Beef Market Advisor

Saturday, June 30, 2001

> A South Dakota Ranchers E-Mails The second Time:

Harlan,my main thoughts for calving in May will be to retain ownership of the calves until they are yearlings. This year I calved starting Apr 20th, and I plan to sell all of my calves between now and fall. I expect the calves should weight aprox. 450 lb by Nov 1, as we are having a good year here.

My plan is to try and buy the stockers when the market reaches a down slope of the cycle. I plan to run as my cows until that point. My problem is knowing when to buy to be in a profit position on any outside stockers. I'm sure your knowledge of the market could be helpful. I plan to start calving next year on May 1st, and calve for aprox 50 days .

My cows are black ,weight 1200 and are now in a body condition score of 6. Do you think one could push back calving to 45 days this first year without hurting breeding % too bad? The cows will have a extra month to pick up condition, although I don't know if another body condition score would be beneficial I use black bulls ( dateline) on the cows and hope to push the heifers a
little more in the winter to get the top half to breeding (650lb) weight to > breed earlier,for the bred heifer market.

Any suggestions or thoughts you might have would be appreciated. Thanks ______

Harlan's Response:

_____, I agree that there should be some profit in retaining summer born
calves until they are yearlings. This will mean,however, that you will be
dryloting these calves all winter. This could amount to having considerably
more cattle to feed in the winter. Do have that kind of extra feed? You will
need better quality feed that what you use for the cows. The average daily
gain that you target in the winter feeding will be critical to making a
profit. I find that the higher the average daily gain in backgrounding, the
higher the profits.

You mention that you plan on buying additional stockers on the down turn of
the cycle. This will be a time that the purchase prices is lower but you
have to be careful on a down sloping market that the selling price is not
even lower. It the market trend is downward, the selling price tends to be
lower than the purchase price just due to the market trend.

There are two keys to profits in stocker cattle. First is the buy/sell
margin. This is the purchase price minus the sell price. If you buy 500
pound calves for $102 and grow and sell them at 750 pounds for $85, you have
a buy/sell margin of -$17 ($85-$102). This means that you loose $17 per
hundredweight on the initial 500 pounds or you have an $85 marketing loss on
the first initial 500 pounds. Second, you need some cheap cost of gain on
the 250 pounds of gain that you get in the feedlot.

The $85 marketing loss is equivalent to $0.34 on each pound gained. Subtract
the $0.34 cents from the $0.85 selling price, and the breakeven cost of gain
is $0.51 per pound. Now the challenge is to pick a target average daily gain
that is below $0.51 and the one that will give you the lowest cost per pound
of gain. You need to evaluate different target average daily gains and
select the one that makes you the most money. Remember that different
average daily gains will result in different selling prices. Also, if these
stockers are to go back to grass, they should not gain more that 1.5 lbs per
day in the drylot.

This all suggests that you need to budget through any proposed stocker
cattle before you buy them. Buy them only when you have a projected profit.
Do not lock you self into "every year I run stocker cattle." That can be
recipe for losses.

I think I understand your desire for a 50 day breeding season. With one more
month to put on condition could be a help but you already have a condition
6. Condition 7 is not going to be better.

I question your idea of a 50 day breeding season. That does, however,
suggest that you will have some open cows. Open cows loose you money. What
you want, instead, is all cows bred -- even if it takes a 90 day breeding
season. Having a smaller calf will still make you money in today's high
prices. Then, you can cull the late breeders after they raise their calf.
Be sure that you have records on the calving dates of each cow. Going to a
45 day breeding season will probably result in even more open cows. When
prices are high, you do not want to shorten the breeding season.

Selling bred black heifers in the next coupe to three years should be a
good profitable move. I expect bred heifers to be higher prices for 2 plus
years. Building your cow herd with bred heifers over the next 2 plus years
will increase your costs of production in your herd.

posted by Dr. Harlan Hughes 8:31 PM [edit]

A South Dakota Rancher E-Mails:

Harlan, my name is ___ _____, I am a cow/calf rancher at in South Dakota. I have read your letter for several years and have found them very helpful. I have been ranching for 28 years, calving in March , selling calves in the fall, etc. I attended Dick Givens school last winter. I believe he is on the same page as I am and intend to change my calving to May/June. I also am going to start buying some stockers, and that's where I need your help . Timing, risk management, cattle cycle, etc.

I understand you are moving to Laramie, Wyo. I am a UW 1969 grad. I understand you are consulting now, would like to visit with you on my needs some time.
Thanks, (name removed)

Harlan Responds:

It is interesting to here about your proposed move to May/June calving on your South Dakota Ranch. I think there is a general trend to summer calving. It has been triggered by some Nebraska research where they documented that costs for summer calving went down more than revenue dropped from selling lighter calves resulting in a net increase in profits from summer calving. The savings comes from less hay consumed in winter rations. Weaning weights tend to be lower with summer calving. Market price, however, tends to be higher with the lower weaning weights off setting some of the income drop from selling lighter calves.

I think the generalization of this Nebraska study to your operation has to be based on your local price of hay but I suspect that it can also work for you. My brother-in-law is now summer calving in Central Nebraska and he
seems to like it.

We in the phase of the cattle cycle where beef cow profits will be substantial. I am suggesting that running beef cows will be quite profitable through at least year 2003.

You mention that you are going to buy some stockers. Please brief me on exactly what you are thinking about on this.

I am not so optimistic on stocker cattle. We are entering the phase in the cattle cycle when we will have a shortage of stockers. Feeder calf production will go down as producers decide to hold back heifers for breeding. All of this will make stockers expensive. I full expect that feeders will bid away all profit in the purchase price of stockers. Feedlots will lean towards ownership at weaning to guarantee feedlot replacements as they turn their feedlot cattle. You might want to contract with a feedlot to grow those calves under their ownership of the cattle.

Back to the idea of stockers. I am working with a producer that runs many, many stockers and the best way for him to make it is to buy them in Feb and March and drylot feed them until grass Running Stockers is really a margin game. You make your money
when you buy them. If they are over priced, one almost has to lock in a loss at the beginning.

I am not predicting very good profits from stockers for a few years.

Let me know what you are thinking about and we can discuss more. I have some useful economic feasibility models that we might want to use to evaluate your summer calving and your adding of stockers to your operation.

If you want to talk on the phone, give me a call on my cell phone at 701-238-9607. I am looking forward to talking to you. Email, however, is also a good way to contact me. I try to check it daily.

posted by Dr. Harlan Hughes 8:19 PM [edit]

Thursday, June 28, 2001

An Alberta Beef Producer asks:

Dear Harlan: I have seen you in two presentations in central Alberta. I was motivated by your management tequineques and plan on using some in the future. I am 20 years old and just graduated from Olds College, Agriculture Production in June. I returned home to our family ranch, south of Medicine Hat. It has been an extremely dry year, and we were forced to sell off our cull cows early as well as some older pairs. I believe we can manage to make it through the summer on our old grass. Now because our cow numbers are down we were thinking of keeping and breeding all of our heifer calves. I am not sure if that is a good idea though because we are nearing the top of the current cattle cycle.

There are a lot of producers selling animals, and there may be a big demand for young stock in the next year if it rains. I was wondering what you recommend doing, and how will a drought effect the current cycle ( will it make it go longer because there is not as much heifer retention?). I look forward to your opinion.

Thanks for your time, Alberta Beef Cow Producer

My Response:

Good to hear from you. You ask about holding back some heifers to breed. Yes, I think that is a good ides assuming that you have the feed for them. However, you will need to really watch the market. If others in your area will be needing to buy back females due to their drought culling, you want to be ready to move your bred heifers (at strong prices) rather than keep them. Don't put your self in a position of building your own herd with high priced females. Remember, I still expect cattle prices to break in 2004 through 2007. If you sell your bred females before then, just wait for the market break before you build again.

This will take a lot of discipline on your part but properly executed, you can make some good money. Remember, it will be different than what your neighbors will be doing.

I do not think that the local (Alberta) drought will change the cattle cycle. Remember, that the cattle cycle is determined by what is happening in all of Canada and, more importantly, the U.S.

Build your self a written 5-year production and financial plan including annual budgets for the 5 years. Build your retention and selling strategies into your budgets and see what strategy nets you the most money. Properly designed production and financial budgets for the next five years will help you determine what will work best for you. The per hour wage that you can make in the office planning your business model for the next 5 years can be very high -- far higher than as a labor running cows. You need to do both -- budget/plan and run cows -- but remember the reward will be from the budgeting/planning.

If you need some help with the budgeting, let me know as I do consulting in this area with Canadian and U.S. Ranchers. My first step in doing this consulting is to analyze the production and financial performance of your last year's calf crop. We could start this analysis fairly easy if you are interested.

Please keep me posted on the drought in your area and on your drought related management actions as I want to stay informed about conditions in Alberta as I am scheduled to participate in some Alberta Beef Meetings in January 2002.

posted by Dr. Harlan Hughes 6:27 PM [edit]

Suggested Planning Prices For Feeder Steers

Lbs Fa1100 Mar01 Spring0l June 22, 2001 FallOl* JanO2* MarO2*
-------- ---------- -------- ------------ ------------------- --------- ----------- -----------
400 $119 $115 $119 $120 $114 $113 $112
500 $105 $109 $109 $110 $107 $106 $106
600 $96 $103 $100 $102 $101 $100 $99
700 $90 $97 $92 $93 $95 $94 $94
800 $88 $91 $85 $85 $89 $89 $88
900 $89 $86 $79 $78 $84 $84 $83
Slaughter $72 $77 $74 $74 $76 $76 $77
* Projected Week of June 22, 2001

posted by Dr. Harlan Hughes 3:29 PM [edit]

Wednesday, June 27, 2001

To Harlan Hughes From A BEEF Magazine Reader:

Recently, many European cattle have been killed to rid the area of foot-and-mouth disease (FMD). In addition, there's currently a trade block by the European Union (EU) on U.S. cattle fed growth promotants. Will the smaller beef supply in Europe due to the FMD slaughter prompt the EU to drop its ban? Would it have a drastic effect on U.S. cattle prices?

Harlan Hughes responds: The long-run implications of FMD in England and Europe are hard to predict. As of now, I do not think they will relax the ban.

I suspect consumer demand for beef in England and Europe has dropped, so the potential increased beef imports isn't very large. Therefore, I don't expect the U.S. to experience an increase in beef demand due to the FMD problems.

The real challenge is to ensure we don't have an outbreak in the U.S. or Canada. A U.S. outbreak would immediately close our export market and drop our domestic beef prices 15-18% (without even factoring in the U.S. consumer reaction).

posted by Dr. Harlan Hughes 8:02 PM [edit]

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