Market Moves

Preconditioning In An Up Market

Sky-high prices make it tempting to sell calves straight off cows. Why are these producers sticking to their programs? (DTN/Progressive Farmer image by Becky Mills)

Weaning and preconditioning top the list of aggravating and expensive chores for most ranchers. Calves break down fences, they need high-quality feed, and, even with all the extra work, they can still get sick and die from the stress. So why are so many producers still committed to preconditioning?

"We're still selling pounds, and preconditioning adds pounds," John Scott Cloninger says.

Preconditioning means Cloninger and his cattle partner, Keith McDonald, take their fall-born, Angus/Simmental calves from weaning weights of 600 to 650 pounds up to 700 to 725 pounds by sale time. The 100-plus-pound boost happens during a 50- to 60-day preconditioning period at the men's Blackstock, S.C., operation. There, the calves are vaccinated, dewormed, introduced to feed and given time to get over the bugs and stress associated with weaning.

Fellow South Carolinian Rusty Thomson says the idea that preconditioning adds to profitability is especially true this year.

"When feed costs are cheap enough, you can add pounds and dollars," stresses the Sharon, S.C., producer. "The feed cost last year was minimal. It was pretty easy to pencil out."

RUNNING THE NUMBERS

Brian Beer, area Extension livestock agent at Clemson University, recently ran an analysis on the value of gain (VOG). The numbers apply to McDonald and Cloninger, as well as Thomson, because they have similar operations and use the same commodity-based preconditioning feed sold by their local mill.

"Right now, it is paying to put on pounds," Beer says. "The cost of preconditioning is around $65 to $75 a head. That includes feed, medication costs, facility costs and yardage."

Using South Carolina auction market prices from the second week in April, Beer says moving a calf from 550 to 650 pounds increases their value somewhere between 80 and 82 cents a pound.

"If we can put a pound of gain on for 82 cents, then yes, we can precondition," he says. By comparison, last year, that same 100 pounds of gain was worth 90 to 95 cents per pound.

In addition to VOG, these South Carolina producers believe they simply get paid more for calves that are preconditioned. They note the premium is tied to membership in the Tri-County Cattle Marketing Association. They sell through the group's tele-auction, held the first Thursday of September.

Thomson, a retired county Extension agent and a producer, has been active in the group and its sale since its inception in 1977. Having compared Tri-County's market prices to North Carolina graded feeder calf sales, he says the group averages 3 to 5 cents more per pound for its preconditioned cattle versus the graded cattle sold at feeder sales.

WHY BUYERS PAY

With feeders bringing record prices, are buyers still willing to shell out more bucks for preconditioned cattle? Oklahoma State University (OSU) Extension ag economist Derrell Peel says he wondered the same thing. His answer: "We found the premiums were even larger."

Peel compared prices for preconditioned cattle sold under the Oklahoma Quality Beef Network (OQBN) banner, a certified program sponsored by Oklahoma Cooperative Extension Service and the Oklahoma Cattlemen's Association. Auction barns around the state host OQBN sales.

He says, "The average premiums for OQBN calves in 2014 were $21.94 a hundredweight for steers and $15.29 for heifers."

The economist explains these premiums make more sense to buyers now than ever before.

"When prices are this high, buyers take on more risks. The premiums for preconditioning are relatively cheap insurance against the calf getting sick or dying."

In Cloninger's case, he says they are marketing directly to feedlots, and in that environment, a preconditioned calf is most assuredly more valuable.

"When those calves step off the truck, they know what to do rather than spending a week learning how to eat," he says.

Beer adds, "That extra 100 pounds makes them a feedlot calf, not a backgrounding calf."

MARKETING ADVANTAGES

Preconditioning is about more than the process. To truly benefit from the effort, producers need to market as part of an association. Taking a handful of preconditioned calves to the local sale barn is no guarantee of a premium, even if they are all weaned, dewormed and vaccinated.

"You have to sell calves in a place where you know buyers are looking for those kind of cattle," Peel says. "If there aren't enough of them to make up load lots, buyers aren't going to be there. You have to have the numbers, and the buyers have to have confidence in what they are buying. If the producer is a complete unknown, he probably won't get a premium."

He adds that sometimes "reputation calves" from a large ranch will get the same premium as cattle in a certified preconditioning program. But for the smaller producers, certified programs are a way to build a solid reputation when they don't have the numbers to do it on their own.

South Carolina's Tri-County group is a case in point. While the cattle are sold in load lots, neighbors and friends with similar operations work together to form those loads. McDonald and Cloninger partner with Brian Beer's father, Allen, to build a load of uniform feeder calves. Although they run 210 mama cows, Cloninger says they don't have enough steers on their own to stay within the 150-pound weight spread they want in a lot.

Ditto for Thomson and friend Chris Douglas. They pool calves to make a uniform load of steers rather than one with a wide weight range. Both have Angus/Gelbvieh-cross females and use Simmental bulls.

The similarity of all four of the South Carolina operations is no accident. Brian Beer says the Tri-County group is unique in that "there are a lot of people who leave their egos at the door." He adds this is why the group has stuck together for 38 years.

"What my father does mirrors what Keith and John Scott do since we market together," he explains. "We even talk when we buy bulls and get similar EPDs."

The group adheres to the same fall-calving season to help with load lot uniformity. They aim for 48,000- to 49,000-pound loads.

McDonald says there's one more reason he still preconditions even when unweaned calves are bringing big bucks.

"We have worked together so long to have a consistent product. If you let your standards go down when prices go up, you've blown that window of opportunity."

For More Information:

-- Tri-County Cattle Marketing Association of South Carolina: www.clemson.edu/extension/county/chester/programs/livestock/tri_county

-- Oklahoma Quality Beef Network: www.oqbn.okstate.edu

(VM/AG)