  BeefTalk:
Risk and Potential Benefits Need Managing for Successful Outcome
By Kris Ringwall, Extension Beef Specialist,
NDSU Extension Service
It is hard to believe, but the fall weaning season will soon be upon us. Have
you put together a plan of what to do with your calves? For the cow-calf
producer, this is not a simple question.
Today, the process of selling calves is not as easy as it seems. How
integrated do we want the business to be? What are our options? How do feed
inventories match livestock numbers? Why should a cow-calf producer take on more
risk, when the cow-calf industry is one of the most risk-laden industries
already? The questions continue and become more complex.
Information flows from the marketing sector and is available for everyone to
plot out effective marketing plans. For the cow-calf producer, the process is
not as simple as the numbers often imply. For years, producers have known what
being at the beginning (some would say bottom) of the food chain really means.
When consumers pick through all the fruit at the grocery store, the leftover
produce has little to no value. The same could be true for the beef producer:
once you allow a given set of cattle to be picked over, the remainder has a
reduced value.
So, is the same true with retained ownership? Does more selection mean more
marketing discounts, less revenue and possibly a negative impact to the overall
cow-calf enterprise? Is the assumption of increased risk worth the potential
revenue adjustments?
Risk, and willingness to accept, seems to be proportional to the expected
outcome. For the North Dakota State University Dickinson Research Extension
Center, the average calf value for calves marketed since the 1996 calf crop has
been $513 (673 pound) per head weaned. The average value on the rail at harvest
has been $785 (1,136 pound) per head harvested. The average cost to reach a
harvestable point has been $259 per head fed.
A quick session with a calculator reveals harvest value ($785) minus feeding
and transportation costs ($259) equals revenue ready to mail back to the owner
of the calves. In this case that’s $526 per head. Since this number is greater
than the appraised value for selling in the fall, $526 minus $513 suggests an
increase in revenue to the cow-calf operation of $13 per head.
Given interest rates and the risky nature of the cow-calf business, many
friends in the cow-calf business have not opted to retain ownership as the
Center has since 1996. In retrospect, $13 dollars is not enough to ante up at
the table and place the operation at risk. The other ongoing concern and
challenge in encouraging retained ownership is that producers never forget a
loss, and quickly pass over the good years.
Is the Dickinson Research Extension Center better or worse off? The answer is
probably neither. The data keeps us knowledgeable, the process keeps us
integrated into the full industry and the meaning of breakeven is clearer. Risk
taking for the pleasure of breaking even is not what retained ownership needs.
Extrapolating the numbers from the Food and Agricultural Policy Research
Institute at the University of Missouri and Iowa State University, the average
value at weaning for the next nine years is $528 (600 pound) and average value
on the rail is $866 (1,200 pound). The difference between calf value and rail
value is $338. Assuming no increase in feeding cost or transportation, (not a
good bet), subtracting $259 per head costs ($338 - $259), the increased revenue
back to the cow calf operator, using these projected average figures is $79.
Is a projected average of $79 over the next nine years worth retaining
ownership? At least the number is positive, and perhaps tempting. But how
tempting? What would improved genetics do to the number? Or should producers
dedicate efforts to reducing costs? The answer, unfortunately, is somewhere in
the middle. Should I fold or ante up?
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 BT0151.
###
Source: Kris Ringwall, (701) 483-2427, kringwal@ndsuext.nodak.edu
Editor: Tom Jirik, (701) 231-9629, tjirik@ndsuext.nodak.edu
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Graphic...
Historical and Projected Revenue Flow for
Cow-Calf Producers Retaining Ownership
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Historical Projected
(1997-2002) (2003-2011)
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Fall Calf $ 513 $ 528
Fed Value $ 785 $ 866
Feeding and Transportation $ 259 $ 259
Potential Increase Revenue $ 13 $ 79
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Historical fall (673 pound) and fed (1,136 pound)
values and feeding and transportation costs --
NDSU Dickinson Research Extension Center
Historical fall (600 pound) and fed (1,200 pound)
values -- FAPRI-UMC TDR 04-03 -- 2003 U.S. Baseline
Briefing Book
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