This Week In Cattle

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!!