Start Looking at Marketing Plans for Calves

June 3, 2009 07:00 PM
 

By Justin Gleghorn, Brock Thompson Trading
 

While weaning time is still a few months away, it never hurts to evaluate market plans for the calf crop. Given the current cattle market, the question arises over whether or not retain ownership or sell calves into the feeder market.

Certainly fundamental indicators create a bullish mentality in the cattle market, in both live and feeder cattle. We have a shrinking, and extremely low, cow and calf population.  These indicate a dramatic supply deficit in the years to come. With improving technologies and management strategies, however, our beef production per animal unit is ever increasing. In addition, external factors such as demand and the value of the U.S. dollar will have an effect on beef price. A weak U.S. dollar is friendly to commodity prices, including cattle, corn and fuel. As such, we might expect an increase in the price of beef produced, but we should also expect an increase in our costs of production.

The following table illustrates the change in the calculated breakeven relative to various corn prices, assuming that a live cattle hedge was placed on the market close on May 28, 2009, against the June 2010 Live Cattle contract at $92.17/cwt. 
 

 

Corn Price, $/bu

$4.25

$4.75

$5.50

$6.25

$7.00

Cost of Gain, $/cwt

73.25

81.25

89.24

97.23

105.22

Breakeven, $/cwt

93.51

97.33

101.14

104.95

108.76

Profit/Loss, $/hd

(15.64)

(59.57)

(103.39)

(147.20)

(191.02)

If we compare these scenarios to selling the 600 wt steer into the feeder market in November, where the five year average for 600 wt steers marketed during the first week in November is $112.00/cwt, the difference in potential profitability is clear. The gross value of the steer is $672.00/hd.

Certainly costs of production vary across operations, but taking the risk to feed this animal to finish is quite high. In addition, interruptions in cash flow have to be addressed.   


Justin Gleghorn is Risk Management Consultant with Brock Thompson Trading in Amarillo, Texas. You can reach him via e-mail at justin@brockthompsontrading.com

This column is part of the Beef Today Cattle Drive e-newsletter, which is delivered to subscribers biweekly and includes beef industry analysis, market information as well as the latest beef headline news. Click here to subscribe.

 


 

Back to news

Comments

 
Spell Check

No comments have been posted to this News Article

Corn College TV Education Series

2014_Team_Shot_with_Logo

Get nearly 8 hours of educational video with Farm Journal's top agronomists. Produced in the field and neatly organized by topic, from spring prep to post-harvest. Order now!

Markets

Market Data provided by QTInfo.com
Brought to you by Beyer
Close