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Thinking Ahead to Fall Calf Marketing

June 27, 2016

Even though fall calf sales seem a long way down the road, now is the time to plan for marketing. Being prepared with a marketing plan will allow you to take fullest advantage of prices and maximize the value received for your calves.

Cash & Futures Markets
A first step in market planning for calves this fall is to stay on top of markets, both cash and futures. While the cash markets are important at telling you where the market has been and to compare market strength among various options, the futures market has traditionally been the best predictor of where the market has been expected to go. This means both cash and futures markets should be monitored. The futures market provides tools to consider alternative market dates and options. For example, a question to consider is whether to sell your calves at weaning or to background them until they reach a predetermined larger weight at a later date. In other words, should a person sell their 500 lb. calves at weaning in mid-October, or should they background them to 700 lb. to be sold in mid-January? Using cost and availability of feed and projected price for each weight of calves at each date, a person can calculate which option will provide the greatest net profit.

If you were to get carried away with these calculations, you could also look at the projected profit from retaining ownership all the way to slaughter. While you may not have the capacity or desire to finish cattle, contracting with a custom feeder is an option. In this case, the calculations of potential profit include the feeder’s contractual cost and the projected value of the finished calves.

Volatility & Risk Management
Despite the historic value of the future market, there has been a lot of recent news about volatility that has created concerns about its continued viability as a tool for tracking the market and serving as a risk management tool. While this concern is real, it is not a reason to believe that its value is lost and abandon it; it simply means caution needs to be used. Developing a relationship with a commodity broker to gain assistance with understanding market fundamentals would be valuable.

An obvious potential downside of retaining ownership is its exposure to the risk of ownership beyond weaning. However, risk management tools are readily available and can provide protection from downward movement in the market while the cattle are on feed. Many cattle feeders will include assistance with risk management as part of their services for feeding cattle. Shopping for the right cattle feeder to contract should involve checking out their risk management services.

Another concern with retaining ownership is the uncertainty about how your cattle will perform and their price value at slaughter if you have never followed them to slaughter before. Do your cattle grade well so they will draw premiums on high-quality price grids? Or should they be targeted toward other pricing options? Not knowing how they will perform will make it somewhat challenging to calculate their profit potential at slaughter. It doesn’t mean it can’t be done; it just makes the results less certain.

Calf Value Discovery Programs
One option to get a handle on postweaning performance and carcass traits without taking the risk on the entire herd is to experiment with retained ownership on a subset of calves. Many Land Grant University Animal Science Departments have programs that small groups of calves can be enrolled in that provide reports about feedlot and carcass performance. SDSU’s program that does this is called Calf Value Discovery. Enrolling a representative subset of your calves can provide the information for future calculation of their value if ownership is retained. This information can also be used to focus retained ownership programs (if chosen) toward capturing their highest value (e.g. high quality vs. high yield pricing grids).

Other valuable information about your calves can be gained from these programs as well. For example, if you learn that they don’t perform well in the feedlot or grade well when harvested, then you can alter your breeding program/bull selection to improve the deficiencies. Or, if they do perform and grade well, you can use that information as a marketing tool if you use a marketing outlet that allows interaction with potential buyers (e.g. direct sales), to promote the “added value” of your calves.

The Bottom Line
I have described opportunities that can be gained from putting forth the effort to make a variety of calculations. This task can appear challenging to anyone that hasn’t done it before. Don’t be afraid to ask for help to learn how to do them. There are a variety of sources for this help, including SDSU Extension specialists or your Ag lender.

Source: Ken Olson, South Dakota State University