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Price is only part of the cow-calf revenue story

published: March 3rd 2023
by: By Dr. Kenny Burdine
source: University of Kentucky

This calf market is starting to run, and I can feel the excitement as I travel this winter and talk with cattle producers at Extension programs. Calf prices have increased by $10-$20 per cwt in a lot of Southern markets since the end of 2022 and are likely to continue to improve as we move into spring. I think we are going to see some price levels that we have not seen in eight years, which is certainly good news. But there is also a tendency for people to get so focused on price per lb. that they lose sight of the larger revenue picture. So, I wanted to talk through a couple of situations where the highest price per lb. is not always best.

      I recall back during the spring of 2015, someone sharing with the group at one of my Extension programs that they watched a group of steer calves sell for over $3 per pound at a local market. Of course, this caught the attention of everyone in attendance that evening. I then asked about the weight of the cattle and was told they averaged 375 lbs. This led to a discussion of price slides and the importance of sale weight. The average price for a 550 lb. steer in Kentucky at that time was $2.50 per lb. – a considerably lower price per pound than the much lighter steers. However, those 375 lb. steer calves at $3 per lb. sold for $1,125 per head, while those 550 lb. steer calves at $2.50 per lb. sold for $1,375 per lb. This would have been a difference of $250 per head! The producer that sold those 375 lb. steers definitely saw a much higher price per lb., but the producer that sold the 550 lb. steers was much happier when they picked up their check.

      The situation described in the previous paragraph is most common on extremely light calves and especially tends to occur in the spring. Price differentials by weight, often called price slide, tend to be wider on lighter cattle. And they will widen as overall market prices increase, which we are likely to see this year. There is also a tendency for producers to sell earlier in strong markets in order to capitalize on higher price levels. In some cases, this can lead to much lower revenues per head.

      A related situation where prices can be misleading occurs when cattle of similar weight are sold carrying different levels of flesh. There is a tendency for producers to want to be at the “top of the price range” for cattle of similar weight. If this occurs because the cattle are of superior quality, then topping the price range is ideal. However, I will sometimes see market reporters pull out a group of calves and note them as being “thin”. When this happens, more often than not, those cattle have sold at a higher price than cattle of similar weight without a “thin” designation. In those cases, the “thin” cattle likely sold for a higher price because the buyers recognize that they should have been carrying more weight and will see a lot of compensatory gain when placed on a feeding or grazing program. Again, the producer who sold those cattle received a higher price per lb., but likely left some pounds on the table that the next owner of the cattle will benefit from.

      Holding everything else constant, a higher price per pound on cattle is preferable. But “holding everything else constant” is a big statement. It is important to understand why price differences exist across groups of cattle being sold. And by all means, don’t forget the number that is multiplied by price – the weight of the animal being sold.