Extension

Profit Maximization for Cattle Producers

Derrell S. Peel, Oklahoma State University Extension Livestock Marketing Specialist

 

With both revenues and costs rising, cattle producers must adjust cattle production and marketing to maximize profits.  Economists model this decision mathematically resulting in the rule that profit maximization is the point at which marginal revenues equal marginal costs.  This balance occurs when the value of the last unit produced equals the additional cost of producing that last unit.  Of course, cattle producers don’t use mathematical models to maximize profits but should use marginal thinking to adjust to changing market conditions.  Marginal decision-making means that production is adjusted at the margin, i.e. with minor modifications and tweaks to production systems rather than major changes.

 

Higher revenues generally suggests that producers will try harder to increase production.  This might mean, for example, a bit more time and effort to save an additional calf.  Or it might mean more attention on cow body condition and supplement needs to ensure good pregnancy rates.  Or it might mean culling fewer cows or breeding a few more heifers to expand production next year.  Higher cattle prices and changes in feeder cattle prices by weight changes the value of forage and may impact producer decisions about producing weaning calves versus using forage to add additional weight to feeder cattle.

 

However, input costs for cattle production are higher as well.  This implies that producers should think about cost adjustments at the margin as well.  Higher fertilizer prices may mean that fertilizer use should be concentrated on the best hay meadows and pastures and cut back a bit on more marginally productive areas.  Or it might mean additional effort to assess nutritional programs and identify feed alternatives to optimize feed costs.  For example, extra efforts to store and feed hay with minimal waste are more important now. 

 

Specific circumstances for individual cattle producers will determine whether the net impact of higher revenues and higher costs is a need to cut back slightly on production, hold steady, or increase production.  Producers more dependent on some inputs, such as fertilizer, may be more constrained in response to higher cattle prices, compared to, say, range-based ranches that use fewer purchased inputs.  Although the decisions made will vary across different types of cattle production in different regions, all cattle producers should engage in the process of marginal adjustments in production and cost management.   

 

There are short and long-run considerations and risks to be considered as well.  Care should be taken that short term efforts to manage higher costs should not, for example, jeopardize herd health by cutting vaccination programs or skimping on nutrition and risking decreased future herd productivity.  Markets are extremely volatile now and likely to remain so for the foreseeable future.  Producers should consider the use of risk management to protect revenues and potentially use forward pricing or other means to manage input costs.  

 

 

How Genetic Values Apply to My Herd Goals?

Mark Z. Johnson, Oklahoma State University Extension Beef Cattle Breeding Specialist

 

Each bull you purchase should be evaluated on the basis of what genetic potential he has to offer to your specific operation.  The purchase of bulls should be viewed as an investment in genetics.  The profit potential of your operation is largely dependent on bull selection.  Over time, 80 – 90% of genetic change is the result of sire selection.  So as we evaluate bulls, how do we determine what genetic values are important to our operation?

 

Use the Following Steps to Analyze Your Production System and Establish Breeding Goals

 

1. Evaluate your current level of herd performance.  You need to measure in order to identify what traits need to be improved. Some examples:

• Percent Calves Born Un-assisted/Calf Vigor
• Mature Cow Weight
• Percent Pregnancy Rate
• Percent Calf Crop Weaned
• Weaning Weight
• Weaning Weight Per Exposed Female
• Yearling Weight
• Carcass Weights, Quality and Yield Grades

 

2. Consider your marketing program.  Are you selling weaned calves, yearlings, finished cattle or replacement heifers?

 

3. Are you using bulls as terminal sires or selecting heifers to develop as herd replacements?

 

4. Identify your selection goals. Once you have quantified levels of performance in your herd, established your marketing plan and how you will use bulls, it determines what traits are most economically important, what changes are needed and where efficiencies can be gained.  Selection pressure is a precious commodity and should be focused on genetic change that gives your operation the greatest profit potential. 

 

Evaluate the genetic values of your herd bulls that resulted in your current performance levels.  EPDs and $Values are comparable across time and geography.  A registration paper has value.  Virtually all beef registries have a pedigree search option available online which can be used, free of charge to look up the current genetic values of the bulls you have been using.  These genetic values can be equated to your current levels of herd performance to guide future bull buying decisions.

 

 

Holding on to Calves Through a Down Market

Paul Beck, Oklahoma State University Extension Beef Cattle Nutrition Specialist

 

First it was just drought, now we have war in eastern Europe. On the 24^th of February Feeder Cattle futures markets were down over $4 for most months, Live Cattle were down over $2. Corn and wheat were up over $0.50/bushel. The futures market jitters have given a lot of us more to worry about.

 

Producers have asked about keeping calves through these low markets until prices improve, whether this is possible or advisable depends on the ability to lock in prices to control the risk of further price erosion. There are several ways that cattle can retained to delay marketing, and the recommendation of which production system to use depends on several factors related to the size and type of cattle, available resources, and producer risk tolerance. By the end of February, growing cattle should have some grazeout wheat available since we have gotten moisture from our winter storms and temperatures are warming up. With wheat futures over $9/bushel, will the wheat intended for grazeout earlier in the year still be grazed? To harvest a grain crop the calves will need to be coming off pasture within a few weeks. If markets haven’t recovered and producers want to keep them longer, we have a few options for retaining ownership and adding further value.

 

Larger cattle kept on grazeout wheat, weighing over 650 pounds, should not be held over on warm season grass. On grazeout wheat pasture, these calves often gain over 2.5 pounds per day. Over the years, cattle on grazeout wheat pasture studies conducted in Oklahoma and Arkansas report gains from 2.2 to 3.3 pounds per day from late February to early May (65 to 80 days). These cattle can gain 150 to 250 pounds and should go to the feedyard, weighing 800 to 900 pounds. Calves from research recently discussed in this column from Arkansas were placed on feed at 880 pounds following an extended wheat grazing program. These cattle gained 3.4 lbs/day during finishing and weighed 1283 pounds at slaughter. In another Arkansas trial, yearlings fed after wheat pasture gained 4.9 lbs/day and were slaughtered at 1323 pounds. These two sets of cattle provide a range of performance expectations from about average to much better than average.

 

A summary of yard closeouts from Hitch Enterprises shows that steers weighing 900 pounds when entering the feedlot were slaughtered at 1,466 pounds, were on feed for an average of 142 days, gained 3.78 lbs/day, with 6.38 pounds of feed required per pound of gain. Lighter steers weighing 700 pounds were on feed for 183 days, gaining 3.48 pounds per day, required 6.13 pounds of feed per pound of gain, and slaughtered at 1402 pounds. The Focus on Feedlots Kansas Feedlot Performance and Feed Cost Summary (Justin Waggoner, Kansas State University) of feedlot closeouts from December shows steers gained 3.83 lbs/day and cost of gains were  $108.37/cwt with expected cost of gain to be $115/cwt for cattle placed on feed that month.

 

Corn getting more expensive and high fertilizer prices may reduce the corn acres planted this spring. Research indicates that cost of corn explains 58 to 67% of variability of cost of gain, but price of fed cattle and feeder cattle explains 70 to 80% of feeding profit risk. This will have a big impact on the price of feeder cattle and the willingness of feeders to purchase cattle. Live cattle futures are right at $138 to $142 for when feeders going on feed today will be marketed in August through October. Cattle placed on feed in June will be coming off feed at a higher market of $147. There is considerable risk in this but there is potential for positive movement in the market, even so don’t bet the farm without some form of risk protection in place. Figuring out a way to keep calves until markets improve can be tricky with high feed prices. Dave Lalman and I discuss some alternatives for doing this in a recent Rancher’s Thursday Lunchtime webinar.