Market Math

Value of Gain Made Simple

Use these examples to figure the value of gain. (DTN/Progressive Farmer image by Pam Smith)

It is simple to figure out the economics of preconditioning, right? If a 400-pound steer brings $2.91 per pound, but a 450-pound steer sells for $2.81 per pound, all you have to do is multiply that extra 50 pounds times $2.81 for $140.50, right? Wrong. Clemson Extension area livestock specialist Brian Beer says every pound of gain is not worth $2.81.

He explains: "Many farmers confuse the selling price with the Value of Gain [VOG], but they are not the same. Value of gain is important to determine if adding weight to calves is worth the effort."

To demonstrate the math for calculating VOG, Beer uses the weekly average from South Carolina Cattle Auctions for the week ending April 17, 2015. Prices are for medium- to large-framed No. 1 and No. 2 muscled steers.

First, look at the total selling price of the 400-pound steer. In this case, it is $1,168. Next, consider the total selling price of the 450-pound steer, which is $1,273. Subtract $1,168 from $1,273. That is $105. Divide by 50 (the difference in weight of the two steers). The VOG is $2.10.

Beer says the next question to ask yourself is, "Can you can add weight for less than the VOG?"

In this example, it's pretty easy to say adding weight would be profitable. If feed costs $220 a ton, and you feed 9 pounds per head per day (2% of body weight) for 50 days, the feed cost of gain is 49 cents to 50 cents per pound.

(VM/AG)