The Opportunity Index was developed to help stimulate thinking and simplify how you evaluate marketing options for your calves. It is often said the most dangerous phrase is, “we’ve always done it that way.” ­This has practical application to our thinking across the entire supply chain and you, the producer, are at the “headwaters” of this supply chain.

The 2016 calf market fell 35% from the record prices of 2014 and 2015, portending substantial red ink to ranch budgets if the pace of price declines continued into 2017. However, prices have stabilized into the new year and our adjusted price projections are now showing considerable improvement to cow-calf returns.

In fact, cow-calf returns for our estimated ranch budget would show a positive margin of $43 per head against variable costs. Sure, a 75% decline from the prior year is beyond serious and for many producers with high debt that number will quickly become red ink, but margin prospects this year have improved.

In addition to margin improvement, as a result of higher-than-expected prices for calves, the opportunity for marketing those calves through retained ownership either in backgrounding or into the feedlot has also improved significantly. Although prices might be lower, ranchers can now potentially realize additional income from marketing increased pounds of beef through the lower opportunity cost of retained ownership.

Along with 2016’s 30% drop in feeder cattle prices, Sterling’s feedlot margin analysis indicates estimated break-even prices for cattle placed during August and market-ready during January 2017 at $107 per cwt.

 

In sharp contrast, break-even prices hovered at $148 per cwt for cattle marketed during January 2016. ­That $40 per cwt difference in the breakeven illustrates opportunity for the owner to sell more pounds of beef through retained ownership in the feedlot in the face of lower prices for calves and feeder cattle.

 

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: jnalivka@fmtc.com or www.sterlingmar-ketinginc.com or (541) 473-3266

Note: This story appears in the February 2017 issue of Drovers.