Feeder calf sale numbers are ramping up across South Dakota. Fall brings many weaning and selling time decisions. These decisions include options to sell calves at weaning, wean them and hold them for 45 days, background until spring, or retain ownership until the calf reaches yearling or fed cattle weights.
Evaluate these decisions from a business perspective, given the current feed costs and feeder cattle market. Selling or feeding because that is 'what we always do' is not an economically sustainable situation.
Things to Consider
Feed inventories and requirements are one of the first considerations. The SDSU Extension Forage Inventory and Demand Calculator can help determine how many tons of feed are needed to maintain the cattle herd.
Another consideration is the drought situation. Cattle-on-feed inventories show many lightweight calves going to feed. The supply and demand issue is something producers need to consider. The November Feeder Cattle futures contract for calves is steady, with upward tendencies, and remains throughout Spring 2023. At the time of this article, the March contract is trading near $180/cwt, and the May contract is near $188/cwt.
The October 17 Feeder Calf report listed 474-pound Medium-Large 1 Steers sold for an average price of $234.28/cwt, calculating an $1110 value per steer.
Once the feed availability evaluation and the feeder calf's potential income are determined, the cost of gain needs to be calculated. The calculation of these costs further aids the decision-making process.
Determine your ration to make these decisions. Using actual cost-of-gain numbers is essential in the decision-making process. For illustration purposes, consider a ration that results in an average daily gain of 2 pounds on 500-pound steers, with a cost of gain of $0.90 per pound.
Feed Until March
500-pound steers with a cost of gain of $0.90 per pound.
- Time = 150 days
- 2 lbs. per day gain = 300 lbs.
- 300 lbs. × $0.90 = $270 feed costs
- $1,110 steer + $270 feed = $1380 breakeven
- 800-pound steer × $182.00/cwt = $1456 income
- $1456 income - $1380 inputs = $76 profit
Feed Until May
500-pound steers,with a cost of gain of $0.90 per pound.
- Time = 210 days
- 2 lbs. per day gain = 420 lbs.
- 420 lbs. × $0.90 = $378 feed costs
- $1110 steer + $420 feed = $1488 breakeven price
- 920-pound steer × $180.00/cwt = $1656
- $1656 income - $1488 inputs = $168 profit
Now the producers must evaluate the best return on investment.
|Animal||Expected Value of calf when sold||Cost of Production|
|November 500-pound steer||$1,110*||Cow Costs Approx. $600-700|
|March 800-pound steer||$1,456**||$1,380|
|May 920-pound steer||$1,656**||$1,488|
* Based on October average calf prices
** Estimated amount based on current CME prices
Factors affecting the estimates and decisions include grain and forage prices, seasonal trends, and livestock market changes. Consider the following changes to our examples:
- If the March Feeder Cattle price drops to $170/cwt, the final price for the steer becomes $1,360.
- If the cost of gain increases to $1.50 per pound, feeding until May increases the feed costs to $630 and the breakeven price to $1,720.
Price protection tools, like Put Options and Livestock Risk Protection (LRP) insurance, can help producers protect themselves from declines in the feeder cattle market. Feed price protection can be accomplished by making the feed purchase, forward purchase contracts, or using Call Options for some grain products.
The bottom line is that the producer needs to evaluate their current situation. Then, given the price of calves, feed, and the futures market, producers can make economically sustainable decisions for their operations.
Author’s Note: The prices in this article are for demonstration purposes. They are not an expectation of what the producer will receive at the sale barn, nor an accurate reflection of the producer's actual production costs. Further, these prices will change with the market and operation.