Increasing Opportunity Costs for 2018 Calves

As we near the end of the calendar year, you’ve probably made most of your marketing decisions for your calves. Even if you are loading cattle to be shipped to a buyer, that doesn’t mean your thought process has ended, and it doesn’t hurt to be thinking about the coming year and what might create an opportunity. 

At the same time, if you retained ownership on all or part of your 2017 calf crop, background or have cull cows held over into next year, you still have marketing decisions to make. A new variable in the equation for 2018 might be new tax considerations if Congress can get their heads together. Who knows how and when that might finally turn out, but it’s always a consideration in business. 

The coming year might provide a great opportunity to background and add those cheaper pounds, either to sell or retain ownership into the feedlot. The demand for feeder cattle has certainly supported higher prices this year with relatively low feeding costs and quite a bit of optimism for 2018 markets. This increases the Opportunity Cost of heavy feeder cattle and makes the decision analysis more critical. But the opportunity to use cheaper forage gains to build those high opportunity cost feeder cattle is a viable option. 

Regarding the market outlook, cattle numbers will continue to build as the result of herd expansion. The key to profitable prices across the beef complex will be a function of how beef will fare in the face of record per capita total meat supplies. This will be judged largely against U.S. consumer demand in light of that record supply and U.S. red meat and poultry export demand. Be mindful of break-even prices at every juncture. 

Opportunity index chart
Cattle placed on feed in November 2016 required $98.81 per cwt at slaughter to 
recover all costs. Cattle placed on feed in November 2017 have a projected break-even of $112.54 to recover all costs, which falls into the favorable range. Source: Sterling Marketing, Inc.