HUNTIN' DAYLIGHT -- ADDING POUNDS OR NOT

by: Wes Ishmael

“It may be that the worst is behind the market as it relates to heavy cattle (fed), but heavy cattle and slower beef demand is not the only thing weighing on finished cattle prices,” says Andrew P. Griffith, agricultural economist at the University of Tennessee, in his weekly market comments (Oct. 9). “Hide and offal values have declined $3.64/cwt. since the beginning of the year and are about 28 percent lower than a year ago. This is a significant loss to the total value of a finished animal and may continue to weigh on the market.”

If you figure the dramatic increase in cattle futures prices the first full week of October—which led cash prices higher—signaled a level of underlying support, then Griffith says it may provide producers enough economic incentive to consider adding more pounds to calves before selling them.

After all, forage was bountiful in most parts of the country this year. The value of gain continues to trump the cost of gain for the added pounds in lots of situations. Plus, more calves coming to market for the fall run—more choice for buyers—means price spreads for similar-weight, similar-class calves will likely grow.

“The decision to sell now or grow calves for another 60 to 75 days depends on the amount of risk one may be willing to take,” Griffith says.

While there are opportunities to receive a price premium for calves weaned and vaccinated according to industry-standard protocols such as VAC-45, by and large, the economic sense of keeping calves revolves around lots more than the anticipated price.

Kevin Dhuyvetter, a former long-time agricultural economist at Kansas State University explained that for producers to examine the potential net economic benefit of preconditioning calves, they need to compare it to other options, like selling calves right off the cow. That means developing budgets, including purchase price (i.e. selling price of non-preconditioned calf); production, including expected average daily gain, estimated death loss and percent morbidity; costs, including those for feed labor, interest, marketing and the expected selling price with preconditioning.

On the other side of the equation, along with considering price seasonality, Dhuyvetter also emphasized that producers should keep in mind that selling price per pound typically declines as weight increases.

In various insightful preconditioning analyses Dhuyvetter provided over time, he offered questions to consider in order to determine whether preconditioning provides sellers a net economic benefit.

• Why do you want to precondition, what are your goals for it?
• Do you have the facilities preconditioning requires?
• When and how do you currently wean your calves?
• Can you delay cash flow, retaining ownership through a weaning and preconditioning program?
• Do you have the expertise or access to the expertise if you have never retained and grown cattle past weaning?
• When and how do you currently market your calves?
• Have you identified a specific marketing opportunity for preconditioned calves?
• Do you understand the realistic costs of preconditioning—including labor and death loss—as well as the realistic returns of preconditioning—including a potential price premium compared to same-weight calves at the time of sale, and the additional pounds per calf that will be marketed?

“There is some indication that prices will improve later in the year or after the first of the year,” Griffith says. “Producers should keep an eye on the finished cattle market the next several weeks, which will lead the feeder cattle market. If the fed cattle market begins retracing its steps to higher prices, then it is very likely feeder cattle prices will follow to some degree. The most likely scenario is for finished cattle and feeder cattle to slowly scale the mountain the next couple of months in regaining some of the losses over the past two months. How high fed cattle go will determine how high feeder cattle prices go. There is a possibility of finished cattle reaching back to the $140 mark before the end of the year, which means feeder cattle may be able to get back to the $190 to $200 range.”

Despite genetic gain, production is unchanged

More days, more feed and growth technology appear to be the most reliable ways to increase salable pounds of calf.

Kris Ringwall, Extension beef specialist at North Dakota State University recently reviewed commercial weaning weight averages from two datasets: CHAPS (Cow Herd Appraisal of Performance Software) for heifers, steers and bulls; FINBIN from the Center for Farm Financial Management, University of Minnesota, for heifers, steers and bulls. He grouped the data into three five-year periods (2000-2004, 2005-2009 and 2010-2014).

For the CHAPS data, average weaning weights for each of the five-year periods were, respectively: 550 lbs.; 561 lbs.; 554 lbs.

For the FINBIN data: 545 lbs.; 558 lbs.; 545 lbs.

According to Ringwall, the data is assumed to be typical of beef production (basis North Dakota cow-calf herd).

Although the datasets cannot be compared directly, clearly, average weaning weights were stagnant across 15 years.

“Actually, the CHAPS cattle leveled off in weaning weights even prior to the turn of the century, and these values for average weaning weight have been typical, even through the 1990s,” Ringwall says.

Data assembled as part of the Southwest Standard Performance Analysis (through 2009) also indicates that key measures of cow productivity are stagnant or declining: average weaning weight, average pounds weaned per cow and calving rate.

None of this discounts individual examples of producers harnessing genetic improvement and heterosis to make astounding gains in production.

“So much information is available today that producers need to make themselves stop and ponder what the information means,” Ringwall says. “Continually marching down the path without input plus pondering does not create a thoughtful environment. Recent discussions of costs and output in the beef cow industry need some of that pondering.”

For perspective, Ringwall looked at the average weaning weights for bulls and heifers at the American Angus Association, for the same five-year periods: 606 lbs., 615 lbs., 621 lbs.

“Interestingly, the purebred weaning weights still are increasing in contrast to the commercial weaning weights,” Ringwall says. “These numbers are moving in the same direction as the EPD (Expected Progeny Difference) genetic trends for weaning weight within the American Angus Association.”

In order to account for genetic lag, Ringwall looked at average Angus weaning weight EPDs for the same five-year periods, plus for 1995-1999: 26.6 lbs.; 33.6 lbs.; 41.0 lbs.; 48.4 lbs.

All of that leads Ringwall to some insightful questions that deserve pondering: “If the cow-calf producer is not marketing the potential genetic growth that is bred into the cattle, why not? Or, have we actually reached management levels that do not allow for full expression of growth? How does the cow-calf producer capture growth? Can a producer afford to sell seven-month-old calves?”







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