NEWS for North Dakotans
Agriculture Communication, North Dakota State University
7 Morrill Hall, Fargo, ND 58105-5665
February 3, 2000
Harlan Hughes, Extension Livestock Economist
NDSU Extension Service
I've been trying to convince cattlemen that they can make the cattle cycle work for them. The typical beef cattle cycle is broken into three phases -- expansion, contraction, and turn around. We are currently in the contraction phase going into the turn-around phase. Let's look at my price projections for the current turn-around phase to illustrate my point.
Each week I publish a revised set of price projections for feeder calf and feeder cattle on my Web Page, www.ag.ndsu.nodak.edu/cow. These projections can be accessed by clicking the "weekly cattle prices" hot button.
My price projection system for alternative weight feeders is based on two market forces: a weekly statistical price slide calculated from reported western North Dakota sale barn prices and the feeder cattle futures market prices reported for the projected months in years 2000 and 2001. Yes, my price projections change weekly with the changing futures markets and with western North Dakota sale barn prices.
There are four different price analysis sections presented under the "weekly cattle prices" hot button. You'll need to have Adobe Acrobat Reader on your computer to access some of these price projections. This free program can be downloaded by going to the "Harlan's Handouts" button and clicking on the yellow "Get Acrobat" button.
The first section is my market price projections for the next 15 months for alternative weights of feeder calves and feeder cattle. The second section contains year-to-date prices for 550 pound feeder calves and year-to-date prices for 800-pound feeder cattle for central and western North Dakota.
The third section contains detailed weekly sale barn prices, price slides, and basis information for four Northern Plains sale barns -- West Fargo, Bismarck/Mandan, Dickinson and Billings, Montana. My source of this sale barn market data is the USDA Agricultural Marketing Service data on the http://www.ams.usda.gov/lsg/mncs/ls_sfsd.htm web page. If you live outside of North And South Dakota, check http://www.ams.usda.gov/lsg/mncs/ls_main.htm for your local sale barn reports. There is a wealth of sale barn and marketing information on these USDA web pages.
In the fourth section of my web page I compare Western Canada feeder cattle prices to North Dakota's feeder cattle prices. Both are expressed in U.S. dollars. You may be surprised how close these two price series are. The Canadian cattle industry is now hooked directly into the U.S. price structure. The only real difference is the value of the Canadian dollar.
Let me share with you what I consider the key projected marketing prices for marketing 1999 calves based on price projections from the week of Jan. 21. First, steer calf prices for 500- to 600-pound calves averaged $91 in October in western North Dakota. If these calves were backgrounded and sold during the week of Jan. 21 at 800 pounds, they averaged $83 per hundredweight. These prices generate a buy/sell margin of a minus $8 per hundredweight on the original 565 pounds. If these 800-pound backgrounded feeder steers are sold in March, my projected sale price is $82, generating a buy/sell margin of a minus $9.
If these March 800-pounders are finished at 1,200 pounds in June, I predict the selling price will be $70 per hundredweight with a buy/sell margin of a minus $13. This is an exceptionally wide buy/sell margin, which suggests that something will change in these market prices. Cattle feeders also push pencils. They either are projecting higher slaughter prices than I am or they will reduce what they will pay for March 800 pound feeders. Stay tuned.
There seems to be considerable interest in running grass cattle this next summer. My concern with this marketing alterative is that we are going to be short of grass cattle this spring. As a result, I am predicting high grass-cattle prices. I am predicting 625-pound grass cattle on to grass at $95 per hundredweight and off grass at $86, giving a buy/sell margin of a negative $9. This negative $9 buy/sell margin suggests a marketing loss of $55 on the original 625 pounds for grass cattle. Can cattlemen overcome this marketing loss with cheap gain on grass in year 2000? My projected total cost of gain while on pasture (including grass) is 50 cents per pound. This suggests a net gain from the grazing phase of $36 ($86-$50) per hundredweight of gain. Given the projected gain of 175 pounds on grass, this nets out to $63 gain while on grass. Add back in the $55 marketing loss and the projected net gain from grazing cattle this year is $8 per head. This is the net earnings for unpaid labor, management, equity capital and risk. Interest was charged on the feeder calf. If I do not put a cost on the grass, then the projected return to unpaid labor, management, equity capital, risk and grass is approximately $50 per head.
Why such low profit projections for grass cattle? The supply of grass cattle for 2000 grazing is down substantially from last year's feeder cattle supply. And optimism has set into the cattle business. The primary characteristic of today's fast changing cattle business is that you can not use year-old price signals to make production and management decisions.
My highest marketing alternative, as of the week of Jan. 21 is for wintering and grazing of 1999 light-weight calves. At the encouragement of a Wyoming rancher in late October, I added this marketing alternative to my projections: purchasing lightweight 350-pound calves in October, wintering them with a target average daily gain of 1.3 pounds per day, and putting them on grass at 590 pounds. They are projected to be marketed off grass in early September 2000 at 800 pounds. They are projected to gain 1.66 pounds per day while on grass.
These 350-pound calves were priced at $105 in late October in western North Dakota and are projected to sell for $88 off grass in early September 2000. This gives a buy/sell margin of a minus $17 per hundredweight on the original 350 pounds, netting a marketing loss of $59 on the original 350 pounds.
The wintering feed cost of gain for these 350-pound calves is projected at 50 cents per pound of gain and the cost of gain during the grass phase is projected at 47 cents per pound. The combined wintering and summer grazing gain of 450 pounds is projected to cost approximately 48 cents per pound of gain. Given the projected $86 sales price off grass, a profit of $38 ($86 -$48) is projected for each hundredweight of gain. This suggests $171 profit from the combined wintering and grazing phase. Combine the marketing loss of $59 with the grower profit of $171 and I am projecting a $112 post-weaning profit per calf. I do, however, project a pre-weaning profit of a negative $36 for the cows that produced these 350 pound calves.
Yes, I do believe that astute ranchers can make the cattle cycle work for them.
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Source: Harlan Hughes (701) 231-7380
Editor: Tom Jirik (701) 231-9629