Feed Lot

APR-MAY 2017

Feedlots and cow/calf operations in the beef industry who feed 500 or more has annually on grains and concentrates; maintain 500 or more beef cows; backgrounder, stocker/grower, preconditioner; veterinarian, nutritionist, consultant

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compared to buying that weight and implies increased feedlot demand for lighter weight animals relative to heavy feeders," Peel said. "In short, we're talking low feedlot cost of gain. Cheap grain results in stock- er production incentives to utilize lighter weight stockers and turn them over more quickly by selling at lighter feeder weights." This is in sharp contrast to much of the past few months when there were strong market signals to add weight in producer operations and take stockers to heavier weights before marketing. "Stocker producers grazing out wheat or looking ahead to summer stocker grazing should carefully evaluate production and marketing plans with respect to purchase weight, enterprise length and sale weight of stocker cattle," said Trent Milacek, OSU Cooperative Extension area agricultural econ- omist headquartered in the state's Northwest District. Milacek believes low feedlot cost of gain will likely continue throughout the summer, given that large grain stocks have ensured supplies of feed grain will be pres- ent for the near future. Analysts and producers alike will get a bet- ter sense for the outlook on 2018 feed grain prices as summer weath- er events present themselves across the U.S. Corn Belt. "As always, producers must fo- cus on maximizing gains while do- ing their best to navigate markets," he said. "To take advantage of in- creased value-of-gain, a producer must have pounds to sell. In addi- tion, some form of price protection is required to lock-in that price to protect against market fluctuations." In the end, Milacek cautions, producers should focus on efficien- cy. If production suffers when mod- ifying their operation to accommo- date various weights of cattle, overall profitability may not increase. FL 16 FEED•LOT  April/May 2017 STOCKER SPECIAL Low Feedlot Cost of Gain Making an Impact in Stocker Cattle Decisions The current feeder market ap- pears to be fully reflecting low feedlot cost of gain, which in turn is squeezing stocker cattle margins and changing the signals for stock- er production. "While broader supply and de- mand forces determine what gets produced and how much is pro- duced, the question of how to pro- duce is particularly tricky in the cattle industry," said Derrell Peel, Oklahoma State University Coop- erative Extension livestock mar- keting specialist. Basically, the ruminant biology of cattle provides tremendous flex- ibility in how animals are produced but also means lots of challenges to figure out how to produce cattle most competitively. In the complex, multi-sector world of cattle production, this coordination is directed by dynam- ic market signals driving stocker and feedlot production adjust- ments in the face of changing feed resource values. "Feed grain prices dictate feedlot cost of gain, which drives feedlot demand for feeder cattle of various weights," Peel said. As feedlots de- termine whether they would rather buy lighter weight animals and add weight in the feedlot or buy live- stock with more weight, the result- ing feeder price relationships across weights will change and provide the corresponding signal for stock- er or backgrounding producers." Ultimately, the market is trying to figure out which sector can add weight to feeder cattle most cost effectively. Over time and on aver- age, feeder cattle price relation- ships reflect feedlot cost of gain as the value of gain for stocker cattle. However, cattle producers need to be aware that, at times, feeder mar- kets will be out of equilibrium for a few weeks to a few months. "Record feed grain supplies and low feed prices were not fully re- flected in lightweight feeder cattle prices in the second half of 2016 and into early 2017," Peel said. "However, feeder prices in the past month or so have increasingly ad- justed to reflect the continued re- duction in feedlot cost of gain." As recently as the third week of January, the price of 500-pound Number 1 steers in Oklahoma was about $162 per hundredweight or $810 per head while 800-pound steers were priced at $132 per hundredweight or $1,058/head. This implied a value of gain of 82 cents per pound for 300 pounds of weight gain. In contrast, for the week ending March 3, 500-pound steers in Okla- homa were priced at $164 per hun- dredweight or $822 per head while 800-pound steers were priced at $125 per hundredweight or $997 per head, leading to a value of gain of 58 cents per pound for 300 pounds of gain. "Cheap feed grain ultimately means feedlots want to put more weight on cattle in the feedlot

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