Cattle Economics

Preconditioning Still Pays

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Since the value of gain continues to increase with calf prices, preconditioning can still pay for the same reasons it always has. By weaning and then feeding calves at least 45 days, there should be more weight to sell; and usually at a time of seasonally higher prices.

Plus, there’s the opportunity for a price premium or the chance to eliminate price discounts. That’s especially true with prices so high. Fewer stocker operators and feedlots are willing to gamble the increased equity requirement on the proverbial mismanaged, misfit cattle.

“The challenge is managing feed costs and having the genetics capable of gaining 2 lbs./day,” says Steve Swigert, an agricultural economics consultant with The Samuel Roberts Noble Foundation in Ardmore, OK.

In Oklahoma, where spring calving predominates, Swigert explains that a flood of calves hit the market in October. “There have only been a couple of years when there wasn’t a significant price run-up to the first part of December when these preconditioned calves are marketed,” he says.

Call it a premium or discount avoidance, but Swigert explains that weaned calves receive as much as a $7 discount at the stockyards in Oklahoma City, compared to preconditioned calves.

Swigert also says preconditioned calves at Oklahoma City carrying other value attributes such as age verification, PI testing or eligibility for breed-based marketing programs, command a $5-10 premium compared to preconditioned calves without those attributes. All told, for the herds he works with, Swigert says the net return of preconditioning was $120.96/head last year; it was $58.11/head in 2009.

Likewise, Kevin Laurent, University of Kentucky Extension, says the average net estimated returns for Certified Preconditioned Health (CPH-45) sales held in two different Kentucky locations has been $59.36/head. These are calves weaned in October, preconditioned an average of 50 days with an average daily gain of 2.6 lbs., and then marketed through CPH-45 sales in December at Hopkinsville or Guthrie. The average includes Hopkinsville data going back to 1993; Guthrie data goes back to 2005. The net estimated returns represent the sale price minus estimated health and feed costs.

Besides the pounds, it’s the animal care aspect of preconditioning that leads Swigert to encourage preconditioning most of the time.

“The thing I don’t think a lot of people consider when evaluating preconditioning is the shrink,” Swigert says. Without it, he points out calves can shrink 4-12%, depending on the distance hauled, the sale facility and other factors. Conversely, some preconditioned calves actually gain weight through the marketing process because they’re already straightened out and know how to eat.

Of course, preconditioning can also be a fast ride to a massive economic train wreck. For instance:

  • If calves gain too little or not all.
  • If management experience or facilities are lacking to straighten out bawling calves.
  • If the calving season is too far flung to sort uniform groups of calves.
  • If calves are marketed without a way for buyers to recognize and reward them.
That’s why some producers rightfully “strip and ship” calves instead. And it’s why some tried preconditioning one time and swear they’ll never entertain the notion again.

Even when producers have the wherewithal to precondition, the market and especially Mother Nature can trump the inclination.

Laurent says price volatility has pressed some producers in Kentucky to take the money and run sooner, rather than preconditioning calves to market later.

Because of widespread dry conditions, Swigert says this year may be only the third time in the last two decades when he may advise his producers to forego preconditioning. Unless rain comes quick, he explains that producers will need to wean calves early in order to save grass for the cows. Early weaning means producers would have to settle for the September-October market when the value of calves would be less.
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Wes Ishmael provides tightly focused analysis and commentary on specific beef quality and marketing issues of practical importance to beef producers.

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Wes Ishmael

Among the industry’s most insightful thinkers, Wes Ishmael concentrates on industry price and market perspectives for BEEF magazine. Along with his monthly “Cattle Economics” column...

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