The contrast in market indications and producer expectations for winter wheat grazing in the Southern Plains could not be more dramatic than 2009 compared to last year. A quick review of the expectations as well as the outcomes from last year is useful.

At this time last year, wheat prices were very high, fertilizer prices were extremely high and seed was hard to find and expensive. Planting wheat early for forage requires extra seed and fertilizer. Research has shown that wheat grazing in Oklahoma reduces wheat yield an average of 5-6 bushel/acre. Thus, the cost of wheat for forage was high due to lost yield and high fertilizer and seed cost. Early planting increases the risk of crop failure and the need to replant. Most producers were focused on establishing the wheat crop and many faced financial limitations that made it difficult to plant once let alone face the prospect of replanting. The result was that most producers were not very interested in grazing wheat despite the fact that early budgets showed some potential for positive returns to the cattle. Of course, ultimately wheat and cattle markets both decreased sharply and the poor wheat crop resulted in an extremely disappointing year no matter what decisions were made.

Which brings us to August of 2009. Wheat and fertilizer prices are sharply lower and wheat (grain) production looks like a breakeven deal at best. The implied price of producing wheat forage is lower and can be expressed in terms of cattle grazing cost in the range of $0.28 - $0.32/pound of gain. Moreover, recent moisture and cooler temperatures across much of Oklahoma mean that the potential for wheat forage production this fall is quite good. Current winter stocker budgets suggest that returns to cattle could be in the range of $30 to $40 per head. This assumes that wheat pasture is valued at $0.40/lb of gain. This suggests another $20-25/head net return to the wheat forage, over the wheat forage cost of production above. Thus, a wheat producer grazing his own cattle has a potential total return to wheat and cattle of $50- $65/head. These returns depend on many assumptions on animal performance, medicine and veterinary cost, labor, interest and other costs and most importantly, the purchase price (beginning weight) and sale price (ending weight) of the cattle.

High demand for stocker calves this fall could push up calf prices relative to feeder prices. This would squeeze the margin and reduce the profit potential suggested above. It is also possible that both calf and feeder prices could increase between now and next spring if fed cattle prices improve, but this would have less impact on the buy-sell margin for stockers. Producers should think of managing the risk of winter grazing by protecting the margin between the buy and sell price of the cattle. Forward contracting purchases and hedging spring feeders is one of many ways to do that. Locking in either end by itself increases the risk of margin changes. The bottom line is that there is more interest in grazing wheat this year, more potential for returns but still plenty of risk that must be considered.

Source: Derrell S. Peel, Oklahoma State University Extension Livestock Marketing Specialist