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Answering Your Questions: Retaining Ownership of Calves

August 11th, 2009

Recently, we  received the following set of questions on the blog: “Is this the year to retain ownership of my calves? Corn is cheaper, but so are fed cattle. If I do keep them should I background to 750-800 pounds or feed them to slaughter? How do I decide?”

Iowa Beef Center Livestock Economist Shane Ellis went about answering these questions for us:

This is a year when backgrounding is definitely a potential strategy.  Cheaper corn is in your favor, potentially second largest harvest on record.  Lets put some numbers to this question and create some benchmarks.  If you wean a calf at 550 lbs and you back ground him to 750 lbs it will need roughly 18 bushels of corn and a third of a ton of hay.  If corn is $3.20 and hay is $75/ton it would cost about $82.60 for feed.  Throw in some minerals and supplements and lets call it an even $90/hd for feed alone.  To keep it simple lets lump all the other costs under a yardage charge of $0.35 per day for 90 days or $32 for the period.  If the calf could be sold for $605 ($110/cwt) at weaning, you would need to sell the backgrounded calf for $726.50($97/cwt) to “breakeven”.  Right now (August) the futures price adjusted for an Iowa basis are at about $101 for feeder cattle and $110 for calves.  So in this example, you could potentially improve your bottom line by about $30 per animal against total cost and $62 per head over feed cost only. 

Keep in mind this does not include death loss, so if you have a small number of calves, one lost could hurt your bottom line pretty quickly. Now it is true fed cattle prices have been in a sorry state, but the April futures have been bouncing bouncing around between $90 and 91 for the past two months, so that seems fairly stable.  And with fewer beef cattle available in general any increase in demand will improve prices. Consumer demand will improve along with confidence in the economy, but for right now we don’t appear to be dropping any lower.  If you were to finish them on out it will cost you about $384/hd (70 bu corn, 0.5 ton hay, $25 supplement, $100 yardage and transportation).  Using the same assumed calf price, your breakeven point would be about $83/cwt.  These are rough figures and do not include interest costs.  The best thing a producer can do is put a pencil to it with your own cost of production and determine if it is an enterprise worth trying.  As you can see there is some potential for holding onto the calves.  Consider some risk management techniques to protect a profitable margin.

Cow-Calf Operations, Economics & Markets ,

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