May 17, 2010
FOR IMMEDIATE
RELEASE
For more
information contact:
Steve Suther, CAB
Industry Information director, at 785-889-4162 or ssuther@certifiedangusbeef.com; or
Paul Dykstra, CAB
beef cattle specialist, at 330-465-3662 or pdykstra@certifiedangusbeef.com
Threshold
to Profit
Cattle price
breakeven calculators put quality into the equation for educated decisions.
Cattle
enterprises are risky business. You can invest a yearÕs input into one annual
calf sale, or look into ownership in the growing and finishing phases. As
market prices move up and down, you have to appreciate a new tool that
calculates Òbreakeven,Ó the threshold to profit.
Paul Dykstra,
beef cattle specialist with Certified Angus Beef LLC (CAB), developed a calf
price breakeven calculator to do just that.
ÒThis tool helps
you understand the market and make the tough calls on whether to accept a bid,Ó
he says. ÒIt can also help you make an informed decision on whether to retain
ownership and finish your cattle.Ó
Available at www.cabpartners.com/facts/breakeven.php,
the breakeven calculator
is a spreadsheet that can establish a reference point for producers. But an
accurate calculation can only be determined if users enter precise data.
ÒNumbers you plug in must be solid,
either taken from herd history, futures markets or a feedlot manager who has
records of similar calves with similar history,Ó Dykstra says. ÒThe more you can
document similarities, the more accurate the results.Ó
The calculator
begins with an ending price for fed cattle, projected from the Chicago
Mercantile Exchange (CME) Live Cattle Futures. It works backwards to predict
some aspects of how your calves will perform in the feedlot, accounting for
input costs and the final premiums and discounts.
ÒAll these
factors interact in the educated — or calculated — guess at a
breakeven price for the day when your calves would be sold,Ó Dykstra explains.
This calculator
is unique because it factors in the premiums and discounts associated with
percent Prime, the Certified Angus Beef¨ brand, Choice and lower quality grades,
Yield Grades and carcass weights. ItÕs easy to use for a technical tool: just
hover the cursor to see instructions for each cell, or download the
cell-by-cell guide.
ÒWe didnÕt
completely reinvent breakeven, but there are new features that are often
overlooked, including freight charges and dressing percentages,Ó Dykstra adds.
With enough
detailed information, producers can decide whether to retain ownership or when
to sell the calves after evaluating the input costs. And when the decision is
based on more than a hunch, it can be a topic of discussion at the bank.
Knowledge is the
key in deciding whether to hedge cattle, forward contract or wait to sell.
ÒThe more you can educate yourself about
your cattle, the better your prediction will be,Ó Dykstra points out.
Herd history
provides average daily gain, feed conversion and carcass quality. If those are
unknown, feedlot managers or nutritionists can help find logical numbers from
calves of similar genetics, weight, age and nutritional background.
When all the
numbers are entered, the calculator shows cost of gain and breakeven. ÒIf
youÕre the seller, you might see that as a floor price,Ó Dykstra notes. ÒOn the
other hand, a buyer might see breakeven as the ceiling. The market works
because no two producers plug in the same numbers. One bidder may walk away
because the numbers donÕt work for him, while another may bid significantly
higher and see room for profit.Ó
And whether you
are the calf buyer or have chosen to retain ownership, thereÕs also a Òfed-
cattle price calculatorÓ at the cabpartners.com site, and it works the same
way. When evaluating the futures price for the probable harvest month, those
who use this calculator can know their target floor.
Overall, these
are user-friendly tools, Dykstra adds. ÒAll the calculations are performed by
the spreadsheets, leaving just the data collection and entering to the
producer.Ó
Buying or
selling, Ònobody wants to just break even,Ó he allows. ÒBut with quality cattle
and a cultivated awareness of the market, these tools can help you cross that
threshold and harvest some profit.Ó
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