Cattle producers and feedlots continue to try to navigate challenging economic conditions. Elliott Dennis, ag economist with the University of Nebraska, says fat cattle are having trouble finding a market at a decent price, which means producers should consider cost of gain and value of gain if they hold onto the cattle longer.
“Fat cattle available for slaughter either cannot get bids or bids are significantly below breakeven prices, leaving feedlots with decisions to be made about marketing and placements,” he says.
The coronavirus outbreak and its impact on consumers and packing plant production levels have given producers new decisions to consider, Dennis says.
“Reduction in domestic meat consumption and reduced feedlot placements due to packing plant closures has backed up feeder cattle that would have normally entered feedlots,” he says. “This has left some cow-calf producers with an unusual decision regarding what to do with feeder cattle especially those operations which have not normally considered preconditioning, backgrounding or stocking on available forage resources.”
Dennis says there are a few factors that go into deciding what to do with feeder cattle.
“Prior to making this business decision it is likely worth asking how much the market is currently willing to pay to put on weight, (meaning the) value of gain, and whether certain weights are more profitable to add weight than others,” he says. “This is one part of a three part decision. The other two parts are availability of resources and thus knowing cost of gain.”
A lot of producers are expecting prices to rebound.
“The decision to put on weight in the current COVID-19 market situation is particularly enticing given the hope or expectation that prices will rebound in the future,” Dennis says.
However, value of gain does not always follow simple patterns, he says.
“While it is often assumed that heavier cattle bring more money per head at the time of sale, the increased value often may not be as large as one may expect,” he says. “This is largely because the COG is generally less than the price of feeder cattle and the price per pound of heavy feeder cattle is often discounted relative to lightweight feeder cattle. This relationship between is often referred to as the price-weight relationship. This relationship is known to change by time of year, weight and sex of cattle, and how much weight is to be put on.”