It is important that cattle producers know the cost of adding gain to cattle and the marginal value of that gain. If you know the cost of adding gain to your calves, and you know what the marginal value of that gain is, then you can make good decisions about feeding vs selling.
These costs and values are often similar from year to year. But when the grain market or the finished cattle market changes, the cost and value of gain will change.
When grain prices are low, feedlot cost of gain is low and light cattle have greater value, making the marginal value of calf gain on pasture relatively low. When grain prices are high, feedlot cost of gain is high and heavy cattle are valued more since they need less grain to finish in the feedlot. This means that the marginal value of gain on pasture is greater than when grain is cheap.
What is Marginal Value?
According to the Business Dictionary: It is the incremental value that is achieved through additional output.
Figuring marginal value tells us if the investments we make in supplements, pasture management, pasture weaning and backgrounding are resulting in better prices for the calves we’re selling
How to Calculate Marginal Value
It is a good practice to calculate these values each year to see what they are and how profitable current management will be or if management needs to be changed to keep in step with the markets. Ideally, we adjust what we’re doing based on what the market is demanding in terms of calf weights.
The marginal value of calf weight gain is based on the price slide between weight breaks of cattle being sold. The marginal value of calf gain is a little cumbersome since cattle are priced by their value per pound or hundredweight, not by their value per head. To calculate the marginal value of gain, first calculate the value per head within each weight group. Then calculate the difference in value between animals in the weight groups of interest. Adjust this to value per pound by dividing by the difference in weight per head between the two weight groups.
Here’s how it looks on paper using two sets of cattle, one weighing an average of 475 lb. selling for $1.60/lb. and the second weighing 525 lb. selling for $1.55/lb.