Today the price of cattle is high in relationship to where they were. They may be cheap to where they may be going. We don’t know what the market is going to do. What we do know is what the market is today and the relationship of the price to what we have in inventory.
The inventory is made up of three things:
- animals that we own
Time is a fourth resource we have both from the perspective of what we do with it or how much time we keep an animal before we sell it. There is a risk of the market changing in animals that take a long time before selling so we need to factor that into our decisions.
To find the relationships of the animals that we own, we need to compare the value of them and the cost to carry them to the weight or time frame when they are overvalued. The prices that are used are good only for “TODAY” to compare and find the ones we want to sell and keep.
Example, prices from Joplin Sale 2/13/2012:
425#Steers @$202/cwt = $858
425# Heifers @$175/cwt = $743
Young Bred Heifers $1700
6 Year Old Cow
7-9 Years Old Cow $1,400
Old Cow 1050#@.89/# = $934
Heifers to Steers Comparison
All marketing is based on the numbers and relationship between the values of different classes of animals. The first relationship is steers to heifers. The $115 dollar difference ($858-743) is based on a $27 dollars/cwt difference.
Value to me is a $10 spread between steers and heifers. In other words, when the spread between steers and heifers is over $10 the heifer is undervalued and the better buy. Or, in this case the heifer is the one to keep because she is undervalued to the steer. Because the steers are overvalued to the heifers, they are a sell.
425# TO 475# Steer Comparison
Now that we know the steers are a sell to the heifers, we need more numbers to find out if the time is right to sell them. The numbers that we need are the cost to carry and the value of that gain. My cost to carry a calf on dry native range plus 38% cubes is 50 cents per day. That is the value of the grass at custom rates and the cost of the cubes. They will gain about ¾ pound per day.
425# steer @ $202/cwt = $858
475# Steer @ $195/cwt = $926
50# gain value = $68
50# gain cost = <$33>
Net value = $35
We now know that if we keep the 425-pound steer to a 475-pound steer we will gross $68. It will take 66 days to get there and the sale date will be April 19. At a cost of $33 dollars, the net dollars are $35. The value of gain was $1.36 ($68/50# gain).
425# TO 525# Steer Comparison
425# steer@$202 = $858
525# steer @$182 = $955
100# gain value $ 97
100# gain cost <$66>
By adding 100 pounds we got $97. It would take 132 days at a cost of $66. Net dollars would be $31.The value of gain was $.97/pound. When you compare the 475 pound steer to the 525 pound steer, the value of gain drops by $0.58. Carrying the 425 pound calf to 475 pound was good, but the next 50 pounds was not. For me in Northeast Oklahoma, it easy to sell into grass fever which is in April when the 475 pound calf would sell. The 525# calf would sell in June when the fever is out of the market.
What the numbers tell on the steers is that 425# calf is a buy compared to the 475# calf “TODAY” and the 525# tells that “TODAY” the market is not paying as much for the 50# from 475 to 525 pounds as it would for the 50 pounds from 425 to 475. This information tells me I should sell the 475-pound calf.
Heifer vs. 6 Year Old Cow Comparison
When looking at the heifers and cows we see that value of the young cows is higher than the heifers and also the old cows. We will now look at the relationship of the heifers and cows. My cost to carry a heifer to the point it is bred is $255. This cost is based on custom grazing rates for the grass and labor and feed at cost. The numbers tell us that a 6 year old cow will drop in value as she becomes a 7 year old.
Sell 6 year old cow = $1700
Keep 425# heifer = $< 743>
Cost to carry = $< 255>
Cash from Trade = $702
What we have done is sold a 6 year old cow and keep one of our heifers. By doing this we have given up the sale of the calf the cow would have had which at today’s market is worth $720 ($800 calf value x 90% calf crop = $720). By doing this trade we have sold a cow that is ready to drop in value and replaced her with a heifer that is appreciating in value. We also have $702 in cash in the bank. The difference in the cash we have now and the sale of the cow’s calf is $18 dollars. However, there are other gains with this trade including: picked up 4 years in a younger cow, removing the cost of carrying the cow for a year, and reducing the market risk with the time of carry to sale.
7-9 Year Old Cow vs. 10+ Year Old Cow Comparison
Sell 7-9 year old cow = $1400
Keep heifer = $<743>
Cost to carry = $< 255>
Cash = $402
Old cow = $943
Keep heifer = $<743>
Cost to carry = $<255>
Cash = $<55>
The calves from 6 year old cows and older carry a big depreciation cost, but you can see how the longer you hold on to a cow the more costs there are as well.
As I gain more knowledge of the relationships of the market two things are paradigm changes for me.
When calving with nature, not only are costs lower, calving rates go up and animals sell into the best markets.
Longevity may carry some costs with it. Depreciation is not a straight line. It’s more like going over a cliff. With longevity you need to know the value to you and how you are going to handle the costs along with its benefits.