Toss-Up on Retained Ownership

Retaining ownership is a coin flip proposition in 2018-19. Despite low feed prices, producers need to watch their breakevens. “Breakeven price is 75% driven by the cost of the cattle,” says John Nalivka, Sterling Marketing. ( Graphic by Lori Hays, Photos by Wyatt Bechtel )

Market signals typically offer a clue whether or not to retain ownership. Calf prices in 2014 and 2015 were 40% to 50% higher than this year, which made the decision to sell weaned calves a no-brainer. But market conditions for 2018/19 are not an easy call, and analysts say the decision to retain ownership is a 50-50 proposition.

Whether to market after weaning, running calves longer as stockers or taking calves onto the feedlot is a decision that is weighed differently by cow-calf producers. Market prices and forage growing conditions locally are two of the biggest factors that most producers will need to consider.

The beef industry has reached a relative balance with the cowherd back at average levels and feedlots stocked, says Derrell Peel, Oklahoma State University Extension economist.

“Obviously what you’re looking at a lot of times is do we have something kind of out of whack that either favors selling them as feeders or favors keeping them all the way through the feedlot,” Peel says.

This year there are no clear market signals in either direction.

Peel expects normal margins, but believes feed costs will be favorable in feedlots with lower grain prices.

“Cost of production at the feedlot level will be fairly attractive, more than likely. Obviously, short-term dynamics can impact that,” Peel says. “I suspect that there will be opportunities for kind of normal returns as it stands.”

Being in a middle-of-the-road market leaves producers with a lot of options because there are no clear market signals on selling or retaining, says Josh Maples, assistant professor of agriculture economics at Mississippi State University.

“I think in a year like this, it really comes down to how cheaply you can add the pounds,” Maples says.

In areas of the country such as the Southeast, moisture conditions have been good, helping boost forage growth regionally. Producers in states such as Alabama, Florida, Georgia, Kentucky and Tennessee have no problems with drought heading into late summer/early fall so there should be ample feed to add cheap gains.

Depending on forage availability, calves can become stockers on the farm or ranch after weaning to achieve weights of 700 lb. to 800 lb.

“Then that gives you the opportunity to retain ownership through the feedlot like we typically think of retained ownership,” Maples says.

In other areas of the country such as the southern Plains and western U.S. drought is relatively widespread forcing early weaning on some ranches. When in drought situations cattle might not weigh what producers would want, says John Nalivka, president of Sterling Marketing. They also might have difficulty getting an acceptable price for their weaned calves because of a regional flood of calves on the market.

“Retained ownership can work in drought if you’ve got good calves and you’re simply not being offered the value on those calves,” Nalivka says.

Should the market be depressed regionally, calves can be sent straight to the feedlot to be finished.

“If you’ve got data, some history on how your calves perform, then you have some possibilities of creating pretty good values,” he says.

One situation that has the potential to change the profitability of retained ownership in the foreseeable future is the export market. Trade wars entered into by the Trump administration have resulted in a ripple effect of retaliatory tariffs.

Peel says beef exports have helped support the cattle market for the past 18 months, but tariffs could have potential to alter those gains.

“If you throw one rock in the pond, you can follow the circles and see where they go. If you throw two rocks in the pond, you can kind of see how the circles interact with each other,” Peel says of the complicated tariff situation. “When it’s over 30 rocks in the pond at the same time, you have no idea what is going on and how to sort out the impact.”

Uncertainty is one of the only certainties in raising cattle, and tariffs could muddy the waters for marketing decisions. Nalivka cautions producers should not be tormented about how tariffs could impact cattle prices.

“I would stress don’t worry about what you can’t manage or worry about the things you don’t have control over,” Nalivka says.

Instead, he advises cattlemen to know their breakevens and implement risk management to help protect profits if markets go down.

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