The Value of Added Gain

A commonly misunderstood principle in the cattle business is that of the "value of added gain."  There is a natural tendency to believe that when the calf prices are good that any extra weight put on those calves will also have a very high price.  Likewise, many producers cut back on management techniques that would add weight to calves when cattle prices are low.  However, there are some financial principles during cattle cycles that make us constantly re-evaluate the current value of added gain.

When calves are selling for good prices ($1.00 per pound or more), there is usually a sizeable "price slide" or reduced selling price for heavier calves.  On the other hand, when cattle prices are depressed, the "price slide" often lessens or (in a few rare instances) disappears entirely. 

Lets look at a couple of examples. 

Weaning weight without creep feed is assumed to be about 500 pounds.  Research data through the years gives us the information that typical improved gains from self fed high energy creep feeds are about 60 pounds.  Therefore the creep fed calves would sell at about 560 pounds.

With good cattle prices the 500 pound calf could bring $1.00 per pound or $500 dollars total.  The 560 pound calf would bring $5 per hundred weight less or $0.95 per pound or $532 total.  Therefore the extra 60 pounds returned an extra $32.  Consequently the value of each added pound was worth $0.55.

In 1995 with poorer calf prices the 500 pound calf would bring about $68.00 per hundred pounds or $340 dollars.  With the less severe price slide, the heavier 560 pound calf sold for $66.42 per hundred or $372.  Again the extra 60 pounds brought $32 and a value of each pound of added gain at $0.55.

Obviously not all situations result in exactly $0.55 per pound of added gain.  However, it is amazing how often the value of added gain is between $0.45 and $0.65!