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Thursday, May 22, 2014

Summer 2014 grass cattle economics


Alberta Agriculture and Rural Development

Despite the high price of grass cattle this spring having some producers questioning the economics of running yearlings on pasture this summer, an Alberta Agriculture specialist says grass cattle can still be profitable with sound management. “The Western Livestock Price Insurance Program (WLPIP) can be a useful tool in generating profit for a grass cattle operation,” says Ted Nibourg, farm business management specialist, Alberta Ag-Info Centre, Stettler.


“An example of the economic analysis involved can be useful in illustrating the tool. Last week’s sale at the Stettler Auction market saw 6 – 7 weight steers sell in a range of $185 to $212 for an average of around $1.98 per pound. A 650 pound steer would cost $1287. Add 0.5 percent death loss and the total cost runs $1293. Interest expense at 5 percent adds $16 per head. 100 days of grazing at 75¢ per day increases costs by $75. Throw in 2-way trucking costs of about $20 per head and one will have $1404 per head invested in grass cattle. Assuming gains averaging 2 pounds per day on grass would result in an 850 pound steer requiring at least $1.65 a pound to break even in the fall.”

The WLPIP – Feeder program forecasts prices for 850 pound steers in 12, 16, 20, 24, 28, 32 and 36 week price coverage increments from the purchase date of the cattle. “At the present time, the 32 and 36 week intervals are not available in Alberta,” says Nibourg. “For the purpose of this example the 16 week coverage level fits best. On May 13th, the 16 week insured index was $184 per cwt. Premiums for that coverage were $1.70 per cwt of expect sale weight. For an additional cost of $13.60 a producer can lock in a profit of approximately $146 per head.”

Nibourg says producers can use these examples to help develop profitability estimates for their own grasser operations, and that using the WLPIP will help reduce downside price risk. Information about the Western Livestock Price Insurance Program can be found at http://www.wlpip.ca/cattle.

“While WLPIP can help manage price risk, there are other risks that have to be considered and managed,” adds Nibourg. “The two main production risks that have to be managed are the potential for reduced gains and increased death losses. These can adversely affect profit.”

For more information on farm management, call the Ag-Info Centre farm at 310-FARM (3276).

Related link: Alberta.ca

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