Caution ahead! As feeder cattle and calf prices strengthened into early summer, it is once again time to exercise caution with the decision to retain ownership. Again, think opportunity cost or the market value of the cattle—higher prices equals higher break-even price equals greater risk. Risk can be managed and that starts with your initial marketing decision, not a call to the commodity broker after the decision has been made or expressing disappointment with the losses at the feedlot.
While there are pockets of drought today, particularly the Dakotas, generally grazing conditions are positive this spring. Consequently, the first step in producing value-added grazing pounds of gain is positive. At the end of the grazing season, you will have more information to evaluate your market strategy. The key is for the next decision to capture that added value or to create and capture additional value with the least risk.
As feeder cattle prices advanced toward $160 for 750 lb. to 800 lb. steers, the break-even price on those cattle was pushed toward $120 when those cattle are estimated to be finished in October. I believe break-even prices in this range for cattle marketed during the fourth quarter might present the greatest risk to feedlot margins until the end of the year. However, the reality of sharply lower margins coupled with increased feeder cattle supplies coming off grass is lower feeder cattle prices. That will put retained ownership through the feedlot with lower break-even prices and less risk back on the front burner.