Tick. Tick. Tick. The time is fast approaching when Oklahoma wheat producers will need to determine whether or not to grow dual-purpose wheat for grazing.
Making this management choice will require earlier planting, starter fertility, higher planting rates and specific variety selection, reminds Trent Milacek, Oklahoma State University Cooperative Extension area agricultural economist for the state’s Western District.
“Another consideration producers will have to make is what type of cattle they will purchase and the profit potential on the dual-purpose wheat enterprise,” he said.
Cattle prices have largely recovered during the summer, resulting in stocker cattle being more expensive now compared to earlier in the year. In addition, value of gain has been a topic of concern for many producers in recent years, having fallen dramatically from 2013-2014 levels.
“Producers can look to current markets to begin calculating what growing cattle will be worth in 2017, but many things will affect this, including the price of wheat and cost of gain,” Milacek said. “The first useful piece of information to gather is futures prices for feeder cattle.”
The October feeder cattle contract is trading slightly above $150 per hundredweight as of this writing, which is a starting place for calculating an expected purchase price.
“Using beefbasis.com historical basis information, a producer can expect a steer at Woodward weighing between 450 to 500 pounds to have a basis of plus $20.07 per hundredweight in October,” Milacek said. “Therefore, the current market expects those calves to cost $170 per hundredweight at purchase.”
If those calves gain 250 pounds over the winter grazing season, they will weigh 750 pounds in March. Using the same beefbasis.com data, the average basis for 750-pound calves is minus 66 cents per hundredweight sold in March. The current futures bid for March 2018 feeder cattle is near $143 per hundredweight.
“Making broad assumptions that current market conditions will hold, then 750-pound steers in March could be worth approximately $142 per hundredweight,” Milacek said.
From the example, divide the difference between the selling price and purchase price of the animal by the weight gained to calculate the value of gain. This value comes to 86 cents per pound, suggesting that each 100 pounds gained is worth $86.
“Remember to consider beginning weight when purchasing cattle,” Milacek said. “On the day of purchase, market information will be different and the weight classes of cattle will sell accordingly. Maintaining flexibility in the size of calf a producer is willing to purchase can allow him or her to take advantage of discounts in the market.”
Milacek recommends producers also be mindful of pricing opportunities in the futures market. If hedging can lock in an attractive value of gain then consider that management opportunity to minimize price risk.
Anyone seeking additional information about agricultural budgeting and marketing should contact their OSU Cooperative Extension county office, typically listed under “County Government” in local directories.
The Oklahoma Cooperative Extension Service is a state agency administered by OSU’s Division of Agricultural Sciences and Natural Resources, and one of three equal parts comprising the university’s state and federally mandated teaching, research and Extension land-grant mission.