2008 Wheat: Harvest for Grain or Graze Out?
Do high prices have you wondering what to do with this year's wheat crop? If so, now is a good time to consider your options. An important tool to help analyze which option (graze out or harvest for grain) is more profitable is partial budgeting. As an example, imagine that you are a stocker operator who has cattle grazing a pure stand of wheat. You can continue to graze your 650-pound steers for another 60 days (after the time to defer for grain) at a rate of 2.5 pounds of gain/head/day. Be aware that using the calendar to determine when to pull cattle off wheat is not the appropriate method nor is it recommended (see: Don't Use Calendar Dates to Terminate Wheat Grazing, and February 2003 Ag News & Views), but, for the sake of discussion, let's use March 1 through May 1. The relevant prices on Dec. 28, 2007, were:
- March 2008 feeder cattle futures price at $106.35/cwt and
- May 2008 feeder cattle futures price at $109.95/cwt.
When cattle prices are localized to the Oklahoma City market, the March 2008 futures price for a 650-pound steer is estimated to be $1.18/pound and the May 2008 futures price for an 800-pound steer is estimated to be $1.09/pound.
Also, if you choose to graze out due to an abundance of late-season production (spring flush), you can purchase additional cattle in the spring to increase stocking rates to 1.4 head/acre from normal stocking rates of one head/acre in the fall and winter. With the July 2008 wheat futures price at $8.14/bushel (or $7.54/bushel in south central Oklahoma), and if you can produce the state 5-year average of 31 bushels/acre, does it make more sense to harvest the grain or graze it out? An analysis with different production assumptions is shown in Table 1.
Under this scenario, this partial budgeting exercise shows that harvesting wheat for grain has a financial advantage of $113.54/acre when compared to the graze-out option. As you increase yields to 35 bushels/acre, the advantage for grain jumps to $142.42/acre. However, as yields decrease, graze out becomes more of a viable option. Specifically, when yield is in the neighborhood of 15 bushels/acre, and you assume that cattle are gaining 2.5 pounds/head/day and stocked at a rate of 1.4 head/acre, you lose $4.38/acre when harvesting wheat for grain.
With these margins and when yield is good, why would anyone graze out wheat with cattle? Reality plays a factor. Infrastructure, including equipment, labor, transportation and/or storage, may not be available to harvest this year's crop. If this is the case in your operation, be aware of the money left on the table when using wheat to graze out stockers rather than harvesting it for grain. If it is not feasible for you to harvest grain this year, then consider planning ahead by contacting custom harvesters or acquiring resources to make it an option next year.
As time passes and it gets closer to the date of first hollow stem, yield projections will be more accurate and, due to volatile markets, prices will have changed. Therefore, it is crucial that you develop a partial budget specific to your operation before pulling cattle off wheat. Put pencil to paper before making any final decisions. For additional information about partial budgeting, contact a Noble Research Institute economist or browse the Oklahoma Cooperative Extension Fact Sheets.