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Calve in the spring; sell calves in the fall. It's the standard formula, and 80% of the cow/calf business works this way.
It's not exactly a great formula for getting top dollar for calves, though. You're selling when everyone else is, and that market glut depresses prices.
CattleFax's Troy Applehans (www.cattlefax.com) says many calf producers don't realize that when they follow this typical approach, they're selling on the worst market of the year.
“About 80% of beef calves in this country are born in the spring and weaned in the fall,” he says. “Probably 80% of those are priced in the fall at an auction market. That's a lot of calves being priced in a narrow time frame.”
Lows and highs
Long-term average price charts show how that impacts a market. Average prices for 550-pound steer calves hit a low in October and November 2010 at about 96% of the yearly average. “There's a glut of supplies right then,” says Applehans. “If I'm a cow/calf producer, I don't want to be selling calves at the low price point in the fall. I can ship them in the fall to a feedlot or other buyer, but why not price them at another time?”
At the other end of the average price charts, calf prices tend to peak in April and May at 104% of the yearly average. That's when fewer calves are available, but demand for them to go on grass is the greatest. After that, prices tend to level off through summer at just above yearly average, then plunge again in fall.
Calf producers should consider offering calves for sale in the summer, he says, on a price peak. This could be done through private treaty with a previous buyer who likes your calves.
Sell now, ship later
There are also video auctions, such as Superior Livestock Auctions (www.superiorlivestock.com), that will send a representative to your farm in the summer, make a video of your calves, and offer them for sale online or on television. Calves sold that way catch the summer price plateau but aren't delivered until fall or winter, when you would normally wean and sell. You get the better summer prices, but you still wean and ship your calves at your preferred time. “Research shows you can average $4 per hundredweight more this way than pricing in the fall,” he says.
Typically, Applehans says, buyers of calves sold this way (ahead of delivery) have to pay about a $40-per-head down payment at the time the deal is made with the balance at delivery. “Make sure you collect that down payment. It's your guarantee the deal will go through,” he says. “It has been known to happen that a buyer backs out later because the market turns. In that case, if you collect the down payment at the time of sale, you keep the $40 and sell them again.”
Mike Murphy of CattleFax's market outlook staff says record cattle prices this year are telling you to expand your herd. “Do it with full knowledge the ante has been upped, and risks of owning and feeding cattle are greater than ever,” he says.
He especially cautions cattle feeders to use risk-management tools and not just lock in the price of the cattle. “Lock in the price of corn, too. Corn markets used to move about 30¢ a bushel in a nine-month period. Now they can do that in a day.” They moved $3 a bushel in less than 180 days last year.
Murphy's chart shows that in the 1990s, it consistently cost about 50¢ for every pound of gain in a feedlot. In the 2000s, the chart shows a steady upward climb, to over 90¢ now. The run-up in corn prices has done that, as ethanol production has gobbled up more corn.
Last year was one of the most profitable for feeding cattle in 20 years, with average profits per head of over $50. “But don't put that in your budgets for the future,” he says. “Long-term, cattle feeding is a break-even business. I tell people to lock in profits starting at $10 a head, then lock in some more at $20, and move your way up.”
He tells cattle feeders to look at the business in terms of return on investment (ROI) rather than profit per head. If you have $150 collateral per head in feedlot cattle, you profit $20 per head, and turn your lot twice a year, that computes to 27% ROI. “Compare that to what the stock market has given,” Murphy says.