CATTLE FINISHING RETURN S E R I E S Novmbr 2011 CATTLE FINISHING NET RETURNS This articl discusss rcnt trnds in fding cost of gain and cattl finishing profitability. Svral sourcs of data wr usd to comput th cattl finishing nt rturn sris discussd blow. Fdr and fd cattl prics wr obtaind from th sasonal cattl pric spradsht updatd monthly by Kvin Dhuyvttr. Avrag daily gain, fd convrsion, days on fd, in wight, out wight, and fding cost of gain wr obtaind from monthly issus of th Focus on Fdlots nwslttr. Intrst rats wr obtaind from th Kansas Fdral Rsrv Bank of Kansas City. Figur 1 prsnts monthly str finishing nt rturns from January 2000 to Octobr 2011. It is important to not that nt rturns wr computd using closout months rathr than placmnt months. Nt rturn pr had for all of 2010 was approximatly $52 compard to losss of $105 and $117 pr had in 2008 and 2009. Nt rturns for January, Fbruary, March, and April of this yar wr approximatly $42, $52, $150, and $171 pr had, rspctivly. Losss in May, Jun, July, August, and Sptmbr wr approximatly $30, $107, $65, $80, and $70, rspctivly. At $7 pr had, nt rturn in Octobr was clos to brakvn. Figur 2 illustrats fd pric and brakvn prics from January 2000 on. Th brakvn prics starting in Novmbr 2011 ar forcastd. Th brakvn pric for Novmbr is xpctd to rang from $124 to $126 pr cwt. At ths brakvn prics, nt rturns ar xpctd to rang from a loss of $20 to a nt rturn of $5 pr had. Brakvn prics ar xpctd to rmain abov $124 for nxt svn months. Brakvn prics for Dcmbr of 2011 ar xpctd to rang from $127 to $129. Brakvn prics for th first and scond quartrs of 2012 ar xpctd to rang from $125 to $128. It is important to not that th brakvn prics for lat this yar and arly nxt yar ar highly dpndnt on th corn markt, which has bn highly volatil in th last fw months. Corrlation cofficints can b usd to xamin th rlationship btwn nt rturns, fding cost of gain, and th fdr to fd cattl pric ratio. Corrlation is a statistical masur of how variabls mov togthr and is boundd by -1.0 and 1.0. A valu of -1.0 indicats two variabls mov togthr prfctly, but in opposit dirctions, whil a valu of 1.0 indicats two variabls mov up and down togthr proportionally. Valus clos to zro indicat two variabls hav littl rlationship to ach othr. Nt rturns ar significant and ngativly corrlatd with fding cost of gain (r = -0.232). Figur 3 illustrats monthly fding cost of gain from January 2000 to Octobr 2011. Fding cost of gain has incrasd from $69 in Octobr of last yar to $106 in Octobr of this yar. Fding cost of gain from Novmbr to March is xpctd to rang from $105 to $110 bfor dropping down to th $99 to $102 rang in April to Jun of nxt yar. Fding cost of gain is snsitiv to changs in fd convrsions, corn prics, and alfalfa prics. Rgrssion analysis was usd to xamin th rlationship btwn fding cost of gain and fd convrsion, corn prics, and alfalfa prics. Rsults ar as
Cattl Finishing Rturn Sris, Novmbr 2011, p. 2 follows: ach 0.10 incras in fd convrsion incrass fding cost of gain by $1.01 pr cwt, ach 0.10 pr bushl incras in corn prics incrass fding cost of gain by $1.11 pr cwt, and ach $5 pr ton incras in alfalfa prics incrass fding cost of gain by $0.34 pr cwt. Nt rturns ar also significant and ngativly corrlatd with th fdr to fd cattl pric ratio (r = -0.827). Th strong corrlation btwn ths variabls rvals th importanc of this pric ratio to nt rturns. Th fdr to fd cattl pric ratio is illustratd in figur 4. Th avrag pric ratio sinc 2000 is 1.17. Of cours, it is not possibl to fully anticipat what fd cattl prics will b whn purchasing fdr cattl. Larg dviations from th man pric ratio indicat priods for which xpctd and actual fd cattl prics wr quit diffrnt. Th closout months with ratios blow 1.00 xhibitd cattl nt rturns avraging $178 pr had whil th closout months with ratios abov 1.40 xhibitd cattl finishing losss avraging $163 pr had. Th fdr to fd cattl pric ratio in Octobr was 1.04, which to a larg dgr xplains th slightly positiv nt rturn pr had. Th fdr to fd cattl ratio for Novmbr and Dcmbr closouts is xpctd to rang from 1.05 to 1.07 and from 1.12 to 1.14, rspctivly. This articl discussd rcnt trnds in fding cost of gain and cattl finishing nt rturns. Nt rturn information for bf cow and backgrounding oprations is availabl on th Kansas Farm Managmnt Association wb sit (www.agmanagr.info/kfma). Michal Langmir, Profssor Dpartmnt of Agricultural Economics Kansas Stat Univrsity
Cattl Finishing Rturn Sris, Novmbr 2011, p. 3 400 Figur 1. Historical Nt Rturns for Finishing Strs Sourc: Michal Langmir, Kansas Stat Univrsity 300 $ 200 P r H a d 0 200 300 400 00.04 00.07 00.10 01.04 01.07 01.10 02.04 02.07 02.10 03.04 03.07 03.10 04.04 04.07 04.10 05.04 05.07 05.10 06.04 06.07 06.10 07.04 07.07 07.10 08.04 08.07 08.10 09.04 09.07 09.10 10.04 10.07 10.10 11.04 11.07 11.10 Closout Month
Cattl Finishing Rturn Sris, Novmbr 2011, p. 4 Figur 2. Fd Cattl and Brakvn Prics Sourc: Michal Langmir, Kansas Stat Univrsity Fd Pric BE Pric 140 130 $ P r 120 110 C w t 90 80 70 60 00.04 00.07 00.10 01.04 01.07 01.10 02.04 02.07 02.10 03.04 03.07 03.10 04.04 04.07 04.10 05.04 05.07 05.10 06.04 06.07 06.10 07.04 07.07 07.10 08.04 08.07 08.10 09.04 09.07 09.10 10.04 10.07 10.10 11.04 11.07 11.10 12.01 12.04
Cattl Finishing Rturn Sris, Novmbr 2011, p. 5 120 Figur 3. Fding Cost of Gain for Strs Sourc: Focus on Fdlots Nwslttr $ 80 P r 60 C w t 40 20 0 00.04 00.07 00.10 01.04 01.07 01.10 02.04 02.07 02.10 03.04 03.07 03.10 04.04 04.07 04.10 05.04 05.07 05.10 06.04 06.07 06.10 07.04 07.07 07.10 08.04 08.07 08.10 09.04 09.07 09.10 10.04 10.07 10.10 11.04 11.07 11.10 Closout Month
Cattl Finishing Rturn Sris, Novmbr 2011, p. 6 Figur 4. Ratio of Fdr Prics to Fd Cattl Prics 1.60 Monthly Avrag 1.40 1.20 1.00 0.80 0.60 0.40 0.20 0.00 00.05 00.09 01.05 01.09 02.05 02.09 03.05 03.09 04.05 04.09 05.05 05.09 06.05 06.09 07.05 07.09 08.05 08.09 09.05 09.09 10.05 10.09 11.05 11.09 Th Cattl Finishing Rturns Sris is distributd monthly to provid information to farm dcision makrs. Furthr information can b found on th Extnsion Agricultural Economics wbsit: www.agmanagr.info. Kansas Stat Univrsity Agricultural Exprimnt Station and Cooprativ Extnsion Srvic. K-Stat Rsarch and Extnsion is an qual opportunity providr and mployr. Issud in furthranc of Cooprativ Extnsion Work, Acts of May 8 and Jun 30, 1914, as amndd. Kansas Stat Univrsity, County Extnsion Councils, Extnsion Districts and Unitd Stats Dpartmnt of Agricultur Cooprating, Gary Pirzynski, Intrim Dan and Dirctor.