Submitted by: agcomm, Thu Sep 4 10:25:08 1997 The Market Advisor: How To Make Cents Out Of Today's Cattle Market (Part V) Harlan Hughes, Extension Livestock Economist NDSU Extension Service As the deadline for marketing 1997 calves rolls closer and closer, beef cow producers are calling in about projected market prices and corn/feeder calf price relationships. The overall conclusion of my Sept. 2, 1997, study is that some form of retained ownership of 1997 calves will pay reasonably good economic dividends this year. My market alternative evaluations were based on $2.50 corn. Northern plains producers should be able to easily beat my feed grain prices. Keep the phone calls coming in, as that is how I learn what ranchers and beef farmers are thinking about in these volatile times. Now that you and I have built a price projection system based on my last four Market Advisors, we can use it to evaluate marketing alternatives for 1997 calves. The market analyses discussed here are based on Bismarck, N.D., sale barn prices for the week of Aug. 22, 1997, and feeder cattle futures prices for Sept. 2, 1997. Bismarck's market price equation for the week of Aug. 22 is: Market price = 157.7797 + (-19.0693 x Cwt) + (1.214112 x Cwt x Cwt) This equation generates a price range of $87-$93 for 500- to 600-pound feeder calves with an $89.83 projected price for 550- pound feeder calves. The price slide for 550-pound calves was calculated at a minus $5.71 per hundred pounds. This same market price equation generated a price range of $83-$84 for 700- to 800-pound feeder cattle with 750-pound steers projected at $83.05. The price slide for 750-pound feeder steers was a minus $0.86 per hundredweight. This low price slide suggests that some premium is being reflected for heavyweight feeder cattle. The second component of this price projections system is the October feeder cattle futures prices. On September 2, October's feeder cattle futures closed at $78.67 per hundredweight. If this weaker futures price is combined with the Bismarck price equation, 500- to 600-pound feeder calf prices are projected to be in the $84-$89 range this fall. Five-hundred-and-fifty-pound feeder calves to be sold this fall are projected at $85-$86 with a price slide of $5.71 per hundredweight. This fall 700- to 800- pound feeder steers are projected to run in a narrow range of $79-$80 with a price slide of only a minus $0.86 per hundredweight. As described in my last Market Advisor, first quarter 1998 feeder cattle prices can be projected from the Bismarck market price equation and the average feeder cattle futures prices for January 1998 and March 1998. On Sept. 2, 1997, the January/March feeder cattle futures average closed at $80.64. The projected price for 700- to 800-pound backgrounded feeder cattle in quarter one of 1998 is $80-$82 with a projected price slide of only $0.86. These two projected prices suggest a buy/sell margin for backgrounding 1997 calves at a minus $4.50. Since a typical buy/sell margin runs in the negative $6-$8 range, this smaller buy/sell margin suggests that backgrounding 1997 calves should be profitable. I also demonstrated in my last Market Advisor how Spring 1998 price projections can be based on May 1998 feeder cattle futures price. On September 2, this futures price was $80.55. The projected price for 650-pound grass cattle in Spring 1998 is $82- $83 per hundredweight. The final thing we need for evaluating the marketing alternatives for 1997 feeder calves is a set of quarterly slaughter cattle planning prices for the first and second quarters of 1998. Since the price projection system discussed in this series deals with only feeder cattle, I have turned to one of my colleagues, Dr. Brian Buhr, University of Minnesota, for my slaughter cattle price projections. The projected slaughter cattle prices that I settled on are $71-$72 Nebraska Direct Slaughter Steer Prices for the first half of 1998. I then adjusted these projected prices for the first half of 1998 by North Dakota's seasonal price indices for slaughter steers to generate projected prices for the third and fourth quarter. I project 1998 third quarter slaughter cattle prices in the very low $70s and fourth quarter slaughter cattle prices in the mid $70s. These lead to a projected 1998 average annual slaughter steer price of $72-$73--$5-$6 above the 1997 projected annual slaughter cattle price. We are now ready to evaluate several different marketing alternatives for 1997 calves. Let's first look at selling at weaning. My Integrated Resource Management (IRM) demo herd projects that a typical northern plains beef cow producer could net $63 per cow if he sells his 500-pound steer calves at weaning for the projected $85-$86 per hundredweight. Heifers, not needed for replacements, were projected to sell at an $8 per hundredweight discount to steer calves. Average gross income from calf and cull sales is projected at $428 per cow for this typical herd. My IRM Cooperators averaged $316 gross income per cow in 1996. Total production costs for 1997 calves are projected to average $365 per cow, compared to $345 for IRM Cooperators producing 1996 calves. Net return to rancher's unpaid labor, management and equity capital is projected at $63 per cow-- up from a negative $19 average per cow in 1996. A second marketing alternative is to background these 550- pound 1997 calves with a projected negative $5 buy/sell margin. If these $85 steer calves are backgrounded and sold at the $81 projected price, net income is projected to be $36 per head. This is based on a 2.6 pound target average daily gain ration of $2.50 corn, $2.14 cent barley and $55 dollar hay. Total costs of gain with these feed prices are projected to be $0.56 per pound. Total production costs of backgrounding these calves, including the purchase cost of the calves, is $610 per head. This suggests that a 100-head cow herd will need $61,000 backup financing to take advantage of this marketing alternative. The northern plains cattle feeder who buys these backgrounded feeders for $81 per hundredweight, and sells them as slaughter cattle for $73 at the end of May, is projected to net $22 per head. Much of the gain from feeding is lost in marketing. Cost of gain with $2.50 corn is projected at $0.52 per pound for a gain of $76 from the weight gained. This buy/sell margin is a minus $6.76 giving a projected marketing loss of $54 on the original 800 pounds. The net return from these two components of cattle feeding is $22 per head. Total production cost of finishing these backgrounded steers is projected at $854 per head including cost of the feeder. This suggests that the cattle feeder will need another $85,000 of backup financing to take advantage of this marketing alternative. The final marketing alternative is the fast-track feeding program where the calves are backgrounded and finished in an accelerated program similar to the last three-year Dakota Finishers Program conducted at the Carrington Research Extension Center. My budget for these fast-track cattle is based on 3.1- pound overall average daily gain and on a $2.50 per bushel average corn price. The projected buy/sell margin is a minus $12.70 per hundredweight. The projected cost of gain is $0.48 per pound gained for the 650 pounds. This nets $159 for the weight gained but after adjusting for the marketing loss on the original 550 pounds, net income to this accelerated program is $92 per head. The total production cost for this accelerated program is $784 per head. For the 100 head it is projected to require $78,000 of backup financing to take advantage of this marketing alternative. I suspect that 1997-98 corn prices could easily range lower than my current $2.50 projections. If I have overestimated corn prices, the net addition should be added to the above projected net returns. The biggest unknown in all of these projections is corn price. The Freedom to Farm Act has changed the ball game. Stay tuned. ### NDSU Agriculture Communication Source: Harlan Hughes (701) 231-7380 Editor: Barry Brissman (701) 231-7866