A Good Time to Plan for Calf MarketingWritten by John Ritten
It’s that time of year again. Some of you, no doubt, already have calves on the ground, and the rest of you probably will soon. It might seem early, but now is the time to plan how you will market this year’s calf crop.
With prices forecasted to be strong again this year, there may be a lack of urgency for some of you, but I argue that this year’s crop deserves attention. With high prices come the blessing – and curse – of high premiums and discounts. Even if your calves don’t receive any discounts when marketed, the loss associated with missing out on premiums will be larger this year than most previous years. It will be costly if you don’t fully take advantage of what the market has to offer this fall. It will be time well spent to think through your options while you still have time to alter your plans.
There are a few considerations I think are key this year.
A recent USDA report shows beef production down through February this year. Given the retention of heifers, this report should be unsurprising. However, this should help to keep prices strong this fall as decreased beef production should support higher retail – and therefore wholesale – prices in the coming year.
Surely feeders read the same report, and given the low forecasted corn price, many will be trying to lock in calf prices in the coming months. This may be an option to consider this year.
Of course, some people locked in prices early last year only to see prices continue to climb into uncharted territory, but most economists seem to believe a repeat of this phenomenon is unlikely to occur in 2015. While locking in prices early will prevent you from taking advantage of another historic ride – in the unlikely event we experience another one – more importantly, perhaps it will protect you from any downturn in prices that may occur as the year wears on.
Aside from global turmoil, I see two potential drivers that may decrease prices – large-scale drought and a major increase in corn prices. We, in Wyoming, understand drought all too well, so I’ll focus on corn.
While current projections are for relatively cheap corn at $3.65, any disruptions to the crop could cause prices to rise. If so, expect feeders to respond by bidding less aggressively for calves. If corn remains cheap, expect feeders to bid aggressively for calves to fill bunks.
When corn is cheap, the price slide steepens, and heavier cattle take a higher discount since feedlots can put weight on light calves more cost effectively. If the corn crop progresses as expected, it may be wise to send your calves to market early, take advantage of the higher prices at lighter weight and get your calf crop in front of feeders that still have a lot of bunk space.
If, on the other hand, the corn crop doesn’t materialize, higher feed costs tend to increase demand for heavier calves, so delaying marketing may be more profitable. Either way, it would be wise to monitor the situation as summer progresses.
A recent report shows that corn acreage is expected to shrink this year in response to low forecasted prices, and the “Prospective Planting Report,” the first major report from the USDA, due out at the end of March, will show how farmers are altering their planting decisions as spring precipitation plays out.
Preconditioning programs tend to add more value in times of high cattle prices, as they are often a percentage above base prices. This added value is due to the fact that feedlots have more money tied up in each calf and are willing to pay higher premiums to ensure performance through reduced illness and death-loss of unvaccinated calves.
Current research shows that weaning, in conjunction with vaccinations, provides much higher premiums than vaccinations alone, with higher premiums received for calves that are weaned at least 45 days.
Also, recently third party verification of preconditioning programs has been shown to add additional premiums, with the highest premiums coming from any USDA certification. A recent study in Oklahoma shows verified preconditioned calves saw a 10 percent premium over their non-preconditioned counter parts, a value of over $25 per hundredweight last fall.
Another often-overlooked premium comes with lot size. It will also behoove you to know where and how you plan to market your calves.
For local markets, we often see a premium for lots of at least 10 head of uniform calves, with lots bigger than those receiving higher premiums. For video auctions, this is even more substantial, with the highest premiums coming from lots sizes of around 240 head.
If you don’t have uniform lots of this size, it may pay to jointly market your calves with neighbors to benefit from these premiums.
Regardless of how many and what kind of calves you have, I recommend planning for fall marketing now. If cattle prices hold, we will be lucky enough to have had two very good years in a row.
However, by not planning properly, it is easy to leave extra money on the table.
While a little extra money may not seem like a big deal this year, it may very well mean the difference in who survives the next drought or major fall in prices. While I do not have a crystal ball, I am certain that an extra cushion in the bank account will be very handy in the foreseeable future.