Economics: September 1997

Happy days are here again! Well, they are if you are in the cow/calf sector. The stocker and feedlot picture may not be so pretty, but, as in all things, we must each take our turn.

As of this writing, 500 pound steer calves are bringing $95 CWT in Oklahoma City. Cattle Fax historical data indicates that this same calf will bring $92.93 in October. Wheat pasture conditions, live cattle futures, feeder cattle futures, and projected corn harvest will have a large bearing on whether this price is high or low.

Assume this 500 pound steer calf brings $92.93 CWT in October, is put in the feedlot for 210 days, gains 3 pounds/day at a cost of $.52 per pound of gain. The breakeven for this 1130 pound steer in May '98 would be $70.11/CWT. As of this writing, the June '98 live cattle futures closed at $71.40. The basis indicates that this 1130 pound steer would bring $71.51/CWT. This indicates a profit per head of $15.82 ((71.51 - 70.11) X 11.3).

Now, let's assume that this 500 pound steer calf brings $92.93 on October 15, is put on wheat November 15, is taken off wheat on February 15, and gains 2 pounds per day during this 120 day period. We will assume that $55 per head is incurred during the October 15 to November 15 period in the way of inoculations, feed, sickness, and death loss. The breakeven on this 740 pound steer on February 15 would be $81.57/CWT. As of this writing, the March '98 feeder cattle futures closed at $81.70. The basis indicates that this steer would bring $83.24/CWT. This indicates a per head profit of $12.36 ((83.24 - 81.57) X 7.4).

These two examples would lead one to conclude that we all have the same pencil and that things are pretty much in line with there they should be. This crazy business that we are in promises two things - no free lunches and no guarantees.