Looking ahead to this fall, cow-calf producers face a serious dilemma: Sell calves at record-high prices at weaning, or sell them at record-high prices later. Not a bad problem to have, but one that deserves some scrutiny, as a variety of factors play into determining the “best” marketing plan for an individual ranch.
Derrell Peel, PhD, cattle marketing specialist at Oklahoma State University, says the cow-calf producer is in the driver’s seat this year, as marketing calves right off the cow will generate good returns for most. Some might want to forward-contract and price their calves for fall delivery, but Peel does not see much downside risk in waiting to price calves later.
Kansas State University Agricultural economist Glynn Tonsor agrees, saying cow-calf producers face a blessing and a curse with multiple marketing options to consider this year. Tonsor sees four primary options for cow-calf producers to consider: sell at weaning, hold calves after weaning through a fall backgrounding period on forage, retain ownership through finishing, and finally, expand the herd by retaining more heifers.
Take the money and run
Marketing calves at weaning this fall remains an attractive option for many ranchers. South Dakota State University economist Darrell Mark, PhD, says the Livestock Marketing Information Center projects returns over cash costs, including pasture rent, to be near $350 per head for an “average” cow-calf operation in 2014. Last year’s average return was about $123 per head, and the previous record-high average was $150 per head in 2004.
Mark adds that last October, five-weight steer calves in South Dakota sold for around $191 per hundredweight. This year, with prospects for a large corn crop and increasingly tight calf supplies, fall calf prices could be 10 to 15 percent higher than last year, which would put steer calf prices close to $215 per hundredweight this fall. As of early June, October 2014 feeder-cattle futures were trading slightly above $200 per hundredweight. With a historical basis trend of around $20 in South Dakota, Mark says, a futures-based price forecast adjusted for local basis would also suggest prices nearing $220 this fall. And, reports suggest some ranchers have forward-contracted calves for October delivery at well above $220.
Peel stresses that even in a record-high calf market, ranchers can benefit by participating in value-added preconditioning programs. From a buyer perspective, he says, the value of preconditioning in reducing the risk of calf morbidity and mortality is even higher given amount of money they are investing in feeder cattle. It is important though, for producers who invest in preconditioning to also market the cattle in a way that captures that value, such as through certified sales that attract buyers who recognize the benefits of preconditioned calves.