Buyers Look for Risk-Reducers

October 25, 2013 10:21 PM

The paradigm for raising calves has changed. Good genetics and quality reputation are no longer enough to bring top dollar at the local auction, or anywhere for that matter.

Cattle buyers—whether they are backgrounders or feedlots—are demanding preconditioned calves. And they’re speaking loudly with their bids this fall. Indeed, the market demands they do so.

The CME Feeder Cattle Index set all-time record highs near the end of September, at just a smidge under $160 per cwt. for 650-lb. to 849-lb. steers. That’s a range of $1,040 to $1,360 per head! Weaned calves frequently sold for more than $2 per pound "without raising an eyebrow," according to USDA’s Market News reporter, Corbitt Wall. The last week of September, he reported a 105-head string of fancy 400-lb. steers fetched $224 per cwt. at a Wyoming auction.

Dollars on the table. However, Wall and most auction market operators have seen a growing discount for calves that are weaned on a truck on their way to the auction. Research of market data from prior years suggest a premium of $5 to $10 per cwt. for preconditioned calves. It’s larger than that this year—and it should be.

Auction market operators confirmed this year the discounts for those calves "weaned on the truck" to be closer to $10 to $20 per cwt. While such observations represent a very small sample size, there’s plenty of logic that suggests they are accurate.

"There’s a steep discount on calves that have not been preconditioned," says Mark Harmon at Joplin Regional Stockyards in Carthage, Mo. He says he sees the discounts regularly as the auction market typically sells 5,000 to 6,000 stocker and feeder cattle each week during the fall.

Buyers are more discriminating this year because their financial risk has jumped 25% with the price of calves. "A dead calf has a very poor rate of gain" is how many feedlot operators describe the frustration of buying expensive calves only to see their health fall apart a day or so after they walk off the truck.

Preconditioning reduces illness rates, lowers death losses, cuts medical expenses and produces better gains. That’s why cattle buyers have embraced preconditioning programs and why they’re convinced the premiums are well worth the cost. Sellers get higher prices because buyers prefer healthier, bigger calves.

At today’s prices, cattle buyers have less incentive to gamble on the health of cheap cattle. There may not be any guarantees in the cattle business, but there are certainly strategies to reduce risk and buyers now look at preconditioned calves as risk-reducers.

If you didn’t precondition and long-wean your calves this year, you left money on the table, maybe even as much as $100 to $150 per head. Vow to correct that management mistake next year. It’s good for your wallet and good for the industry.

greg henderson
Beef Today’s editorial director writes from Mission, Kan.

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