In September 2012 with drought conditions covering much of the nation, there are many challenges for cattle producers in the United States. Grain and feed prices have skyrocketed, hay is in short supply, pasture conditions are predominantly poor to very poor, and cattle prices have dropped significantly in the last 60 days.

While prices for 500-to-700-pound calves have dropped in the last 60 days from historic highs, it is important to remember that today’s price is still higher than the prices for most of 2011 and the five-year average of 2006 to 2011.

Drought challenges bring opportunities

Drought challenges bring opportunities

There is an opportunity for cattle producers in Texas and Oklahoma. Some ranches have received rain, many were under-stocked from last year’s drought, and several produced some hay this spring. Since most producers are grass-based and the cost of gains in the feed yards is ranging from $115 per hundredweight to $125 per hundredweight, the market is creating a situation where cattle weight gain on grass is very valuable.

The prices for calves weaned and sold in the next 60 days will likely continue to be under pressure with the lack of forage and high feed prices. However, if those 500-pound calves can be bought near today’s price in the low to mid $140 per hundredweight range and marketed at near the $140 feeder cattle market, then the value of that additional gain will be close to $140 per hundredweight.

If a stocker operator can add that gain with grass (e.g., small grains pasture), then the margins could be significant for that operation. Even if the calves are fed on-farm instead of grazed, there are margins for the producer if the cost of the feed doesn’t go any higher than today and gains of the cattle are good. For the cow-calf producer, margins are still there to wean, precondition and retain calves for a longer period. This allows the cow-calf producer to avoid the $8 to $12 hundredweight discount of selling a freshly weaned calf, while enabling him to take advantage of the margin created by the additional gain of the calves. This will also allow for these calves to be sold outside of the time frame when many calves are coming to market from operations that are not able or willing to precondition the calf crop.

Each producer should analyze his or her individual ranch situation when making a marketing or purchasing decision this fall. Analyze an opportunity before selling weaned calves for the cow-calf producer or buying weaned calves for the stocker producer because there will be opportunities in this market.