  BeefTalk:
Net Returns Look Positive for 5 Years -- What’s Next?
By Kris Ringwall, Extension Beef Specialist,
NDSU Extension Service
There are different approaches to running cows and marketing their offspring.
A producer can sell freshly weaned calves or retain ownership of them and sell
them on the rail. The vocabulary a producer uses to discuss the cattle business
is most likely the result of which approach he or she accepts.
Last week, we talked about numbers. Regardless of which approach a producer
takes, those numbers are the basis for the cattle business, because net return
is a number that needs to be estimated. In the most simple form of the cattle
business, a producer needs two numbers: total sales of product and total
expenses. Subtracting the last from the first should give a strong indication of
the potential dollars returned in the cattle business.
There are several options on how inclusive or exclusive a producer should be
during these calculations. In this column, I’ll focus on the income side of
the equation.
One fundamental question is always, "When should I market the
calves?" This is a true challenge, because the longer a calf is owned,
generally, the greater the amount of gross total sales. A producer needs to
determine what the end point of ownership will be.
Historically, most cow/calf producers marketed calves directly off the cow as
weaned calves. This option provides no direct indication of the actual value of
the marketed steer on the rail to allow for good comparison of when to market.
Since 1996, the North Dakota State University Dickinson Research Extension
Center has retained ownership of calves, selling them on the rail. The average
value of these calves has been $804.07 (721.96 pound hot carcass weight) and
provided $16.12 net return to the finishing enterprise (additional dollars above
the value of the calf at weaning in the fall).
Put another way, our ability to return a net profit meant we could not have
more than $804.07 in expenses. To determine profit back to the cow, I need to
subtract our total feedlot costs per calf ($227.30) from the average net value
of the steer, which gives the Center $576.77 to work with from birth through
backgrounding. These steer calves have averaged 700 pounds going into the
finishing portion.
Using price projections developed by the Food and Agricultural Policy
Research Institute (FAPRI) for the years 2002 to 2006, the value of the
carcasses should average $844 for the next five years. That assumes that all of
our performance data will stay the same for the next five years (we would ship
700-pound calves that average 721-pound carcasses on the rail). If feedlot costs
remain reasonable, I would project that the Center would maintain the $576
margin and perhaps increase it to over a $600 dollar buffer to offset production
expenses and return a profit to cover labor.
However, retaining ownership or selling in the fall are both viable options.
Selling those calves in place of retaining ownership is projected to exceed the
dollars brought in by placing the calf in the feedlot. This is a nice situation
for the cow/calf producer.
With a little figuring, we calculate that if these calves were to bring
$82.40 in the fall, the Center would have the same amount of money to work with
as feeding the calves out.
I hope most cow calf producers are striving to keep cow expenses at less than
$1 per day per cow/calf pair and calf preconditioning programs under $1.70 per
day per calf. The $365 per cow and $75 per preconditioned calf should provide
total per cow expenses of $440 leaving a margin for producing calves on the
grasslands of North Dakota at over $100. These kinds of numbers should certainly
be enough incentive to turn the cycle and start cow numbers climbing.
The trick will be 2007, when FAPRI projects the cycle to change and negative
returns will return to the cow/calf segment. Where will the cow/calf producer be
then? Will the producer have the data necessary to make the genetic changes
necessary to keep a positive net return? Believe me, it is never too early to
plan ahead.
May you find all your ear tags.
Your comments are always welcome at www.BeefTalk.com.
For more information, contact the North Dakota Beef Cattle Improvement
Association, 1133 State Avenue, Dickinson, ND 58601 or go to www.CHAPS2000.COM
on the Internet. In correspondence about this column, refer to BT0060.
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Source: Kris Ringwall, (701) 483-2427, kringwal@ndsuext.nodak.edu
Editor: Tom Jirik, (701) 231-9629, tjirik@ndsuext.nodak.edu
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