by: Wes Ishmael

“In times of declining cow-calf margins, it is important for producers to evaluate opportunities to enhance calf value while simultaneously managing cost of production,” says Derrell Peel, Extension livestock marketing specialist at Oklahoma State University, in his early-June market comments.

Peel uses a variety of surveys and studies to underscore his point.

For instance, Peel explains calves marketed as bulls generally receive a four to five percent discount compared to steers. Of course, one reason bull calves sell similarly to steers at some auctions is because the prevalence of bull calves establishes the market for steers, too.

Market calves that are polled or dehorned often means avoiding a discount of two to three percent

Vaccinated calves usually receive a premium of one to two percent over unvaccinated calves, Peel says. He explains that vaccination programs typically include two rounds of Clostridial and respiratory vaccine.

Buyers continue to pay more for weaned calves, too; one and a half percent to three percent more, according to Peel.

“The costs of weaning calves are significant but weaned calves sell at heavier weights,” Peel explains. “The premium for weaning is the additional value for calves at the heavier weaned weight and are in addition to the added value of selling heavier calves.”

With the benefit of added weight in mind, Peel points out that anabolic hormone implants can add $15-$20 per head in value, though many cow-calf producers forego the practice.

“While the majority of feeder cattle receive anabolic hormone implants during stocker and feedlot production, only about 26 percent of Oklahoma cow-calf producers implant calves prior to weaning,” Peel says. “Most non-implanted calves sold as ‘natural' do not receive market premiums unless they are explicitly part of a value-added natural beef program.”

Thumbing through data from Superior Video Auction sales, summarized by Kansas State University, tells the same story. Despite the reluctance of some cow-calf producers to utilize implants for fear of discounts, there are none, all else being equal.

“These practices require more management and some additional cost but have the combined potential to increase calf value by $50 to over $100 per head,” Peel says. “Some of these practices are very low-hanging fruit that producers can capture with little or no effort or investment.”

Volume Has Value, Too

The larger the sale lot, the more value calves have, too.

“Having just five head in a uniform lot increases price an average of nearly $5/cwt. compared to single-head sales and 10-head lots bring an average of $7/cwt. more than singles,” Peel says. “Truckload lots often bring $10/cwt. more than single-head sales.”

Recent, USDA data also underscores the relative economic advantage for cow-calf producers when it comes to economies of scale (see Table 1).

Total costs per bred cow vary by about $623 per bred cow across the eight Farm Resource Regions defined by USDA's Economic Research Service.

“Overall, the significant variation across regions reflects a host of factors including differences in land use, weaning weights, and operation size,” says Glynn Tonsor, agricultural economist at Kansas State University. He summarizes the semiannual ERS commodity costs and returns data for cow-calf operations, in the latest In the Cattle Markets.

Tonsor notes the regional ranges for total cost are nearly $200/cow larger than operating cost.

“To further highlight the role of operation size in regional variability, note returns over total cost are very highly correlated (0.87) with the number of bred cows USDA estimates for a representative operation in each region,” Tonsor explains.

“Going further, the correlation between total cost per bred cow (which captures fixed costs and allocated overhead) and the number of cows (-0.55) is significantly larger than the correlation between operating cost per bred cow and cows (-0.04). These patterns largely reflect the ability of larger operations to spread fixed costs such as labor, managerial ability, and equipment over a larger volume of animals reducing per head expenses. This is referred to by economists as economies of scale.”

Prices Set to Soften Further

As mentioned in the last column, narrower calf margins magnify the value of managing costs, as well as added value.

“With larger fed cattle supplies and higher carcass weights, beef production for 2017 is forecast at 25.8 billion lbs., four percent above 2016,” say ERS analysts in the May Livestock, dairy and Poultry Outlook.

Similarly, the Livestock Marketing Information Center (LMIC) projects commercial U.S. beef production this year to be up about four percent from last year. In 2017, LMIC forecasts beef production to be another three to six percent more than this year.

“If realized, in 2017 U.S. beef production would be essentially equal to 2013's and the largest since that year. In 2012 production was 25.9 billion pounds,” LMIC analysts say.

Although the folks at LMIC expect domestic beef demand this year to be a little stronger than it was in 2013, they believe export demand will be lower.

LMIC offers an overview of cattle prices with similar production in 2012-13.

“The five-market slaughter steer price averaged $125.88 per cwt. (2013), while calves weighing 500-600 lbs. brought $172.15 in the Southern Plains. In the fourth quarter of that year, the five-market average fed steer was $130.77 per cwt. and Southern Plains calves (500-600 lbs.) were $187.56,” LMIC analysts explain. “Going back one more year to 2012, the annual average fed steer was $122.86 per cwt. and steers weighing 500-600 lbs. in the Southern Plains averaged $168.26. In the fourth quarter of 2012, fed steers averaged $125.54 per cwt., while steers weighing 500-600 lbs. were $161.42.”

ERS analysts forecast fed steer prices next year to average $118-128/cwt.

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