Is It Time to Consider Retained Ownership?

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BT_Hereford_Feeder_Cattle

By: John Nalivka, Sterling Marketing

Cow-calf producers were in the driver’s seat during 2014 and 2015, with little economic incentive to retain ownership of their calves through the feedyard.

This year, however, the market has turned dramatically and it might be worth your time to pencil out the financial opportunity of retaining ownership.

Cattle feeding was a disaster in 2015, and that’s evidence of the risk involved in the decision to retain ownership. Because the cost of feeder cattle represents 75% to 80% of the total feedlot cost, the feeder value represents the largest share of the margin risk. Simply put, the market value of feeder cattle represents an opportunity cost to ranchers in their decision to
retain ownership.

The risk and volatility of cattle markets can change the outlook for retained ownership rapidly. The Sterling Retained Ownership Opportunity Tracker helps ranchers evaluate whether current market conditions favor retaining ownership.

Retained_Ownership

Using Sterling Marketing’s forecasts for feeder cattle prices and the resulting
break-even price for fed cattle, the Retained Ownership Opportunity Tracker provides a first gauge for ranchers to begin their evaluation.

During May, feeder cattle (750 lb. to 800 lb.) averaged $146.15 per cwt, with an estimated breakeven of $115.43 per cwt when marketed in October. During June, Sterling’s projected feeder cattle price is $141 per cwt with an estimated break-even price of $113 per cwt.

This projected breakeven offers favorable profit conditions. However, we continue to stress the importance of weighing the retained ownership profit opportunity with the break-even price against the overall risk consideration.

Taking current profits when selling feeders at the projected price eliminates the market and performance risk that would be shouldered in the retained
ownership decision.

 

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