What Should I Do With My Calves?

Zach Wilson, Beef Northwest Feeders

     
~As appeared in the Oregon Cattlemen’s Association publication ‘Oregon Cattleman’ September 2017 issue.

That is a common question the last couple of months for people who haven’t yet sold their calves this fall. The market is tough and doesn’t show much mercy for those that still own their calves. But even with all the gyrations in the market, there are options and opportunities to consider when valuing and determining the best marketing options.

For instance, just because someone bids you a price and that is the market price for a calf at a particular point in time, it doesn’t mean that is the calf’s value. A cow/calf producer can optimize seasonal variabilities to market a calf at different stages in the calf’s life or value the calf based on the futures market at different points down the road.

The different marketing opportunities can be defined as:

  • Selling the calf today
  • Feeding the calf and selling as a feeder calf in the spring
  • Feeding the calf in a finishing lot and selling it as a finished animal
  • Partnering with a feedyard and finishing the animal

Selling the calf today at the bid is certainly an option that removes the risk in ownership, but it isn’t always the best option in maximizing the calf’s value. An example would be selling a 600-lb. steer calf on December 1st at $1.50/lb. Projecting a breakeven cost to finish the calf would look like this:

In-Price @ 600 lbs.$1.50/lb.
Cost of Gain to Finish in Finishing Feedyard$0.78/lb
Projected Breakeven in June @ 1,355 lbs.$1.11/lb.

In this scenario, if the futures and breakeven price are the same at the time the steer is harvested ($0 basis), a ranch would have less ownership risk selling the calf @ $1.50 than feeding it. If the June live cattle futures are higher than $1.11, the futures market is telling you that it would be more opportune to feed the cattle to finish.

Feeding the calf and selling it as a feeder in the spring would also be an option. Pricing the 600 lb. calf at $1.50/lb. on December 1st and feeding it in a growyard until March would look like this:

In Price @ 600 lbs.$1.50/lb.
Cost of Gain to Grow to Sell as a Feeder$.90/lb
Projected Breakeven on March 15th @ 825 lbs.$1.34/lb

In this scenario, if the owner of the cattle feels like the spot price for their animals is going be at or below $1.34, then they should get the current value of the animal. However, if that same owner senses that the market will demand a higher price for an eight and a quarter weight feeder, they should retain ownership through the grow yard and decide whether to sell or finish his animals at the end of the grow period.

This does not include any premiums for the cattle if they were paid CAB premiums ($20-$60/hd) or other quality grade premiums including GAP or Natural. Any premiums would increase the value of the calf if it is held to finish.

Retaining your calves through the finishing phase also presents the option of taking advantage of your herd’s genetics. The choice – select spread garnered as much as .23/lbs during the spring and summer months in the Northwest. Finishing your cattle is a fantastic opportunity to take advantage of the work put into the genetic quality of the heard. Many feed yards will put EID tags, in the animal at receiving so as to track individual performance through the finishing process. With today’s technology and ability to track cattle on an individual basis, a lot can be learned about which cattle are performing and which cattle are not contributing to the bottom line. This information can then be used to focus on the most economically viable traits.

In today’s market, it has made more economic sense in many instances to feed cattle to finish rather than selling them at the current market bid or to feed them and sell them as feeder cattle in the spring.

The market changes every day. It is important to value the current bid for your cattle, versus owning them through future points in the production process that could realize the advantages of a premium market in the future. If a cow/calf producer doesn’t want to assume all the risk in extended ownership, many feedyards, including Beef Northwest, are happy to partner with producers on their calves. This allows the producer to get feedback on their calves without assuming all the ownership risk. The calves can also be financed through the feedyard if there are cash flow considerations.

The examples above give the cow/calf producer a method to determine the “value” of their calves at a point in time versus “taking” a market price for the calves and figuring “It is what it is.”

If you have additional questions, or need more information, it’s also a good idea to consult with folks who have expertise in cattle marketing. In many instances, they can help take some of the guesswork out of the marketing equation, and alleviate some of the worry you may be experiencing this year about when and how to market your cattle. Oregon State University, Washington State University, or University of Idaho all have some good tools that can be used to evaluate enterprise costs that may be helpful in determining your costs.

If you have questions or would like to evaluate your marketing alternatives feel free to call me in North Powder. You can reach me at 541-898-2288, by email (email Zach), or by filling out the web form found here. I’d be happy to talk with you.