Thanks to lower wheat prices and plentiful moisture, some calf prices are getting an early boost from wheat-pasture prospects.
“The contrast in market indications and producer expectations for winter wheat grazing in the Southern Plains could not be more dramatic than 2009 compared to last year,” says Derrell Peel, Oklahoma State University Extension livestock marketing specialist.
Peel says wheat prices last year – as well as expensive seed and fertilizer – –kept some wheat producers from making wheat pasture available. Research in Oklahoma indicates wheat grazing decreases subsequent wheat production 5-6 bu./acre on average. Plus, planting early for wheat pasture increases the risk of crop failure.
This year, though, Peel says growing wheat for grain is shaping up to be a breakeven deal at best.
“Current winter stocker budgets suggest that returns to cattle could be in the range of $30-$40/head. This assumes that wheat pasture is valued at 40¢/lb. of gain. This suggests another $20-$25/head net return to the wheat forage, over the wheat forage cost of production,” Peel says. “Thus, a wheat producer grazing his own cattle has a potential total return to wheat and cattle of $50- $65/head.”
That comparison is relative to estimates and Peel cautions the estimated returns also depend on assumptions relative to animal performance, medicine and veterinary cost, labor, interest and other costs, and most importantly, the purchase price (beginning weight) and sale price (ending weight) of the cattle.
Plus, increased demand for wheat calves could push up calf prices relative to feeders, reducing the profit the potential.
“It’s also possible that both calf and feeder prices could increase between now and next spring if fed-cattle prices improve, but this would have less impact on the buy-sell margin for stockers,” Peel says. “Producers should think of managing the risk of winter grazing by protecting the margin between the buy and sell price of the cattle.”
He adds that forward contracting purchases and hedging spring feeders is one of many ways to do that. Locking in either end by itself increases the risk of margin changes.
“The bottom line is that there is more interest in grazing wheat this year, more potential for returns but still plenty of risk that must be considered,” Peel says.