Harlan Hughes 11:45 am edit Economics Of Running Grass Cattle In The summer Of 2008- part i figures 1, 2, and 3 are at the top printed in reverse order. Double click each to load a larger view into your computer and to print with your browser's print command. You can go back to the print section by clicking the back arrow on your browser. In response to this changing economic world, a wyoming irm cooperator asked me to help him evaluate the economics of running grass cattle during the 2008 grazing season. He was wondering if he could purchase some 650 lb calves in early may and market them at 850 lbs in mid September 2008 and make any money. Given the price volatility of corn and its direct impact on feeder cattle prices, he wanted to explore using usdas livestock risk Protection (LRP) Program to remove most of price risk associated with running yearling steers. The objective of this article in the series is to share the economic analysis that I went thorough to provide this irm cooperators a set of planning prices for running grass cattle summer 2008. Ranchers need to answer two economic questions to determine the profit essay potential from running grass cattle in 2008. First question, how much marketing loss is projected on the initial weight of the feeder calves going onto the grass?
Agriculture is to harvest land that should not or can not be farmed." beef cows have never really been able to compete with "farming" when that land could be farmed. The emerging biofuel era is again emphasizing that land that can be farmed will be farmed. The nations beef cow herd could well reduce in size due to the bio fuel era. Now for the key point. The great-plains and mountain strange regions are not going to see this conversion from beef cows back to farming - i think it will be the western corn belt and southern plains regions. As a result, the nations beef cow herd will move west in the biofuel era. Those remaining in the beef cow business will have less competition from the corn belt and southern beef cow producers.
Recent cow slaughter data tends to support this view. Beef cow slaughter during 2007has.6 larger than in 2006 and, during the first five weeks of 2008, was nearly 10larger than a year earlier. Total female slaughter (cow and heifer slaughter, combined) expressed as percentage of steer slaughter is running ahead of last year and at a level that suggests liquidation is taking place. During the first five weeks of 2008, female slaughter totaled 101.6 of steer slaughter, well ahead of last year's pace during January.2. So, one of the early by-products of the ethanol induced run-up in grain prices could well be the beef cow herd expansion that didn't happen! Editorial comment from Harlan Hughes: While i totally agree with the general theme of this article, i suggest readers think about one more aspect of the beef industry as you read this. "The role of beef cows.
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Usda's Cattle inventory report, released a couple of weeks ago indicated that the january 1, 2008 beef cow inventory was about 1 smaller than a year earlier. Most observers think drought conditions, particularly in the southern Plains during 2006 and the southeastern. During 2007, prevented. Producers from expanding their herds the last two years. This line of thinking suggests that, if weather conditions return to español normal, cow herd expansion is on the horizon.
But the delayed expansion is not likely to turn into future herd expansion. The reason is simple. Cow-calf producers, there is simply no compelling profit motive to expand their herds. And rapidly rising costs, and stiff competition for pasture, are actually likely to lead to modest herd liquidation in 2008. Kansas Farm Management Association data indicate that cow-calf producers' returns above variable production costs have been positive for the last nine years (including projected returns for 2007,actual 2007 data won't be available until later this spring but the margin has been declining rapidly the last. And combining forecasts for lower calf prices in 2008 with nature a dramatic upturn in production costs, including higher feed grain prices, pasture rental rates, fertilizer prices, hay prices, and transportation costs, odds are high returns for average cost cow-calf operations will fall below variable production.
Selling finishing the animals with a negative projected profit of 139 per head. Remember, these profits are accumulative as you go from left to right. Even if I take my potential profits from selling at weaning, wintering the calves, and running grass cattle, and subsidize the finishing profit center a common rancher practice i am projected to not make any money finishing these calves. Why, then, would I want to finish these calves? Also, for income tax purposes, the first 3 marketing points all would occur in 2008 so there are no different tax consequences.
My conclusion from this 2008 ranch business plan is that i am interested in keeping my calves through Sep08 and marketing the calves as feeders off grass. I am not interested, at this point, is finishing these calves. Harlan Hughes 8:42 pm edit, beef Cow Herd Liquidation On The horizon? Source: Cattle network today 2/15/2008 (Please note my editorial comment at end of this article). Rising costs, and prospects for lower calf prices, could lead to the. Beef cow herd declining over the next several years.
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The grass cattle budget is the 3rd marketing alternative from the left in essay Figure. As you probably can guess, the exact same procedure as described in detail for the grass cattle profit center was used to generate the beef cow herd profit center budget, the wintering profit center budget, and the finishing profit center budget for a complete economic. The 2007 fall born calves are wintered in 2008, summer grazed in 2008, and finished in the fall of 2008/winter 2009. Now I can evaluate four different marketing points for running a fall calving beef cow herd. The four marketing points are: selling at weaning, wintering the calves through the winter, running the calves as grass cattle through the summer, and. Finishing the grass cattle off good grass. Line 44 in Figure 3 presents my projected profits for each marketing point: selling at weaning with 60 projected profit per cow, selling at grass time with an added 25 projected profit per calf, selling off grass with an added 4/head (a rounding difference.
I then localized this cme price to my geographic location via the basis adjustment giving me a futures-based localized planning price. I then adjusted the localized planning price by my calculated price slides to adjust the planning price to my specific weight of cattle being marketed. I arrived at a may08 126 price on grass and a sep08 108 price off grass. Then in this article, i prepared a profit center budget utilizing these planning prices for wintering steers on grass summer 2008. I then integrated that grass cattle profit center budget into a business plan for running fall calving cows in 2007. Economic Analysis of a 2007 Fall Calving beef Cow Herd. The grass cattle budget discussed above is integrated into a set of four production/marketing alternatives for a fall 2007 Calving Cow Herd (see figure annual 3).
cost were to be added in, i typically use 15/head labor costs. Instead, i am letting unpaid labor be one of the residual claimants in the bottom line along with facilities, management, and risk. All three of these resources are not charged for in this economic analysis. Management Actions, let's review what I did. In the April08 beef market Advisor i used cme futures market for a given contract month as my base planning price.
Since i wanted to evaluate the production of 850 lb feeders off grass, i selected the 108/cwt planning prices for my 850 lb steers off grass in 2008. This is an Eastern wyoming/Western Nebraska planning price. Grass Cattle Profit Center Budget, now that I have my planning prices for running grass cattle in 2008, i can now project my resource costs for running grass cattle in 2008. This, then, gives me a pdf grass cattle profit center budget for running yearlings on grass in 2008 (see figure 2 above). In summary, the buy/sell margin for 2008 grass cattle is projected to be a minus.35. This generates a 115 marketing loss on the initial 625 lbs. To make a profit, the profit from the pounds gained has to exceed the marketing loss. The market value of the 225 lbs gained is projected to be 242 with a total cost of gain at 126/head for a projected profit on the lbs gained of a 116.
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2008 Business Plan for Grass Cattle in the Emerging biofuel Era. By, harlan Hughes, professor Emeritus, north dakota State University, planning Prices for Grass Cattle (double click the figure tree images to load a larger version into yout computer. Then, use your browser print option to print the figures. Click back on your browser to return to the text of this article.). My 2008 ranch business plan for the emerging biofuel era calls for the marketing of heavier feeders off grass. Looking at Sep08 planning prices in my April08 beef market Advisor, figures 4, suggests a 126/cwt planning price for 625 lb steer calves going on grass in may08. Figure 1 above presents my detailed Sep08 futures-based planning prices for alternative animal weights.