Using Value of Gain to Determine Calf Affordability
By Steve Swigert
As price of calves appear to be finishing 2021 on an uptrend, it is important that producers calculate the value of gain (VOG) for calves purchased for wheat pasture or any other feed or graze out program. With $5.00+/bushel corn prices pushing feed yard costs of gain (COG) to $1.00+lb/gain, the VOG must exceed the COG to have any profit in the cattle. To calculate the VOG, the total price of the animal to be purchased is subtracted from the net sales price of that animal at the projected sale weight and date. The difference in the two prices is then divided by the difference in pounds of the sale weight and the purchase weight. The result of this calculation is the value of gain per pound. For example, #1 steer calves weighing 400 pounds were worth $2.11/lb. at the 11/29 sale in OKC. If these calves gained 2 lb./day, it would take 175 days for them to reach a sale weight of 750 lbs., which would put them selling in May of 2022 off wheat. To predict a price for May feeder calf price, one way is to view Feeder Cattle Futures price for the month of May, which is $1.71/lb. After reducing the price by $2/cwt, we can estimate a net sales price of $1.69/lb. To calculate VOG, we would take: ($2.11/lb. x 400 lbs.) = $844/head in value ($1.69/lb. x 750 lbs.) = $1267/head out value $1267 - $844 = $423 margin / 350 lb. gain (750 lb. – 400 lb.) = $1.21/VOG In this example, if your cost of gain is less than $1.20, there would be profit in these calves. If you have any questions, please email me at sswigert@gpkubota.com