“Sell or keep” decisions at various points along the value chain require cattle producers to understand both the Cost of Gain (COG) and Value of Gain (VOG). A recent Angus Beef Bulletin article talks about factors to consider and tools that are available to help determine whether to retain or sell weaned calves:
There are tools available to help you make the best financial decision for your operation.
by Elliott Dennis, University of Nebraska
Angus Beef Bulletin (June 7, 2022, Vol. 15: No.6)
In the article, Dr. Dennis first discusses the importance of calculating average daily gain and total cost of gain that is specific to a producer’s operation, noting that “The availability of feed resources is the first limiting factor.” The next part of the article describes Value of Gain:
“The demand from the market to put on additional weight is the second limiting factor. A producer who has a 550-lb. steer can choose to sell that calf at weaning or put on additional weight. It’s important to note two things that are frequently misunderstood in the “retain to put on more weight” decision.
First, producers are only paid for the additional weight put on postweaning. This is because when a producer decides to retain, they forgo immediate profits and essentially buy the cattle from themselves at the market price. They ultimately sell the cattle back into the market after a preconditioning or backgrounding program.
Second, the price received (dollars per pound) is higher at weaning compared to heavier cattle sold after a backgrounding or preconditioning program.
This decline in dollars per pound as weight increases is known as the price-weight slide. If this did not occur, there would be an endless incentive to put on more weight. Understanding these two factors that are built into the value-of-gain calculation provides clarity on what producers are paid for. The website www.beefbasis.com is a great user-friendly website that helps producers easily calculate their own cost of gain.”
The following BeefBasis decision support tools can help to estimate Value of Gain and assess market opportunities: