The higher grain prices of the biofuels era have changed ranching. The key question for many ranchers is whether this suggests that optimal ranch production and marketing systems have changed, as well?

To identify the optimal ranch production and marketing systems in this emerging biofuels era, let's compare a set of non-traditional production/marketing systems to a set of traditional systems serving as my control numbers.

A “traditional” production/marketing system consists of running spring-calving cows produced in one or more profit centers:

• Selling at weaning,

• Backgrounding calves to 750-800 lbs.,

• Finishing these feeders in a commercial lot, or

• Growing and finishing calves in a retained ownership profit center.

Most spring-born calves are harvested in the following June-August time period, a traditional period of high cattle numbers, which means seasonally low prices.

For this exercise, remember that economic costs for both the traditional and non-traditional production/marketing systems are based on market prices (opportunity costs) and not cash costs of production. Ranch-raised feeds are priced in at local market prices.

I use three key numbers to evaluate each production and marketing system. These are:

• Buy/sell margin — the price of cattle leaving a profit center minus the price of the cattle entering that profit center. The buy/sell number is used to calculate the marketing loss on the original weight of the animals that enter each profit center.

• Cost of gain — a measure of the economic efficiency of the pounds added while the animals are in that profit center.

• Net profit/head — this is calculated for each profit center by subtracting the marketing losses from the profit generated by the pounds added.

Figure 1 presents three performance control numbers for each of the four systems. The negative profit/head numbers suggest ranchers faced challenging economic times in marketing their 2008 calves via traditional production/marketing systems. Is it possible a non-traditional production/marketing system is projected to be more optimal?

Let's study five non-traditional systems.

1. Split marketings with three different marketing dates

   Aimed at spreading market risk, this approach involves traditional spring calving with the calf crop being marketed at three different times during the year. The heaviest third of the weaned calves go immediately to a commercial feedlot for retained ownership through harvest. The middle third are backgrounded at home to 800 lbs., then sent to a commercial feedlot and harvested. And, the lightest third are wintered, grazed as short yearlings the next summer and finished off grass in a custom feedlot.

2. Summer calving with January weaning

   In this summer calving program, cows calve in May-June. The calves are weaned in January and wintered to grass, and long-yearlings off grass are finished and harvested in a custom feedlot.

3. Fall calving

   Cows calve in the fall (August-September), with calves wintered to grass, then grazed the next summer and finished in a custom feedlot. Thus, marketing coincides with times of lower supplies and higher seasonal prices.

4. Winter calving

   Cows calve in January-February, and the calves are early weaned and sent to a commercial feedlot. The target is to harvest these calves at 13-14 months of age during the typical April seasonal high prices.

5. Running a very low-input operation with small cows producing lightweight weaned calves

   A spring-calving, low-input cowherd calves in May-June, with weaning in October at 450 lbs. The calves are wintered and grazed the next summer up to 875 lbs., then finished in a custom feedlot. Target harvest date is December of the following year.

Figure 2 presents the economic indicators for these five non-traditional systems. The numbers illustrate two major economic challenges for marketing 2008 calves.

• First, the large, negative buy/sell margins suggest cattlemen absorbed large marketing losses on the initial weights of 2008 calves going into the different post-weaning profit centers. Traditional backgrounding systems faced a negative $18/cwt., buy/sell margin. This generated a $99/head marketing loss ($18 × 5.5) on the initial 550 lbs. going into the backgrounding lot.

  Non-traditional buy/sell margins were a minus $19 for the split-marketing option and a minus $21 for the winter-calving option. These buy/sell margins must shrink to return profits to the post-weaning profit centers.

• Higher economic costs of gain (COG) are the second major economic challenge in marketing 2008 calves. The unit cost of producing (UCOP) weaned calves is $112/cwt. of calf produced in the traditional production/marketing system. In the non-traditional systems, UCOP for weaned calves averaged from $106 for the low-input lightweight calf option to $117/cwt. of calf produced in the fall 2008 calving production/marketing system.

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