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Previous issues of the BEEF Cattle letter

Issue # 502

August 30, 2006

Fall Calf Price Outlook - Brian Roe, Associate Professor, OSU Dept. AED Economics

Calf prices decrease as fall progresses and as more calves become ready for market. In addition, heavier cattle bring lower prices then light cattle due to the prevailing price-weight slide. However, calves gain weight as fall progresses, which means more pounds per sale. How does one balance these competing trends and find the best time to market your calves? In this column I revisit this annual fall marketing question using some weight-specific and month-specific feeder cattle price predictions. These predictions are based upon a statistical model of Kentucky feeder steer auction prices that takes into account feed prices, current feeder cattle prices, cattle futures prices, seasonality and animal weight. I will also give you some assessment of how well this model worked last year, so you can judge for yourself how seriously to take this year's price projections. However, pushing your own pencil and considering all your marketing options with regard to marketing spring born calves is an important exercise for all cow calf operators.

Suppose you were considering when to market a group of steer calves that could be marketed as early as mid-September around 350 pounds or held on farm under a feeding program that would allow them to gain about 2 pounds per day over the fall and early winter. Using my price projections I chart out the value of the calf at different points throughout the fall and early winter in the table below. I also chart out the costs of holding these animals in the feeding program, where the feeding program uses a ration involving mostly corn ($2.10/bu) and some soybean based feed ($0.11/lb.). I assume animals begin with a feed to gain ratio of 8.00 and that this ratio increases a little bit throughout the fall as temperatures decrease and as the animals get larger. I also incorporate an annual death loss of 2.5%, interest charges of 5% and miscellaneous costs of facility repair and maintenance. I do not add in any charges for your labor or management time - that is, the 'gain' from holding is the reward you receive for your extra time and effort with the cattle.

The above projections suggest that holding these calves to heavier weights can be attractive for those willing to hold cattle into 2007. However, holding animals that long may be difficult. Many may not have the facilities to hold animals to these heavier weights and in potentially inclement weather. Furthermore, rates of gain may be more variable as winter weather arrives. Also, recall that the returns to holding cattle are critically dependent upon future price projections; like any predictive model, we should have less confidence in price projections further into the future. Hence, there is greater price risk from holding animals for a longer period of time. Finally, delaying sales to 2007 may mean altering your tax situation if your tax year matches the calendar year, which is the case for many farmers.

Losses are projected for holding animals for sale in November. Note that the return to holding animals is also dependent upon the price of corn used in the feeding program. Many of you may have corn available to you at prices different from the $2.10/bu price built into these projections. While everyone's situation will be a little different, this example will hopefully provide a template for making you marketing decisions this fall.

Another key assumption driving these results is that of feed efficiency. While some calves in your pen may require 8 pounds of feed per pound of gain, the average calf may be more efficient. The table below considers the case with a feed/gain ratio of 6.00.

As the table shows, if feed efficiency is better, holding animals on a back grounding program in more attractive. Hence, knowing your calves' ability to convert feed efficiently into pounds of gain is crucial for helping understanding the relative profitability of various marketing strategies. To help in your decision making, several versions of the above tables, for various corn prices, feed efficiencies and initial weights are available on my website along with price projections for several feeder steer weight classes. Just click on the fall calf outlook slides at: http://aede.osu.edu/people/roe.30/livehome.htm.

Finally, how well did these price projections do last year? In September of 2005, I issued a similar analysis using price projections that came from the same basic model. Here are the differences between my September projections and eventual prices.

As you can see from the table above, my price predictions last year were more pessimistic than actual prices. In short, cash prices didn't fall as much during the course of the fall as I had predicted. That meant there were greater returns to holding calves for later sale last fall than I had predicted. My predictions did correctly point to January as the most profitable month for marketing these calves, though it understated the return to holding by nearly 50%.

Several wildcards are at play this year that could drive price projections off target. The first is the pace at which Japan and Korea resume purchases of US beef. Japan, while open, is proving a reticent consumer. It will take one or more domestic Japanese retail chains embracing US beef before the ball really gets rolling. If Japanese and Korean sales pick up quickly, one might imagine this positive psychology spilling over to feeder markets and making later sales in the fall more profitable. The ongoing fall out from the western drought is the other wildcard, with demand for calves for winter wheat backgrounding programs highly dependent upon fall moisture conditions in key areas of the Great Plains.

Factors Affecting Sale Price of Calves - Dr. Glenn Selk (Adapted from Troxel, et al. 2006)

At the recent American Society of Animal Science meetings, Dr. Tom Troxel of the University of Arkansas presented information about factors that affect sale price of Arkansas beef calves as they were marketed in fifteen Arkansas livestock auction markets in 2005. He reported on data from over 100,000 head of calves sold in 52,401 lots. Several very interesting price differences were noted. Calves selling as groups of six head or more brought $122.61/hundredweight, while calves selling as singles sold for $117.26/hundredweight. Once again, producing uniform groups of calves that are marketed together has added value. Healthy appearing calves of unknown "processing" brought $118.21, which was more than calves with "dead" hair ($105.55), stale-looking calves ($100.01), sick calves ($80.22), bad eyes ($104.39) or lame ($84.74) calves. However, if the calves were announced as "preconditioned", they sold for a higher price ($122.36) compared to the healthy unknown ($118.21) calves. Polled calves still sell for more than horned calves by $3.70 per hundredweight and the difference between steers and bulls was $6.27 per hundredweight. Very full or "tanked" calves were discounted about $10 to $17 per hundredweight compared to calves that appeared to have normal shrink. Much of this data is very consistent to information reported by the Arkansas group several years ago. Likewise, Eastern Oklahoma county extension educators found many of the same prices differentials in 1997 and again in 1999 when they collected data from fourteen Oklahoma auction markets. The bottom line continues to be: that properly managed, process-verified, calves that are sold in group lots will bring home the most dollars.

Source: Troxel, et al. J. Anim. Sci. Vol. 84. Suppl. 1.

Forage Focus: Hay harvest less expensive when animals do the work - AgAnswers, An Ohio State Extension and Purdue Extension Partnership

Mechanical hay harvesting costs time and money. A Purdue University specialist said livestock producers can save both by switching to nature's harvesting equipment: the animals.

Producers who practice what's known as "stockpiling forage" can extend the grazing season, thus letting the livestock do the work, said Keith Johnson, Purdue Extension forage specialist.

"Anything we can do to allow our four-legged creatures to graze in a pasture beyond the traditional grazing season is a cost-effective approach," Johnson said. "By having the animals harvest the hay into December and, perhaps, January, producers can reduce the cost of delivering hay bales to them every day."

Forage stockpiling involves setting aside about 25 percent of a pasture around mid-August. The set aside portion is left undisturbed to grow, while the remaining 75 percent will be harvested mechanically or grazed by livestock.

Stockpiling forage can be done when producers use a rotational grazing system, Johnson said. In rotational grazing, pastures are subdivided into smaller units -- or paddocks -- and livestock are moved from one paddock to another to give grazed areas time to regrow.

"The forage that is best adapted for stockpiling in Indiana is tall fescue, a cool-season grass," Johnson said. "Tall fescue continues to accumulate yield even when temperatures are quite cool into October. It's also not uncommon for other cool-season grasses and legumes to be part of a stockpiling program, too."

Annuals planted after winter wheat grain harvest can be components of the rotational grazing system in the late summer and into the fall, as well, Johnson said. Typical annual forage choices include sorghum-sudangrass, sudangrass, pearl millet, spring oat and forage turnips. Producers should be cautious when planting sudangrass and sorghum-sudangrass in the fall because prussic acid, a toxic compound, will be released from freeze-damaged plant tissue.

Whatever grass-legume combination a producer chooses to stockpile, a healthy pasture is vital, Johnson said.

"It's not unusual in a grass-dominant stand to think about applying 30-50 pounds of nitrogen per acre to grow more forage for grazing," he said. "Of course, with the cost of nitrogen fertilizer these days producers have to be wise about the amount that should be applied, when it is applied and the nitrogen source that is used.

"The nitrogen source is critical because some types, like urea, can volatilize in dry conditions. In addition, if a producer has at least 30 percent legume in a stand, that legume probably is providing enough nitrogen to grow a productive grass crop, so nitrogen fertilizer might not be necessary at all."

Producers might apply a herbicide in the paddocks designated for forage stockpiling to control perennial weed problems, Johnson said. However, herbicides used to reduce perennial broadleaf weeds also can kill the legumes a producer is trying to grow as a component of a pasture mixture.

"They'll have to decide whether it's better to address the weed problems or spare the legumes," Johnson said.

Other points to remember when stockpiling forage include harvest timing and the dry matter needs of livestock.

Producers should stop haymaking operations approximately six weeks before a killing freeze, so that the forage can grow back and accumulate needed reserves for regrowth in the spring, Johnson said.

"Something that works well is allowing a hay field to grow its last crop and then bringing in livestock for a post-dormancy grazing, instead of performing a post-dormancy harvest with equipment," he said.

How many days a paddock can be grazed depends on the amount of forage produced, the dry matter intake of each animal and number of animals grazing in the paddock.

"It's not unusual for a cow that's just weaned her calf to require a daily dry matter intake of 2.5 percent of her body weight," Johnson said. "So, for a thousand pound cow, that comes out to 25 pounds of dry matter forage per day."

For additional forage management tips and recommendations, visit Purdue's Forage Information Web site at http://www.agry.purdue.edu/ext/forages/index.html

Cost of the manual is $10.00. You can register for the meeting by contacting the Shelby County Extension office at (937) 498-7239, email bender.5@osu.edu or Darke County Extension office at (937) 548-5215, email dark@postoffice.ag.ohio-state.edu prior to September 12, 2006.

For more information on the sales, contact OSU Beef Program Specialist Bill Doig at the OCA office (614-873-6736) or through email at bdoig@ohiobeef.org. Sale rules and consignment forms will be available this fall and consignments will be due in early 2007.

Visit the OSU Beef Team calendar of meetings and upcoming events

BEEF Cattle is a weekly publication of Ohio State University Extension in Fairfield County and the OSU Beef Team. Contributors include members of the Beef Team and other beef cattle specialists and economists from across the U.S.

All educational programs conducted by Ohio State University Extension are available to clientele on a nondiscriminatory basis without regard to race, color, creed, religion, sexual orientation, national origin, gender, age, disability or Vietnam-era veteran status. Keith L. Smith, Associate Vice President for Ag. Admin. and Director, OSU Extension. TDD No. 800-589-8292 (Ohio only) or 614-292-1868

Fairfield County Agriculture and Natural Resources