As ranchers turn their attention toward marketing 2010 calves, let’s review the economic background of marketing 2009 calves for some possible alternatives for marketing this year’s crop. I typically monitor four traditional marketing alternatives:
Figure 1 presents my calculations for marketing 2009 calves based on my 2009 calculated numbers for eastern Wyoming and western Nebraska. I calculated the total unit cost of producing a hundredweight of calf (UCOP) in 2009 to be $105/cwt. of calf produced. Given a calculated $104 selling price, this ranch netted -$9/cow by selling at weaning. This is the lowest earned net return for beef cows I’ve calculated in the last decade. I don’t have to tell you that 2009 was a tough year for ranchers selling at weaning.
Owning cattle during periods of rising prices typically leads to good profits, and that happened with 2009 weaned calves. The dramatic rise in feeder-cattle prices from October 2009 through spring 2010 led to profits from backgrounding 2009 calves. My calculations show a $22/head profit for conventional high rate of gain backgrounding with grain for 2009 calves. And, my numbers suggest that stocker operators growing 2009 calves from weaning 2009 to grass 2010 made some good money.
Falling corn prices during the finishing phase for 2009 calves was a godsend. Along with rising slaughter prices, these two factors helped generate a $53/head profit for finishing 800-lb. backgrounded 2009 calves. This is one of the few times I’ve documented an economic return to conventional backgrounding since the beginning of the biofuels era.
Finally, my calculation for retained ownership of 2009 calves was a $130/head profit. This is the highest return from retained ownership in years – probably the highest in this decade. Remember, the run-up in feeder-cattle prices occurred during the growing and finishing phases of 2009 calves.
Marketing 2010 calves will be quite different. First, we’re operating in “a new normal.” The good news is that as we slowly exit this recession, beef exports are gaining strength; in fact, we’ve broken the 2000 record for fed-cattle export value $/head (Figure 2).
The not-so-good news is that the biofuels era is generating a new corn-price normal (Figure 3). The yellow bar illustrates the old normal for corn prices, while the blue bar illustrates the new normal. This new corn-price normal leads to substantial increases in feedlot costs of gain (COG) relative to feeding 2005 and previous calves.
Figure 4 depicts calculations for total feedlot COG for alternative corn prices (including buy/sell margins). Total COG for finishing 2010 calves could be in the $80 range, perhaps even the $90 range if we see $5+ corn.
So what does this imply for this fall’s marketings? Figure 5 summarizes my calculations for growing and finishing a 550-lb. steer placed in a feedlot in late September 2010. I project a $25/head profit at harvest. Meanwhile, an 800-lb. feeder steer placed in late September 2010 is projected to generate a $20/head profit at harvest. These calculations don’t include any quality premiums.
I also calculated placing an 850-lb. steer off grass in August 2010 in a commercial feedlot with a harvest date of December 2010. Due to its heavier placement weight and earlier harvest date, it’s projected to generate a $56 loss.
In addition, I project a 1,250-lb. steer harvested in late September 2010 to generate a $14/head profit. This is assuming an 800-lb. feeder steer placed on feed in mid May. I did not consider any quality premiums.
With that as background, here are my projections for traditional marketing alternatives for 2010 calves. Since most marketing alternatives for 2010 calves spill over into 2011, we need a set of 2011 planning prices to evaluate them.
Figure 6 presents my current 2011 planning prices for selected feeder-cattle weights and key marketing months. These projections suggest strong feeder-cattle and slaughter-cattle prices for 2011, with the traditional seasonal peak projected in spring 2011.
A rapid turnaround is projected for ranchers selling 2010 calves at weaning. I project a $129 weaning price for 550-lb. weaned steer calves. If this materializes, this could generate a $161/cow profit for eastern Wyoming and western Nebraska ranchers (Figure 7), based on $129 weaned calves and slightly lower production costs at the ranch level.
A large negative buy/sell margin is projected (-$18) to eat into backgrounding profits leading to a breakeven projection. A breakeven projection isn’t bad, however, because it suggests ranchers will receive market prices for home-raised feeds fed to backgrounded calves.
A -$11 buy/sell margin and a higher COG projected for finishing 2010 backgrounded calves lead to a projected $35/head loss. (Remember that no quality premiums are taken into account.)
The projected economics of retained ownership of 2010 calves is heavily influenced by a projected -$28 buy/sell margin and a projected average $4.27 farm-level corn price. This retained marketing alternative is projected to lose $11/head.
My conclusion is that the economics of marketing 2010 calves will be completely different than that for 2009 calves. Last year’s marketing experience isn’t going to help much in marketing your 2010 calves. You are now marketing in a new normal!
Harlan Hughes is a North Dakota State University professor emeritus. He lives in Laramie, WY. Reach him at 701-238-9607 or firstname.lastname@example.org.