Take a Second Look at Backgrounding Calves This FallTue, 19 Oct 2010 6:40:09 CDT
Often a cattle producer can make the best return when you can do what the market needs done at a time when it is difficult for anyone else to do it. Right now, the market wants feeder cattle to have additional weight before going to the feedlot. This has been the general tendency for some time but is enhanced even more with the recent jump in corn prices. Stocker producers normally oblige the market by putting on the additional weight but winter time is more tricky than summer when there is lots of green forage. In the southern plains, grazing winter wheat usually provides a home to many feeder calves being marketed in the fall run.
However, the lack of rain for the past month means that very little wheat pasture is available or likely to be available very soon. As a result calf prices have dropped more than previously expected due to the lack of stocker cattle demand. This sets up a situation where cow-calf producers should consider the feasibility of implementing some sort of backgrounding program for weaned calves.
Retained ownership allows cattle producers to change the timing of animal sales which may have marketing advantages. I donít often recommend using retained ownership strictly as a marketing tool. After all, holding calves into a stocker or backgrounding program means that the producer is taking on a new cattle production activity. It has to work and be feasible from a production standpoint before it can help with marketing. This means evaluating the resources required; feed, facilities and labor, to be sure you can manage the health of the animals and put together a nutritional program that will provide acceptable gains. This may involve standing forage or hay along with some supplement. It might be grazing, semiconfinement or a drylot situation.
If it is feasible, this may be the ideal time to consider retaining calves. The additional weight gain is needed and the stocker industry does not have the forage to do it as easily as usual. The value of gain provides the incentive to look at more creative stocker or backgrounding programs. Last week in Oklahoma, 519 pound steers were priced at $115.07/cwt. and 680 pound steers had a price of $110.34/cwt. This means that the value of an extra 161 pounds of gain on the steer was $0.95 per pound. Can you design a backgrounding program to put weight on and provide a decent return relative to this value?
Of course, the market price may change before we actually have the extra weight gain. It is not without risk but it is a calculated risk. Corn is likely to stay high and the value of the weight gain will remain strong. If it rains soon in the southern plains, the demand for stocker may rebuild and one could choose whether to continue with the backgrounding program or go ahead and sell the animals. Either way there is relatively little downside risk in putting on another 100 to 300 pounds on weaned calves. The futures market is volatile but does provide an opportunity to lock in the margin on weight gain and reduce the price risk for feeder cattle. A little creativity in designing a backgrounding program could be worth the effort this fall.
Our thanks to OSU Extension Livestock Market Economist Dr. Derrell Peel for these comments about the cattle market. Derrell's comments come from the weekly electronic publication called Cow Calf Corner- a joint effort of the OSU Animal Science and Ag Economics Departments.
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