The Iowa State University Extension Marketing Office calculates estimated returns to five livestock enterprises each month. While the estimates constitute pencil production because they do not factor in production uncertainty due to weather or poor health, they do account for actual prices for inputs and output. They also provide a long running benchmark to monitor the economic environment in which livestock producers operate. This article summarizes the previous ten years, 1996-2005, looking at the level and variability of returns.
Farrow to finish: Farrow to finish producers have had a profitable 10 years with average returns for the last 10 years of $2.50/head. The range in returns varied by almost $109/head or nearly 94% of a 260 lb. hog’s average value. Fifty four percent of the months were profitable for selling hogs. Highest monthly returns were made on hogs sold during May through June, the time of seasonally higher prices. December had the lowest average return, but was profitable in 40% of the past 10 years. Thirty-four percent of the months had returns between -$10 and +$10/head.
Feeder pig production: The ten year average return to feeder pig producers was $3.57/head. Returns varied by $68.26/head from -$28.87 to+$39.39. April and May sales produced the highest average returns. Average returns were only negative for 30% of the remaining months. 66.7 percent of the months were profitable for selling pigs, but May and June were profitable 80% of the time. In the month of January feeder pigs were only profitable half of the time. Approximately 41 percent of the months produced returns between $0 and minus $15/head.
Feeder pig finishing: Returns for finishers over the past 10 years averaged -$7.68/head. Their returns varied by $88.95/head from high to low and were positive only 33.3 percent of the time. Hogs sold in May were the most profitable and they were least profitable in the fall months. November sales would come from pigs bought in July, an unprofitable month for feeder pig producers. The seasonally high summer slaughter hog prices likely influenced the price paid for pigs that would be sold at the fall low prices. September, October, and November sales were profitable only two times each over the past 10 years. November sales were profitable in only two of the ten years. 25% of feeder pig finishers’ returns fell between +$5 and -$5/head.
Finishing steer calves: Cattle feeders have been feeling the positive effects of the cattle cycle over the past ten years of production. Average returns to calf finishers’ averaged $31.14/head over the ten years 1996-2005. Returns varied $523/head from low to high, and they were positive in 63.3 percent of the months. Returns were the highest in April and May and the lowest in July and August. Cattle sold in March were profitable in 8 of the 10 years, and sales in November were profitable in only 5 of the 10years. Approximately 36% of the months produced returns between -$30 and +$30/head.
Finishing yearling steers: Average profits to feeding yearling steers were $28.54/head for the ten year period. Cattle sold in 62% of the months showed profits. Monthly returns varied from -$122.48 to $440.48, or $562.96/head. Highest returns were earned from sales from November and December. The lowest return came in July. July sales produced positive returns in only four of the ten years. 43.3 percent of the returns fell in a range from $0 to $90/head.
The annual returns assume that producers market an equal number of animals every month. While this production flow may be realistic for many hog producers, many cattle feeders sell only one or two groups per year. Likewise, with the health advantages of all-in all-out feeder pig finishing, finishers may also want to consider timing sales for more profitable marketing. The difference in average monthly returns suggests that there may be more profitable months to buy, feed, and sell cattle or hogs. It may also help determine which month’s feeder pig producers choose to retain ownership of the pigs to slaughter rather than selling as pigs.
The Estimated Returns procedure ignores production differences associated with feeding at different times of the year (weather, mud, etc.). It does account for purchase and sale prices and feedstuff purchase prices weighted by when the feed was fed. A producer can then ask whether performance differences due to time of year offset the buy-sell advantages. While other enterprises or feeding periods will provide different results, a comparison of the extreme monthly averages for feeding yearling steers can serve as an example. During the years 1996-2005 yearling cattle sold in November have averaged $60.21/head higher return than ones sold in July. How much would production efficiency have to decline to make November sales less profitable than July sales? In a $66.41/cwt fed cattle market, death loss would have to be 10 percentage points higher (i.e., 11% rather than 1%), or the steer would have to eat 59% more $2.17/bu corn, or, assuming 30¢/head/day yardage, the steer would have to be on feed an additional 201 days. Thus, it is unlikely that July returns will exceed those form November sales. However, it can happen and it is important to evaluate the current market environment in addition to past averages
