The Retained Ownership Opportunity Index provides a quick overview of how feeder cattle prices are impacting break-even prices in the feedlot. If you are considering retaining ownership through the feedlot, feeder cattle prices are the key consideration in that decision—it’s your opportunity cost. Obviously, your decision might not have started with feeders, but rather when you weaned calves.
In addition to cost of gain, weaned calves also have an opportunity cost when you are making the decision to back-ground them over the winter. This year’s calf prices will be down about 30% from 2014 and 2015, when steer calves were sold at about $1,270 per head.
In 2016, calves will be valued at about $850 per head—less than the 2012 and 2013 average value. The opportunity cost of steer calves in the backgrounding decision is $400 per head less than it was during 2014 and 2015.
So, if you’ve done the math and taken Ownership Favors Ranchers into consideration the value of your calves and cost of gain given expected performance over the winter, you now know your breakeven. With that information, you can weigh break-even prices against the expected market for those calves next spring. Again, it is all about the breakeven.
Don’t raise your expectations for the market simply because your breakeven is high. The decision-making process for backgrounding is the same as retained ownership in the feedlot. You need to crunch the numbers for each step of the process and think about your exit strategy at each stage. It’s to your bene‑ t from every perspective.
Because I work with clients across the red meat industry supply chain, I am a strong advocate of bringing some of the supply chain thinking down to the ranch when you are making marketing decisions. Again, it’s marketing “the right cattle for the right market,” but it is also sound financial management.
Note: This story appeared in the October 2016 issue of Drovers.