Even though calf sale time in the fall seems like a long way off, now is a good time to plan for marketing to be prepared to take full advantage of potentially high prices and maximize the value received for calves.
A first step in market planning is to stay on top of markets, both cash and futures. While the cash markets are important at telling you where the market has been and to compare market strength among various options, the futures market is the best predictor we have of where the market is expected to go. This means both cash and futures markets should be monitored. The futures market provides tools to consider alternative market dates and options. For example, a question to consider is whether to sell your calves at weaning or to background them until they reach a pre-determined larger weight at a later date. In other words, should a person sell their 500 lb. calves at weaning in mid-October, or should they background them to 700 lb. for sale in mid-January? Using cost and availability of feed and projected cost for each weight of calves at each date, a person can calculate which option will provide the greatest net return.
If you are willing to continue beyond that with your calculations, you could also look at the projected profit from retaining ownership all the way to slaughter. While you may not have the capacity or desire to finish cattle, contracting with a custom feeder is an option. In this case, the calculations of potential profit include the feeder’s contractual costs (feed and yardage) and the projected value of the finished calves.
Obviously, a potential downside of retaining ownership is exposure to the risk of ownership beyond weaning. However, risk management tools are available and can provide protection from downward movement in the market while the cattle are on feed. Many cattle feeders will include assistance with risk management as part of their services for feeding cattle. This can include finding a partner to share ownership costs and risk, advice on hedging or insurance options, or even actually contracting for you. Shopping for the right cattle feeder should include checking out their risk management services.
Another concern with retaining ownership is knowing how your cattle will perform and their price value at slaughter if you have never followed them to slaughter before. Do your cattle grade well so they will draw premiums on high-quality price grids? Or should they be targeted toward other pricing options? Not knowing this will make it somewhat challenging to calculate their profit potential at slaughter. It doesn’t mean it can’t be done; it just makes the results less certain.
One option to get a handle on postweaning performance and carcass traits without taking the risk on the entire herd is to experiment with retained ownership on a group of calves. Most Land Grant Universities have programs that small groups of calves can be enrolled in that provide reports about feedlot and carcass performance. Enrolling a representative group of your calves can provide the information for future calculation of their value if ownership is retained and to focus retained ownership programs (if chosen) toward capturing their highest value (e.g. high quality vs. high yield pricing grids). An example of these programs is the Calf Value Discovery Program at SDSU.
Other valuable information about your calves can be gained from these programs as well. For example, if you learn that they don’t perform well in the feedlot or grade well, then you can alter your breeding program/bull selection to improve the deficiencies. Or, if they do perform and grade well, you can use that information as a marketing tool if you use a marketing outlet that allows interaction with potential buyers (e.g. direct sales) so you can promote the “added value” of your calves.
I have described opportunities that can be gained from putting forth the effort to make a variety of calculations. This task can appear challenging to anyone that hasn’t done it before. Don’t be afraid to ask for help to learn how to do them. There are a variety of sources for this help, including SDSU Extension, USDA FSA, or your ag lender.
Source: Ken Olson