A Simple 12-Step Feeder Cattle Market Plan Walt Prevatt, PhD

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A Simple 12-Step
Feeder Cattle Market Plan
Walt Prevatt, PhD.
Extension Economist & Professor
Auburn University
A Simple 12-Step
Feeder Cattle Market Plan
A feeder cattle marketing plan can be simple.
However, implementing any feeder cattle
marketing plan “is not” EASY!
Step
1 –1 Estimated
offeeder
feedercattle
cattle
Step
– Estimatedtotal
total pounds
pounds of
production during
during 2011
production
2011
Number of breeding cows exposed, head
152
Number of feeder calves born, head
140
Feeder calf death loss (birth to weaning), percent
2%
Average weight of feeder cattle, pounds/calf (shrunk wt.)
750
Step 2 – Determine the month and week you plan
to market your feeder cattle during 2011
Month
August
Week
3
Step 3 – Estimated total production cost and cull
cow revenue during 2011
Total production cost
$98,000
Total cull cow revenue
$14,500
Step 4 – Estimated other costs during 2011
Total family living withdrawal
$12,000
Total growth capital/retirement withdrawal
$5,000
Opportunity costs on owned assets
$8,000
Step 5 – Calculate your feeder cattle breakeven price
Total Dollars Dollars Dollars
Dollars /Cow
/Calf
/Cwt.
Feeder cattle production costs
$83,500
$549
$609
$81.15
Step 6 – Calculate your feeder cattle price objective
Total Dollars Dollars Dollars
Dollars /Cow
/Calf
/Cwt.
Feeder cattle production costs
$83,500
Family living withdrawal
$12,000
Growth capital/retirement withdrawal
$5,000
Opportunity costs on owned assets
$8,000
Feeder Cattle Price Objective
$108,500
Step 6 – Calculate your feeder cattle price objective
Total Dollars Dollars Dollars
Dollars /Cow
/Calf
/Cwt.
Feeder cattle production costs
$83,500
$549
$609
$81.15
Family living withdrawal
$12,000
$79
$87
$11.66
Growth capital/retirement withdrawal
$5,000
$33
$36
$4.86
Opportunity costs on owned assets
$8,000
$53
$58
$7.77
Feeder Cattle Price Objective
$108,500
$714
$791
$105.44
Step 1 – Estimated total pounds of feeder cattle
Step 7 Review
feeder cattle
market
production
during
2011outlook and
assess expected market movement
Percent chance the feeder cattle market
price will move higher before market date
75%
Percent chance the feeder cattle market
price will move lower before market date
25%
Step 8 – Review feeder cattle cash market alternatives
and select your desired cash market outlet
•
•
•
•
•
Private Treaty
Auction Barn
Telephone Auction
Video Auction
Internet Auction
Step 9 – Review feeder cattle market pricing alternatives and
select the appropriate pricing alternative for your use
•
•
•
•
•
•
•
Cash
Short hedge
Put option (In/Out/At-the-money)
Synthetic put
Fence a price
Forward contract
Livestock risk protection insurance
Step 10 – Describe your feeder cattle marketing plan
• Sell feeder cattle the 3rd week of August with a 10-day delivery
window
• Sell approximately 137 head of feeder cattle (2+/- truckloads)
• Market feeder cattle at an average weight of 750-lbs. (shrunk wt.)
• Sell feeder cattle with a $4/cwt. price slide and 2% shrink FOB
• Expect feeder cattle market price to increase about 5% before the
3rd week in August
• Calculated feeder cattle breakeven price - $81.15/cwt.
• Calculated feeder cattle price objective - $105.44/cwt.
Step 10 – Describe your feeder cattle marketing plan
…. continued
• Sell feeder cattle with the Grass Valley Feeder Cattle
Marketing Association (Telephone auction)
• Use price protection on one load of feeders if the futures
market price reaches my feeder cattle price objective
• Pre-weigh a percentage of feeder cattle 2 weeks before
sale date (August 12th) to more closely estimate delivery
weight
• Feeder cattle will be weighed at Country Squire Truck Stop
• Limit cut cattle to 4 head
• Market cut cattle as freezer beef
Step 11 – Execute your feeder cattle marketing plan
• Procure needed inputs for production practices
• Implement production practices to reach target level of production
• Monitor production levels (head and total pounds) and adjust market
plan as needed
• Monitor production costs and adjust market plan as needed
• Sell feeder cattle the 3rd week of August with a 10-day delivery window
• Sell approximately 137 head of feeder cattle (2+/- truckloads
• Market feeder cattle at an average weight of 750-lbs. (shrunk wt.)
• Sell feeder cattle with a $4/cwt. price slide and 2% shrink FOB
• Expect feeder cattle market price to increase about 5% before the 3rd
week in August
• Calculated feeder cattle breakeven price frequently with the latest data
• Calculated feeder cattle price objective frequently with the latest data
Step 11 – Execute your feeder cattle marketing plan
… continued
• Monitor feeder cattle futures market prices
• Contact commodity broker, marketing agent, etc. for market info
• Contact commodity broker execute price protection if price objective is
met
• Prepare market information for the Grass Valley Feeder Cattle Marketing
Association
• Use price protection on one load of feeders if the futures market price
reaches my feeder cattle price objective
• Pre-weigh a percentage of feeder cattle 2 weeks before sale date (August
12th) to more closely estimate delivery weight
• Prepare facilities ahead of time to load and weigh feeder cattle
• Limit cut cattle to 4 head
• Make arrangements with buyer or marketing agent to load feeder cattle
• Make arrangements to receive payment promptly for feeder cattle
• Make arrangements with customers for freezer beef
Step 12 – Evaluate your market plan after the shipment of the feeder cattle
Item
Step 12 – Evaluate your market plan after the
Yes/No Why?/What?
shipment of the feeder cattle
Were you able to procure the
necessary production inputs?
Were you able to implement the
necessary production practices?
Did you attain the expected
number of head to sell?
Did you attain the expected
average weight per calf?
Did you attain the calculated
breakeven price?
Did you attain the calculated price
objective?
Step 12 – Evaluate your market plan after the shipment of the feeder cattle
… continued
Step 12 – Evaluate your market plan after the
Item
shipment of the feeder
Yes/No cattle
Why?/What?
Did feeder cattle market prices
decrease before the market date
Did feeder cattle market prices
increase before the market date
Did the method of cash sale work
correctly?
Did you receive full payment
promptly?
Were you satisfied with your
market plan?
Do you plan to change any aspect
of your marketing plan?
A Simple 12-Step
Feeder Cattle Market Plan
The spreadsheet for “Feeder Cattle Market Plan”
may be downloaded from:
http://www.ag.auburn.edu/agec/pubs/budgets/
A Simple 12-Step
Feeder Cattle Market Plan
Walt Prevatt, PhD.
Extension Economist & Professor
Auburn University
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