NEWS for North Dakotans
Agriculture Communication, North Dakota State University
7 Morrill Hall, Fargo, ND 58105-5665
October 28, 1999
Harlan Hughes, Extension Livestock Economist
NDSU Extension Service
I applied a split marketing strategy to my demonstration beef cow herd and generated a projected $7,300 post-weaning added value for the 164 head of 1999 calves -- an average of $44 per calf. This $7,300 is in addition to the projected $15,700 pre-weaning value added from the cow herd. In addition to the livestock value added, this producer is projected to have received the going rental rate for his pasture and to have received the going market prices for all home-raised feeds fed. Not bad for today's tough times in agriculture!
My last Market Advisor discussed the economics of selected traditional marketing alternatives for 1999 calves and concluded that current inflated calf prices were strong enough to consider marketing 1999 calves at weaning. As mentioned by a producer who called last week, final marketing decisions need to be determined by your unique income tax situation and cashflow needs.
I also suggested in my last Market Advisor that $90 per hundredweight for 500- to 600-pound steer calves might be the dividing line for selling at weaning or retaining your fall 1999 calves. This week's monitored market prices fell just below the $90 dividing line, triggering me to explore additional post-weaning marketing strategies. This Market Advisor takes a look at split marketing 1999 calves to add value to the calves and reduce price risks associated with retaining 1999 calves. An optimal marketing strategy should take both long-term market trends and the typical annual seasonal price patterns into account.
A private consultant recently told North Dakota bankers that he recommends a risk management strategy for ranchers of putting the heavy calves directly in a commercial feedlot, backgrounding the middleweight calves and selling the lightweight calves. His strategy has considerable economic appeal and should reduce the price risk of marketing the whole calf crop in one day.
This consultant's recommended three-way split strategy fits the downward side of the beef price cycle quite well. However, I recommend a small modification for the upward side of the beef price cycle: ranchers should consider wintering and grazing their light calves rather than selling them at weaning. This is consistent with my overall strategy of "just own cattle" on an upward trending market.
Let's build on this consultant's split marketing idea and explore the economics of split marketing of my demonstration herd's 1999 calves by splitting the 164 calves into three different profit centers. Each profit center is designed to target the seasonal peak prices for that type of cattle. Multiple marketings will reduce the price risk of selling the total calf crop in one day.
First, I will explore retaining the heavy 1999 calves in a feedlot as calf-feds targeted for the early April 2000 seasonal high market. Second, I will explore marketing the middle sized calves as backgrounded calves targeted for the typically stronger January 2000 feeder cattle market. Third, the lightweight calves will be wintered at a low rate of gain and put on summer grass to target the normally strong August yearling feeder cattle market.
The CHAPS (Cow Herd Analysis Performance System) Calving Distribution Table for this herd was used to sort the calves into the three post-weaning profit centers. The decision was made to sort off a semi-truck load (43 head) of top-end calves to go as calf-feds. These calves would also be selected from those born in the first 21-day calving interval. Let's target the heavy end of the 1999 calf crop for the seasonally high April market by early weaning these heavy calves on Oct. 1 and immediately entering them into a North Dakota commercial feedlot's retained ownership finishing program. Lot costs will be $0.25 per day with feed costs at actual purchase price of the feeds fed.
Calves in the low-end group weighed 530 pounds or less. Twenty-two head of light-weight calves were sorted out and entered into an on-ranch wintering and grazing program. This left 99 head in the middle group weighing between 531 and 589 pounds. This middle group will be entered into an on-ranch backgrounding program.
All planning prices used in preparing profit center budgets for each marketing alternative came from my web page www.ag.ndsu.nodak.edu/cow under the "weekly prices" hot button. If you do not have access to the web, please call Paulann at 701-231-7393 and she will send you the latest week's planning prices.
The 600-pound average weight calf-feds are assumed to be put in the lot at $87 and are projected to come out of the lot on April 10 at $70 per hundredweight. Feed cost totaled $117 per head for a projected feed cost of gain at $0.21 per pound. (Feed costs of gain are low in the Northern Plains.) Adding the lot charges ($48), interest costs ($19), vet and medicine costs ($7), death loss ($8), and hauling, marketing and shrink costs ($46) gives a projected $0.44 cost per pound of gain. (Marketing costs are high in the Northern Plains.) The projected value added is $51 per head, for a total of $2,193 for the 43 head.
The middleweight group entered a backgrounding program on Oct 15, averaging 554 pounds priced at $89 per hundredweight. A target average daily gain of 2.5 pounds was needed to market 800-pound feeders in January 2000 at the projected $82 selling price. Feed cost of gain for the January marketings was $0.20 per pound gained. Total costs after interest ($12); vet and medicine ($7); lot repairs ($10); death loss ($7); and haul, marketing and shrink cost ($34) resulted in a $0.48 total cost of gain. The projected value added was $40 per head or $3,960 for the 99 head in the backgrounding profit center.
The lightweight group was kept on the cows for another 30 days and then put in a wintering lot at the end of November weighing an average of 475 pounds valued at $93 per hundredweight. They were wintered with a target weight of 650 pounds when turned out on grass -- a 1-pound average daily gain while in the wintering lot. The planning price used for valuing the 650-pound year 2000 grass cattle in the spring was $86. The projected value added during this wintering phase is about a breakeven situation, but we have produced $86 feeders, with known genetics, going to grass.
The second phase of the light-cattle marketing was to run these 650-pound calves on grass for 100 days producing 800-pound feeders projected to sell for $84 per hundredweight in late August 2000. This very low negative $2 buy/sell margin for these grass cattle projects a $51 return per head even after paying rental rate for grass. Wintering and grazing these 22 lightweight calves is projected to generate an additional $1,144. Note that the lightweight calves are projected to generate added value equal to that generated with the heavyweight calves. This probably would not happen on the downward side of the beef price cycle.
A total of $6,109 value added, averaging $37.50 per calf, is projected to be generated with this split marketing strategy.
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Source: Harlan Hughes (701) 231-7380
Editor: Tom Jirik (701) 231-9629
Click here for a pdf version of this graphic. (7KB b&w table)