The road to summer grazing profits -

Given the current losses projected for finishing yearlings in the feedyard, it is appropriate to evaluate the prospects of grass-based gains during the summer months. Granted, that isn't an option in some areas of the Southern Plains where extreme drought conditions are limiting pasture and range. Even in the Northern Plains where moisture has been abundant and grass conditions are better, cattle turn-out dates may be delayed two to three weeks this year due to the cool and late spring. But, with grazing season almost upon us in the Northern Plains, I examined the prospects of buying a 750-pound steer and grazing it on cool and warm season grasses for 140 days, beginning in early May. Assuming an average daily gain of 1.44 pounds/day (based on UNL research trials), that steer would come off pasture at 950 pounds in late September.

For this analysis, I assumed a summer grazing rental rate of $26.50 per head per month, based on recent UNL land rental surveys. This amounted to about $122 per head for the 140-day season. Additionally, yardage at $0.15/head/day was charged to cover fencing costs and daily animal checking, etc. A $10/head veterinary/medical expense was included, as was an assumed 2 percent death loss. Transportation costs of $2.70/head were assumed based on hauling the cattle 60 miles to pasture at a rate of $3 per loaded mile. Finally, interest was charged at the rate of 6.5 percent on the steer, feed, and other variable expenses. With these assumptions, total cost of gain approaches $103/cwt, $6-10/cwt cheaper than current cost of gain in the feedyard.

Based on last week's Nebraska feeder cattle market prices, that 750-pound steer could be purchased for about $135/cwt. Using the costs outlined above and assuming a sale price of $127/cwt as a 950-pound steer (based on September futures and historical basis), this summer grazing budget results in a $20/head loss. While significantly better than the $105-120/head losses that would be projected in the feedyard, this projected loss is still disappointing given the $1,000/head investment in the yearling steer needed in this program. Long term average profits for this summer grazing program, based on UNL research, have been closer to a $20/head profit. Interestingly, only two weeks ago, the same performance assumptions at then-current prices resulted in a $17/head profit. Thus, if a group of yearlings could be bought about $4/cwt cheaper than the average I used in this analysis, that profit potential still exists. Alternatively, if September feeder cattle prices rallied about $5/cwt, that $20/head loss could become a $20/head profit.

Given the high cost feed market we are in, these summer grazing profit projections aren't terrible. However, it is important to note the amount of capital it takes even for this "lower cost" alternative. Just the feeder steer purchase price, for example, is over $1,016/head, so the interest on the feeder steer alone is over $25/head. Further, there are substantial risks. Of course, there are performance-based risks, including whether the steers will actually gain 1.44 pounds/day and if more than 2 percent are lost to death. Further, there are significant price risks as well.

I further examined the prospects of taking those 950-pound steers off grass in September and placing them on feed. Assuming Nebraska cash corn prices of about $6.20/bu, based off December 2011 futures and fall basis, and typical cattle feeding performance, cost of gain is also projected around $102/cwt for fall finishing. These cattle would reach finished weight of 1,375 pounds during the first week of 2012. Based on February 2012 live cattle futures price and historical basis, a price of $114/cwt could be expected, or hedged. This fall feeding scenario results in nearly a $70/head loss. That's in addition to the near $20/head loss from the summer grazing program.

So, buying the 750-pound steer to run on grass this summer might be a possibility for some producers who either can find some good cattle at below-average prices or that have below-average costs. However, planning to sell the steer off grass in September currently looks more promising than retaining ownership of it and feeding it out to slaughter weight. Of course, that will change as feeder and fed cattle prices change. It's changed significantly in the past two weeks - despite feeder cattle prices dropping.