Oklahoma Farm Report masthead graphic with wheat on the left and cattle on the right.
Howdy Neighbors!
Ron Hays, Director of Farm and Ranch Programming, Radio Oklahoma Ag Network  |  2401 Exchange Ave, Suite F, Oklahoma City, Ok 73108  |  (405) 601-9211

advertisements
   
   
   
   
   
   
   
   
   
   

Agricultural News


Noble Economist Jason Bradley Gauges Current Outlook for Preconditioning Cattle this Fall Season

Wed, 03 Oct 2018 09:52:47 CDT

Noble Economist Jason Bradley Gauges Current Outlook for Preconditioning Cattle this Fall Season The following article entitled, "Gauging The Current Outlook for Preconditioning Cattle" by Noble Research Institute Agricultural Economics Consultant Jason Bradley, was published in the latest edition of Noble News. The article discusses many of the decisions producers must begin to think about regarding the weaning of their spring-born calves and what preconditioning programs might be most suited to their particular operation.


It’s that time of year again — the time when decisions about weaning the spring-born calves have to be made. Is it better to sell them directly at weaning, or should they be held for a period of time in some type of preconditioning program?
Many reports show a cow-calf operation can gain value by preconditioning its calves before marketing. In this article, we will look at what the current preconditioning outlook shows us and a couple of other items to consider when deciding whether preconditioning is for you.



Two things you must consider when thinking about preconditioning are the value of gain (VoG) and the cost of gain (CoG). The VoG is the value added to the animal with every pound it gains, while the CoG is what it costs you, the producer, to put that pound of weight on.



VALUE OF GAIN


To begin, we need to find the VoG. We can do this by estimating the selling value and the weaning value. But where do these values come from? This is where we use the futures market and a historical basis.



In the futures market, traders from all around the world come together with information and try to outguess each other. This provides us with the best guess at where the price for a group of 62 steers weighing 800 pounds and located somewhere near the region where cattle are fed is going to be at some time in the future — which is why we call it the futures market.



But not all of us have 62 steers weighing 800 pounds, so we have to adjust that futures price. This adjustment is the basis. We could get into the details of what basis is, but that’s an article for another time. Basically, basis accounts for all the differences between your cattle and those in the futures contract. Since the cash market and the futures generally follow one another, a historical basis can be figured for almost every cattle type. Taking the basis for a particular set of cattle and adding it to the futures price, we can get an expected value.



IN THIS SCENARIO


By making some assumptions, we can come up with the prices for the cattle at weaning and after preconditioning.



The assumptions are that:



- We are weaning 600-pound calves.
- The weanling calves will experience 5 percent shrink due to the stress of the selling process.
- The preconditioned cattle will experience 1.5 percent shrink.
- The livestock auction OKC West is our sale barn.
- Our weaning date is going to be Oct. 2, 2019.
- The preconditioned cattle are going to gain 2.75 pounds per day.
- Based on these assumptions above, our payweight on the weanling calf is going to be 570 pounds. Based on the current futures prices (as of this writing) for October of $151.48 and a historical basis for steers and heifers of about $1.10, our estimated sale price is around $152.58 per hundredweight. Historically, we’ve seen a discount of around $10 for a bawling calf at this weight. This makes our final weaning price $142.58 and an estimated value of $812.68 per head.



One of the most common preconditioning programs is to wean for 45 days with a vaccination protocol. Using our assumed average daily gain of 2.75 pounds per day for 49 days (so the sale date matches up), our estimated ending weight after preconditioning is 734.75 pounds. Subtracting the 1.5 percent shrink leaves us with a payweight of 723.7 pounds. Using the January futures of $148.03 and a basis of -$8.29, our estimated price is $139.74 with a value of $1,011.34 per head.



Now we can find our VoG. With $198.66 of added value divided by the 134.75 pounds the animal put on, our VoG is $1.47 per pound.



COST OF GAIN


The next step is to look at what the CoG is going to be. We’ll say a standard vaccine protocol is going to run us around $15 per head. Then we’ll add in the feed of $1.25 per day. So, adding up 49 days of feed at $1.25 per day plus $15 for the vaccines, our preconditioning cost is $76.25 per head. Dividing this by the estimated 134.75 pounds of gain gives us an estimated CoG of 57 cents per pound. In this scenario, our VoG is $1.47 per pound and our CoG is 57 cents per pound, resulting in a margin of gain of 91 cents per pound.



Another 60-day preconditioning program is similar to the previous one except the calves have been weaned for at least 60 days. The health protocols are generally very similar to the 45-day program, so using many of the same assumptions, the selling price after 63 days of preconditioning is $1,055.92 per head, giving us a VoG of $1.40 per pound. At 54 cents per pound, the CoG is a little less since we can spread the vaccine cost out over more pounds. In the end, our margin of gain is 86 cents per pound.



So, economically, based on the first example, does this scenario make cents? Yes, about 91. I know, bad joke … but does that mean you should precondition your calves?



Well, like all great answers, I’d start with saying it depends. That’s because it really does.



There are other things to consider when preconditioning calves:



- It’s going to take a lot more of your time.
- Weaning is a stressful period for cattle, and it requires you to be ready for any health issues that may arise.
- Not having the facilities to handle this process could prevent you from preconditioning.
- If you think preconditioning is for you, make sure you evaluate the VoG and CoG using your operation’s information. Any Noble consultant would be happy to answer any questions you might have about backgrounding your cattle.


Source - Noble Research Institute



   

 

WebReadyTM Powered by WireReady® NSI

 


Top Agricultural News

  • Kim Anderson Says US Will See Wheat Prices Rise When Russia Runs Out of Wheat, on SUNUP!  Thu, 18 Oct 2018 20:06:23 CDT
  • OSU's Amy Hagerman Reassures Those with Farm Bill Anxiety, Says No Rush to Approve It... Yet  Thu, 18 Oct 2018 19:50:21 CDT
  • Oklahoma National Officer Candidate Ridge Hughbanks on the Road to the National FFA Convention  Thu, 18 Oct 2018 19:17:52 CDT
  • Oklahoma National Officer Candidate Ridge Hughbanks on the Road to the National FFA Convention  Thu, 18 Oct 2018 19:11:04 CDT
  • Dairy Farmers Invest in Technology Startup that Uses Real-Time Analytics to Improve Milk Quality  Thu, 18 Oct 2018 17:22:36 CDT
  • National Sorghum Producers Chair Dan Atkinson Names 2019 NSP Legislative Committee Members  Thu, 18 Oct 2018 17:16:43 CDT
  • Trump Administration Launches "Winning on Reducing Food Waste" Initiative  Thu, 18 Oct 2018 17:06:03 CDT
  • Thursday Market Wrap-Up with Justin Lewis  Thu, 18 Oct 2018 16:52:47 CDT

  • More Headlines...

       

    Ron salutes our daily email sponsors!

    Livestock Exchange Oklahoma Ag Credit Oklahoma Farm Bureau National Livestock Credit P&K Equipment Tulsa Farm Show Stillwater Milling KIS FUTURES, INC. Oklahoma Cattlemen's Association

    Search OklahomaFarmReport.com

    Find more about Weather in Oklahoma City, OK

       
       
    © 2008-2018 Oklahoma Farm Report
    Email Ron   |   Newsletter Signup   |    Current Spots   |    Program Links

    WebReady powered by WireReady® Inc.