Growing Beef Newsletter
August 2024, Volume 15, Issue 2
Fall calf sales versus retaining ownership
Lee Schulz, ISU Extension and Outreach extension economist
Weaned calves will bring record revenues this fall (Figure 1). If cow-calf producers retain ownership, they forgo the income they could get by selling calves. That value becomes a “cost” in projecting costs and returns from retaining ownership. Higher calf prices up costs for retaining ownership. Higher prices mean mistakes are more costly than when prices are low. This heightened risk usually means the reward needs to be higher.
Data Source: USDA’s Agricultural Marketing Service.
Several years ago, we asked Iowa cow-calf producers: “Suppose you typically market your spring-born calves in November. How much higher would the expected net return need to be to convince you to retain and feed your calves and then sell them in March?” No consensus existed then. Likely none exists today. Answers included:
- Less than 5% higher (8 respondents)
- 5%-14% higher (47 respondents)
- 15%-24% higher (63 respondents)
- 25%-34% higher (35 respondents)
- 35% higher or more (19 respondents)
- Would not consider carrying calves over (33 respondents)
The total number of respondents was 205. Of those, 172 would consider carrying calves over. The weighted average extra net return needed to entice those 172 producers to retain calves until March was about 20%.
The actual increase in net return to retaining ownership from November to March over the last 20 years has averaged about 17%. However, in seven of the 20 years retaining ownership did not capture a positive return.
In 2023 retaining ownership paid
Last year retaining ownership earned much higher returns than the long-run average. The price of a 550-pound steer in November 2023 was $277.240 per cwt ($1,525 per head) according to the Iowa Weekly Cattle Auction Summary reports. The price of an 850-pound steer in March 2024 was $248.310 per cwt ($2,111 per head). The value of gain was ($2,111‒$1,525)/3 or $195 per cwt of gain. If the cost of gain was $122 per cwt of gain, that’s a return of $73 per cwt of gain or $219 per head (Figure 2). If the return for marketing in November 2023 was $253 per head, the percentage increase in net return to retaining ownership until March 2024 was (($253+$219)‒$253)/$253 or 87%.
Several assumptions go into calculating these historical returns to retaining ownership. Actual realized returns for individual producers would have varied. These calculations purposely assume no risk management, forward pricing or other strategies were used, which fails to capture notable variability in specific situations and managerial approaches. The availability and cost of feed, labor and management resources also vary greatly across individual situations and impact returns.
Data Source: USDA’s Agricultural Marketing Service; BeefBasis.com; Kansas State University Focus on Feedlots. Iowa State University Estimated Livestock Returns. Calculations by Lee Schulz. * Forecasted.
Prospects for 2024 calf crop
If they haven’t already done so, now is the time for cow-calf producers to focus on marketing their 2024 calf crop. Having an idea about the expected value of calves can help evaluate price offerings and decide among marketing at weaning or retaining ownership.
On August 7, November 2024 CME feeder cattle futures settled at $237.175 per cwt. This implies an Iowa price for 550-pound steers in November of $290.295 per cwt given an expected basis of $53.12 per cwt. The Price Forecasting Tool on BeefBasis.com can be used to make the forecast. The March 2025 CME feeder cattle futures contract price was $235.075 per cwt. This implies an Iowa price for 850-pound steers in March of $234.595 per cwt given an expected basis of -$0.48 per cwt. The projected value of gain would be $132 per cwt of gain. This would also be the break-even cost of gain. If cost of gain is closer to $112 per cwt of gain, which is what is projected, then the return would be $20 per cwt of gain or $60 per head. Assuming returns to marketing in November 2023 would be $470 per head, the $60 per head increase in net return would be a 13% higher net return.
Other factors to consider
Producers may retain ownership of calves, or not, for many reasons (Figure 3). Tradition can be one of them. Available resources can be another. Cash flow can dictate decisions.
No single strategy for retaining ownership will be right for all producers. Each producer's optimal strategy can vary year by year. Selling cattle in the current year, or the following year, has tax ramifications. Depending on previous strategies, producers could end up marketing two calf crops in one year or none in another.
Nothing says producers must market all calves in the same manner. Selling the heavy weights and retaining ownership and feeding lighter weight calves may make sense. Retaining just the steers, or just the heifers, may make sense. Retaining heifers offers flexibility to sell them later as open heifers, to breed and sell them as bred heifers or to calve and sell them as pairs. Or, maybe just keep them if the operation has room for more cows. Conditions permitting, herd rebuilding should start this fall and ramp up considerably in 2025.
Data Source: Iowa Beef Center 2014 Cow-Calf Producer Survey.
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