While a 36% drop in calf and feeder cattle prices during the past 12 months does not bode well for your ranch budget, the current rebalancing of prices offers an opportunity for retained owner-ship. And, with the right circumstances, those extra pounds of beef, whether in a backgrounding, finishing or a combination of both programs, can present a marketing opportunity for added revenue and use of your forage.
If you already have the forage, this can be an appealing option. As long as your marginal cost of an added pound does not exceed the marginal revenue from that additional pound of beef, the economics are on your side. The key—you must know your costs of forage (if produced) and your cost of gain for backgrounding whether in a dry lot or on grass, and this involves keeping cost records and using those records for decision-making.
In the feedlot, I have attempted to simplify the decision to determining the opportunity cost of your feeders if you sell them versus putting them on feed. This involves the breakeven when those cattle are finished and weighing that breakeven against the likely market for fed cattle.
In October, calf prices were down 42% from last year and 7% from the September average. Prices during the first-half of November strengthened, and we expect they will average about 2% above October, but still down 38% from a year ago.
These prices coupled with lower cost hay present the opportunity to background calves and sell more pounds, but again, this is a beginning point based solely on current prices. The final decision must consider your individual circumstances, not the least of which is your situation with the bank.
Retained ownership in the feedlot continues to look positive based on expected breakevens. A sharp decline in the feeder cattle market and feed costs contributes to this optimistic outlook. However, there is plenty of pessimism on the way concerning 2017 steer prices.
John Nalivka, is the president of Sterling Marketing, Inc., Vale, Ore., and provides the weekly Sterling Beef Profit Tracker on www.Drovers.com. You can contact him at:
Note: This story appears in the November/December issue of Drovers.