $111.60
Feed for 150 days
COG: $0.65 @ 2.5#/day
Weight out: 933#
Breakeven: $97.00
Profit: $136.19/head less basis and commissions
So we jumped these heifers from a $42.85/head profit to a $136.19/head profit by holding down performance, keeping COG reasonable and catching the MAR 11.
If this strategy looks good, you might consider an LRP or option put rather than a short hedge so you can protect your bottom side and let the top side ride. It will probably save you a lot of margin calls we get closer to MAR.
Thank You and Have a Great Day!!
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