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. In 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, 2000-2009, looking at the level and variability of returns.  For this summary, 2000 data reflects old assumptions and 2001-2009 data uses current assumptions.   

Farrow to finish:  Farrow to finish producers have had a profitable 10 years, with an average return of $4.20/head. The range in returns varied by almost $92.25/head, from -$45.43 to $46.82. 60% of the months were profitable for selling hogs. Highest monthly returns were made on hogs sold during May through August, the time of seasonally higher prices.  November and January had the lowest average return, but was profitable in 30% of the past 10 years. About 27% of the months had returns between -$10 and $10/head.  The 2009 marketing year was very challenging for many producers, with an average loss of $26.04 per head.

Feeder pig production:  The ten year average return for feeder pig producers was $3.72/head. Returns varied by $64.92/head, from -$31.60 to $33.32. April through September sales produced the highest average returns. Average returns were negative for 36.7% of the months.  June and July were profitable 80% of the time. In the months of January and November, feeder pigs were only profitable 50% of the time. Approximately 59.3% of the months produced returns between $10 and -$10/head.

Feeder pig finishing:  Returns for finishers over the past 10 years averaged -$3.06/head. Their returns varied by $101.43/head from high to low, and were profitable only 40.8% of the time. Hogs sold in May were the most profitable, and hog sales in the fall months were least profitable. November sales would come from pigs bought in July, a profitable 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 through December sales were profitable, on average, only 26.7% of the time.  25% of feeder pig finishers’ returns fell between $5 and -$5/head.

Finishing steer calves:  Average returns for finishing calves was negative, at -$21.60/head, from 2000-2009. Returns varied $567.41/head between the lowest and highest returns, and were positive in 36.7% of the months. Returns were the highest in March through May, and the lowest returns were in September through December. Cattle sold in March, April, and May were profitable in 6 of the 10 years.  Sales in September, October, and November were profitable in only 1 of the last 10 years. Approximately 24.2% of the months produced returns between -$30 and $30/head.  The fall of 2009 was very difficult for many beef producers with losses as much as $212.22/head.  This pulled down many of the ten-year monthly averages for the fall months.

Finishing yearling steers:  The average profits for finishing yearling steers was -$21.33/head for the ten year period. Cattle sold in 39.2% of the months showed profits. Monthly returns varied from -$249.20 to $377.94, for a range of $627.14/head. Highest returns were earned from sales during April and May. The lowest return came in December with an average loss of $44.23/head.  October sales produced positive returns in only 1 of the 10 years. 23.4% of the returns fell in a range from -$30 to $30/head.  Like finishing steer calves, finishing yearling steers in the fall months were incredibly hard to market.  This is a result of the high yearling steer purchase price and the high priced corn in the summer months, contributing to substantial input costs. Also, the seasonally low beef prices in the fall are a major factor in the negative returns during those months.

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 2000-2009 yearling cattle sold in May have averaged $23.84/head higher return than ones sold in July. How much would production efficiency have to decline to make March sales less profitable than July sales? In a $99.43/cwt fed cattle market, death loss would have to be almost 3 percentage points higher (i.e., 4% rather than 1%), or the steer would have to eat 16% more $3.50/bu corn, or, assuming 30˘/head/day yardage, the steer would have to be on feed an additional 91 days. Thus, it is unlikely that July returns will exceed those from May sales. However, it can happen, and it is important to evaluate the current market environment in addition to past averages.