Although it may often feel completely opposite, cow-calf producers actually have more profit leverage than any other segment of the beef production business prior to harvest. That's simply because they control if and when they will transfer potential and risk to another segment.
For example, the same producer who would have made a profit in only nine out of 21 years selling spring-born, 525-lb. heifer calves at weaning, could have made more money with them 95% of the time by simply retaining ownership in them and taking them directly to the feedlot. Even with the historic bloodletting in the feedlots, this strategy has yielded an average $86.26 advantage during that time, compared to selling the same calves at weaning time.
Last fall, Cattle-Fax published “Retained Ownership Analysis,” a case study evaluating retained ownership strategies from 1980 to 2000. It found that the predictability of this particular strategy has a lot to do with typically season-strong fed cattle prices in the spring.
Agreed, retaining ownership isn't as easy as merely wanting to, what with cash-flow, tax, debt and other considerations. But retained ownership options are not limited to the feedlot.
For instance, the same analysis points out that spring-born steer calves marketed as weaned calves in the fall weighing 475 lbs. turned a profit only 57% of the time. Meanwhile, steers marketed 100 lbs. heavier turned a profit 71% of the time.
In both cases, at least one retained ownership strategy would have returned more dollars more than 85% of the time. For the lightweight steers, Cattle-Fax data says it was taking these calves to winter wheat pasture after preconditioning, through a short-season summer grass program, then into the feedlot in July and on to market in November. On average, compared to selling at weaning, there was an $87.99 average to this strategy, with about $30 of that advantage coming through the feedlot phase.
For the heavier steers, Cattle-Fax identifies the most consistently advantageous strategy during those 21 years as placing them in a backgrounding yard at weaning in October and feeding them for 120 days, then marketing them in February at 875 lbs. On average, the advantage to this strategy was $36.77/head compared to selling at weaning.
In fact, according to the Cattle-Fax study, about the only way to consistently turn a profit selling calves at weaning time is by marketing fall-born steers in late spring when calf prices are typically among the strongest of the year. Specifically, 550-lb., fall-born steers marketed in July returned an average profit of $66.29 in 18 out of 22 years.
Moreover, there's only one retained ownership strategy identified that made money each of those 21 years — cull cows. Simply retaining culls an extra 95 days, getting a 1.5-lb. average daily gain and marketing them in February has been worth an average advantage of $58/head during that time. This advantage shines even brighter considering the fact that cull cows typically represent 15-20% of a ranch's annual income.
The success of even predictable, high-percentage, retained ownership strategies obviously has everything to do with seasonal and cyclical dynamics coupled with the unique resources and profit goals of an individual operation.
The point is that retained ownership — evaluated wisely and exploited selectively — offers the possibility to earn more dollars. And cow-calf producers, more than any other segment, have the most opportunity to capture more of those dollars.
In order to do this, however, producers must first pencil through the alternatives. And that must begin with an accurate understanding of production costs and weaning break-evens.
Five Questions To Ponder
In addition to a firm handle on production costs, Cattle-Fax says the following steps are also necessary in evaluating retained ownership options:
Do you have enough input resources to consider keeping cattle longer? What about home-raised feed or access to feed that can be purchased at competitive prices. The same goes for labor and facilities.
Do you have a cow nutrition program and herd health program sound enough to merit retained ownership? Or, is it such that the death loss from a post-weaning program would sink any retained ownership potential? Visit with your veterinarian or beef specialist to assess the status.
Do you have genetics that are suitable to retained ownership? If they can't perform efficiently beyond the calf pasture, their potential to gain in other enterprises is severely limited.
Do the cattle possess the production and marketing attributes necessary to capitalize on retained ownership? Everything from the unit cost of transportation to the cost of gain on wheat pasture revolves around an adequate number of same-sex, similar weight, uniform cattle to exploit efficiencies.
Is your balance sheet in order? Be sure you understand the financial implications of retaining ownership.
It's not unusual for cow-calf producers to find the whole notion of retaining ownership on their calves as disagreeable. And, every producer is more than free to swear on a stack of bank notes that they will never, ever do such a thing. The fact is, however, that every cow-calf producer holds this card of opportunity. And opportunity is never a bad option to have.