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Summary of Estimated Returns
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. Beginning January 2007, production assumptions used in calculating estimated returns were evaluated and revised to more accurately reflect the enterprises. For more information on the revisions please visit Revised Estimated Returns. This article summarizes the previous ten years, 1998-2007, looking at the level and variability of returns. For this summary, 1998-2000 return estimates were based on the old assumptions while the 2001-2007 estimates are based on the new or current assumptions.
Farrow to Finish: Farrow to finish producers have had a profitable 10 years with average return of $4.56/head. The range in returns varied by almost $111/head, or nearly 85% of a 260-270 lb. hog’s average value. Fifty eight percent of the months were profitable for selling hogs. The most profitable monthly returns were realized on hogs sold during the period of May through August, the time of seasonally higher prices. December had the lowest average return, but was still profitable in four of the past ten years. Thirty percent of the months had returns between -$10 and +$10/head.Feeder Pig Production: The ten year average return to feeder pig producers was $3.19/head. Returns varied by $62.74/head from a loss of -$29.42 to a profit of+$33.32. April, May and June sales produced the highest average returns. Average returns were only negative for 36% of the remaining months. In 64.2 percent of the months the enterprise of producing and selling feeder pigs was profitable, but specifically April, May and June were profitable 80 percent of the time. In the month of January feeder pigs were only profitable 40 percent of the time. Approximately 27 percent of the months produced returns between $0 and minus $15/head.
Feeder Pig Finishing: Returns for finishers over the past 10 years averaged negative $3.78/head. Their returns varied by $96.91/head from high to low and were profitable only 39.2 percent of the time. Hogs sold in May were the most profitable and hogs sold in the fall months were least profitable. Hogs sold in November would come from pigs bought in July, which was also 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. October and December sales were profitable only three times each over the past 10 years. November sales were profitable in only two of the ten years. Only 28 percent of feeder pig finishers’ returns fell between +$5 and -$5/head.
Finishing Steer Calves: Average returns to calf finishers’ were negative at a loss of $4.91/head over the ten years 1998-2007. Returns varied by $510/head from low to high, and were positive in 45 percent of the months. Returns were the highest in April and May and the lowest in August and September. Cattle sold in March, April and May were profitable in seven of the ten years, and sales in September, October and November were profitable in only two of the ten years. Approximately 34 percent of the months produced returns between -$30 and +$30/head.
Finishing Yearling Steers: Average profits to feeding yearling steers were -$2.61/head for the ten year period. Cattle sold in 48% of the months showed profits. Monthly returns ranged from -$161.94 to $377.94, or $539.88/head. Highest returns were earned from sales from April and May. The lowest average monthly return occurred in February. October sales produced positive returns in two of the ten years. Only 38.4 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 1998-2007 yearling cattle sold in April have averaged $32.60/head higher return than ones sold in July. How much would production efficiency have to decline to make April sales less profitable than July sales? In a $99.43/cwt fed cattle market, death loss would have to be 3 percentage points higher (i.e., 4% rather than 1%), or the steer would have to eat 28 percent more $2.23/bu corn, or, assuming 30˘/head/day yardage, the steer would have to be on feed an additional 109 days. Thus, it is unlikely that July returns will exceed those from April sales, but still possible. It is important to evaluate the current market environment when incorporating the lessons learned from past trends in returns.
Page last updated: April 21, 2008