AgDM newsletter article, October 2000

Retained ownership strategies for cow-calf producers

John LawrenceBy John Lawrence, Extension Livestock Economist, 515-294-6290, jdlaw@iastate.edu

Alternative retained ownership strategies for cow-calf producers are shown in Table 1. These strategies are compared over 17 calf crops, 1983–1999, that were sold as fed cattle in 1984–2000. Only the 1996–1999 years are shown in the table. However, the average, minimum, and maximum reflect all 17 years. For more information on retained ownership strategies see Decision File Retained Ownership Strategies for Cow Herds.

Selling calves at weaning serves as the benchmark strategy. The other four strategies can be compared to this. For example, in some years the retained ownership strategies produced positive returns but were less profitable than selling at weaning. More specifically, the strategy of “backgrounding and selling Jan. 1” produced a return of $10 in 1993. However, selling at weaning that year would have produced a $33 return.

Conversely, in other years, the retained ownership strategies produced losses, but the losses were less than selling at weaning. For example, the strategy of “weaning Sept. 1 and finishing April 15” produced a loss of $27 in 1996. However, the loss would have been almost $100 more if the calves had been sold at weaning ($121 loss).

Table 1. Retained ownership strategies (1995–1999) ($/head)
 
Calf crop year
Strategy
1995  
1996
1997
1998
1999
Avg.*
Min.*
Max.*
Wean and sell Nov. 1
$-149
$-121
$-62
$-56
$-34
$-7
$-149
$155 
Background and sell Jan. 1
-182
-167
-97
-35
0
-13
-182
165
Background and finish Aug. 20 
-96
-6
-105
45
54
30
-226
257
Wean Sept. 1, finish Apr. 15
-170
-27
-94
27
116
44
-191
271
Wean Nov. 1, finish July 1
-164
-67
-145
10
54
9
-196
194

* The average, minimum, and maximum represent 17 years of data (1983–1999)

Selling at weaning

Calves are weaned and sold on November 1. This strategy produced a lower average and maximum return than did the feedlot strategies, but it had a higher minimum return and less variation in returns.

Background for 60 days

The calves were weaned November 1 and backgrounded for approximately 60 days (January 1). Average daily gain was targeted at 1.75 pounds but was adjusted each year to reflect the performance conditions experienced in feedlots. This strategy had the lowest average return, but less slightly downside risk than the feedlot strategies.

Retain backgrounded cattle to slaughter

The background calves in the previous strategy were put in the feedlot January 1 and fed until August 20. The cattle were assumed to grade 75 percent Choice and 25 percent Select, and were priced accordingly. Average returns were higher than the previous two strategies, but less than the early wean strategy. It had the greatest downside risk.

Early wean calves into feedlot

Calves are weaned September 1, placed directly into the feedlot, and sold April 15 grading 60 percent Choice. This strategy was the most profitable due to the improved feedlot performance and because the cattle were sold before seasonal price declines.

Place directly in feedlot at weaning

Calves were weaned November 1, placed directly in the feedlot, and sold grading 70 percent Choice on July 1. Returns averaged better than the backgrounding strategies or selling at weaning.

Summary

The retained ownership strategies examined above add value to the cow owner's resources in most years. After paying market rates for the calf, feed, capital, labor, and facilities; most strategies produced a profit. Compared to selling at weaning, retaining ownership until slaughter increased average profits. In some years the return was over three times higher.

In some years, 1983-85 and 1995-97, cow herds lost money under all strategies. Unprofitable years such as these are necessary in order to trigger a liquidation of the breeding herd. They are also inevitable and should be planned for.

Selling calves at weaning reduced losses in unprofitable years of the cattle cycle (1983–85, 1995, and 1997). Retained ownership reduced losses in 1996 because the cattle cycle turned between the fall of 1996 and the spring-summer of 1997. However, retained ownership was more profitable in the other years.

These results suggest that no one strategy is most profitable every year. Successful cow owners will be those who can adjust their program to changes in market conditions to achieve the greatest returns to their resources.

Assumptions

ISU Extension Beef Cow Business Records for each year were used as estimates of the cost of producing a weaned calf. The ISU Extension Feedlot Enterprise Records for each year were used as estimates of variation in feedlot feed efficiency and average daily gain.

Selling prices for calves and fed cattle were the weekly average price reported by USDA. A $4.00/cwt. price slide is assumed for cattle weighing other than the midpoint of the quoted price range. Input prices (corn, hay, supplement, and interest) were monthly average prices reported for the placement month.

Two-thirds of the calves are assumed steers and one-third heifers. The remaining heifers are kept for breeding animals. Yardage and health costs were adjusted for inflation. The cattle were assumed to be trucked 100 miles in and out.

 

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