Tracking Cattle Feeding Margins
Tracking a cattle feeding margin is another handy tool in a marketing dashboard to assist in making marketing and management decisions. A cattle feeding margin is an indicator of the margin after accounting for the variables with the greatest price risk (fed cattle, feeder cattle, corn and corn silage). The margin is the return to cover all other costs and provide a profit. It is simply the fed cattle value less the feeder cattle value and feed costs. It provides an on-going picture of past, current and potential future margins. Depending on the current market assessment and risk implications, an appropriate decision and action can be taken.
To illustrate cattle feeding margins the following Graph #1 and Table #1 was generated. It utilizes some of the assumptions used in the weekly Beef Farmers of Ontario "Ontario Weekly Breakeven Yearling Steers" report. It assumes an 850 pound feeder steer being fed for about 26 weeks and gaining 600 pounds, to be marketed at 1,450 pounds. The same price sources are used for cattle pricing and the same feed budget. The feed pricing sources are different but with similar results. The assumptions and details are outlined after the graph and the table.
Graph#1 - Tracking a Cattle Feeding Margin
Time Periods on Graph:
- Marketed - The green bars show the actual margins achieved as the cattle are marketed.
- Cattle on Feed - The blue bars are the estimated margins of cattle on feed. The yearling steer value is established but the feed and market steer values will change with the market on a weekly basis.
- Looking Forward - The red bars are the estimated margins with all of the values being projected.
- $12/cwt. Margin - Example of a benchmark margin value to cover all other variable and fixed costs.
The basic assumptions used to generate the data in Table #1 and Graph #1 are as follows:
- Market Steer Value is based on 1,250+ pound fed steer prices reported by Beef Farmers of Ontario
- Yearling Steer Value is based on 800-900 pound yearly steer prices reported by Beef Farmers of Ontario
- Feed Costs are based on using 1.79 tonnes of corn (Avg. of Huron FOB Farm & Western Ontario Feed Corn), 1.21 tonnes of corn silage (8.5 x the $/bushel corn price), and 0.13 tonnes of commercial supplement. A 26 week rolling average of the feed cost is used.
- Projected values used for fed market steers, yearling steers, and corn are calculated using basis adjusted futures values at the market close on Thursday, October 2, 2014.
= (1450 lb. Market Steer Value - 850 lb. Yearling Steer Value - 600 lbs. Feed Cost of Gain) ÷ 14.50 cwt.
Table 1. Data Used to Determine the Monthly Fed Cattle Margins
Special Notes for Table 1
- The values shown in Green are actual data, values in Blue are estimated when cattle are on feed, and values in Red are looking forward at feeder cattle to be purchased in the future.
- The Green Bar in the Production Stage Column indicates the month that Fed Cattle are currently being marketed from and the Blue Bar indicates the sale month for Feeder Cattle currently being placed on feed.
- The Feed Inputs indicate the values used for grain corn and corn silage to calculate the feed costs.
This graph and table are intended as a guide and demonstration of fed cattle margins based on the indicated assumptions. Individuals need to generate their own margins that apply their market conditions, cattle feeding situation and costs to calculate an applicable historical and future margin.
What is needed to develop a cattle feeding margin?
- Working knowledge of an excel spreadsheet
- Historical basis data for corn, feeder cattle and fed cattle
- Feed budget for the cattle operation
- Determination of what a good margin is for the operation. This means looking at all the other costs associated with feeding cattle that are not included in the margin calculation. i.e. health, interest, overhead, trucking, death loss, marketing
- Some historical margins to use as benchmark data when looking at forwarding looking margins.
- Understand the function of the risk management tools available and determine the comfort level of using them to manage the margin risk.
- Marketing resources and information to assist in making decisions.
- A comfortable knowledge and experience level with margin calculations and the assumptions used.
The concept of tracking margin is basically the idea of calculating a "crush margin" for cattle. The original idea of "crush margin" comes from the soybean processing industry. The term "crush" refers to the crushing of soybeans to produce meal and oil. Market traders use the soybean, soybean meal and soybean oil futures to generate margin numbers to manage for profit opportunities. An example of a cattle crush margin is the, "Iowa State University Yearling to Finish Crush Margin." The assumptions, historical and future margins for the Iowa model are posted at www.econ.iastate.edu/margins.
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|Author:||John Bancroft, Market Strategies Program Lead, OMAFRA|
|Creation Date:||22 October 2014|
|Last Reviewed:||22 October 2014|