NEWS for North Dakotans
Agriculture Communication, North Dakota State University
7 Morrill Hall, Fargo, ND 58105-5665

July 27, 2000

NDSU Ag Economist: Consider Profit Potential Before Backgrounding

Projections from the Livestock Marketing Information Center in Lakewood, Colo., are pointing to relatively steep price slides (discounts) for heavier feeder calves during the next two years. What do these projections mean for North Dakota cow-calf producers? Profits from retained ownership this fall will likely be modest, says an agricultural economist at North Dakota State University.

"The cost of the price slide for heavier weights can be as much as the feed cost to run a calf through the backgrounding phase," says Dwight Aakre, extension farm management specialist at NDSU.

The latest price projections from the Livestock Marketing Information Center suggest a price range for 500- to 600-pound feeder steers of $95 to $97 per hundredweight during the fourth quarter of 2000. Using the mid-point of weight and price ranges (550 pounds, $96/cwt.), the gross value of these steers is $528 per head. Projections for the first quarter of 2001 show a price range for 700- to 800-pound feeder steers of $84 to $87 per hundredweight, with mid-point values (750 pounds, $85.50/cwt.) giving an expected gross value of $641 per head.

Under that projected price scenario, the 200 pounds of additional weight gained during backgrounding will have an expected gross value of $113, or $56.50/cwt., Aakre says.

Or put another way: The original 550 pounds that a calf weighed at weaning will be worth $57.75 less when it’s sold as a 750-pound steer ($96 - $85.50 = $10.50 X 5.5 = $57.75).

Aakre says, "Generally, the lower the cost of feed, the greater the discounts for heavier feeders because under profitable feeding conditions, buyers prefer to put the weight on in their own lots, as opposed to buying it in the auction barn."

For the 2000-2001 period, the potential profit from retaining ownership of calves beyond weaning will be affected, Aakre says, by the following factors:

• Feed costs. Feed is plentiful and cheap this year and likely to be for some time.
• Demand for beef. Demand has been strong this past year evidenced by increased retail sales at higher prices, a result of a robust U.S. economy.
• Competition from pork and poultry. Pork production, nearly unchanged from 1999, is expected to be up in 2001, and poultry production is up considerably from 1999.
• Phase of the cattle cycle, which has reached the end of the liquidation phase and beginning the rebuilding phase. The early part of the rebuilding phase results in continued reductions in beef supply as a higher percentage of heifers are held for replacements.

"When combined, all of these major factors contribute to profit potential for all phases of beef production," Aakre says. "At the current time, however, I think the lion’s share of the profit will be attained from selling at weaning."

Weaning and thus decision-making time is still several weeks away for cow-calf producers, Aakre says, but it’s not too early to begin thinking about the factors that will impact the potential profitability of post-weaning management strategies. Detailed budgets on post-weaning strategies will be available from the NDSU Extension Service in September.

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Source: Dwight Aakre, (701) 231-7378
Editor: Dean Hulse, (701) 231-6136

Feeder Cattle Price Projections

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  Year    Feeder Steers   Feeder Steers
 Quarter   700-800 lbs     500-600 lbs
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            ($ cwt)          ($ cwt)
  2000
    I        85.30            98.81
   II        86.17            98.18
  III        84-86            97-99
   IV        83-85            95-97
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  2001
    I        84-87            99-102
   II        82-85            99-104
  III        83-87            97-104
   IV        81-86            94-99
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