Hasbargen, Paul R.

English

Research Papers in Economics

Staff Paper Series
Staff Paper P75-26 November 1975
THE BEEF FEEDING ENTERPRISE
Some Management Considerations
Paul R. Hasbargen
Department of Agricultural and Applied Economics
University of Minnesota
Institute of Agriculture
St. Paul, Minnesota   55108STAFF l]APER P75-2C Novcmb(*r 1975
THE BEEF FEEDING ENTERPRISE
Some Management Considerations
Paul R. Hasbargen
Staff Papers arc published without formal review within the Department of Agricultural
and Applied l:conomics.THE BEEF FEEDING ENTERPRISE
Some Management Considerations*
by
Paul R, Has barge n
I. Outlook For The Beef Industry, 1975-1980
A. Beef production will probably decline from current levels as producers cut
back in order that prices can rise enough to cover production costs.
B. Beef consumption per person will decline from current levels of 115 to 120
pounds, carcass basis, if corn prices hold near $2.00 a bushel.
c. But, during the next two or three years, total beef supplies will be higher
due to a large slaughter of cows and nonfed animals as cattle numbers are
cut back.
D. The over $50, 00 choice steer prices of June, 1975, will probably not be
reached again during the next two years. Average beef prices will probably
bottom out in 1976.
E. Returns to cattle feeders will be more variable than usual during the next
two or three years.
F. Returns to most cow-calf operators wtll continue to be negative during the
next two years.
II. Should We Continue To Feed CattIe In The Northern Corn Belt
A. Some
1.
2.
3.
4.
B, Some
1.
2.
advantages that cattle feeders in this area have include:
Lower priced feed
No need to dry corn produced on farm
Can utilize manure to save cm higher priced fertilizer
Can more fully utilize hired help on a year-around basis
disadvantages that cattle feeders in this area have include:
Poorer feed conversion due to weather
Slower gains resulting in higher overhead costs (both feed and nonfcecf)
* Paper prepared for Midwest Banking Schofd, Morris, Minnesota, ,Jul.y 1!)75.-2-
3, Higher cost of facilities to prohct cattle from weather and/or greater
need for bedding
4, Less opportunity to sell cattle feeding services to others
c. Current cost comparisons with the commercial feedlots in Texas suggest
that:
1. Feed costs are lower in this area
2. Nonfeed costs including a desired return to labor and facilities are
higher in this area
3. Total production costs vary more among feeders in either area than
they do between areas
D. Therefore, feeders with good performance records should be encouraged to
consider expansion-- those with below average track records might well be
encouraged to consider alternatives other than cattle feeding.
III. Evaluating The Past Performance Of A Cattle Feeder
A. The major factors affecting the profitability of cattle feeding are feed costs
and the buying- seIling margin realized,
B, The average of each of these two factors will vary greatly between years
depending primarily upon feed prices and cattle price movements,
c. However, some operators will consistently show lower feed costs due to better
feed conversion and higher gross margins due to better buying and selling abilities.
D. Therefore, each year you should compare your cooperators for gross margins
and feed costs per hundred pounds of beef produced. The data in Table 1 show
some average performance records for cattle feeders in southern Minnesota
over the past ten years.
Iv. Planning The Annual Program
A. Buying and selling decisions are very important since they affect the size of
the gross margin-- the amount that a producer is paid for each hundred pounds
produced.
1. Decisions on what to buy should be based on the current feeder cattle
price differentials, expected fed cattle price differences and expected
differences in feedlot costs. See current FBEE F computer budget
projection on calves, yearlings and heifers. These comparative bud-
gets along with outlook prices for the coming year can be helpful in
making a decision as to what weight, grade and sex of cattle to buy.-3-
Table 1. Prices Paid, Prices Received, Value Produced,
Feed Costs for Some Minnesota Feeders, 1962 -
Feed Costs and Return Over
1974, 9
F(:(ding Price Price Value ~i F(wd [iesidunl/Cwt.
Year Paid Rcccived Produced costs To Pay For
Per Per Per Cwt. Per Cwt. Nonfeed
cwt. cwt. of Gain of Gain costs
1962-63
63-64
64-65
65-66
66-67
67-68
68-69
69-70
70-71
71-72
72-73
73-74
1962-68 WV(J.
1968-74 :lVC?.
1962-63
63-64
64-65
65-66
66-67
67-68
68-69
69-70
70-71
71-72
72-73
73-74
1962-68 ave.
1968-74 ave.
$30,70
26,31
22.02
24, 80
27.48
27.18
28,60
32.90
33.88
38.44
46.38
54. 93
26.42
39.19
$24.83
20, 73
17.83
22.79
25.32
25.29
27.39
29.91
31,28
24.56
45,72
52. 55
22, 80
36.90
LONG FFD CALVES
$22.81
21.90
24.22
24,55
25.06
25.38
27,73
28.27
31,56
34.62
44.86
40.72
$17.10
19,69
26.42
24.83
23.18
24.05
27.25
24.58
29.68
32.01
43, 54
26.74
23.99 22.55
34.63 30.63
SHORT FED YEARLINGS
$21.36
19, 82
22.29
24.16
23.42
25.60
27.22
28.50
31.51
34.33
44.84
38, 89
$14.95
18.83
29.81
27.69
20.51
26.51
26.77
25.92
31.44
35.02
41,90
20.39
$15.92
15.96
18.17
20.09
17.21
15, 94
19.03
18.53
18,73
20.42
29,44
42, 94
17,22
24.85
$20.31
18.37
19.74
22.51
18.80
19.28
20.78
19,76
23.53
19.77
28.09
45.20
22.78 23.05 19.84
34.22 30.24 26.19
$ 1.18
3.73
8.25
4.74
5.97
8.11
8,22
6.05
10.95
11.59
14, 10
-16.20
5.33
5.79
$-5.36
.46
10.07
5.18
1.71
6.87
5.99
6.16
7.91
15.25
13.81
-24.81
3.16
4.05
~ Source: Annual Agricultural Economics Reports entitled “Feeder Cattle Costs and
Returns” prepared by Truman Nodland, et. al.
2_/ The value produced figure is usually about 50~ lower per cwt. of gain than the gross
margin calculation because death losses are included in the former.-4-
Price differentials on fed cattle of different grade and sex are as
follows:
Normal June, 1975
Choice vs. Good -$1. 50/cwt. $5.50
Steer vs. Heifer -$1. oo/cwt. $1,50
Choice Beef vs. Good Holstein -$3. oo/cwt. $8.00
2. Decisions on when to buy or sell can be given very little help by study
of seasonal price indexes because seasonal price patterns are not very
consistent--especially for fed cattle. Therefore, cattle feeders must
keep in touch with changing supply and demand conditions. Besides
University outlook reports, other publications which might be obtained
for this purpose are:
Livestock, Meat and Wool Market News, Weekly Summary and
Statistics. (Order from Livestock Division, Consumer and
Marketing Service, USDA, Washington, D. C. 20250)
l?eedlot and Range Sales Reports, (Order from Livestock Market
News Service, 403 Livestock Exchange Building, Denver, Colorado
80216)
Livestock and Meat Situation. (Order from Economic Research
Service, USDA, Washington, D. C. 20250)
Cattle and Calves on Feed. (Order from Crop Reporting Branch,
Statistical Reporting Service, USDA, Washington, D. C, 20250)
3. Decisions on where and how to sell should not be routine ones. Different
markets and methods of marketing must be compared. In order to make
comparisons among markets, feeders must become familiar with factors
affecting shrink, dressing percentage, and carcass-liveweight price
ratios. Recent research at Iowa State suggests that to minimize shrink
losses to the entire industry, cattle should go from feedlot to slaughter
in minimum amount of time.
B. Decisions which influence feed costs
1. Price paid for feed --or market value of home produced feed--is a
major determinant of feed costs per unit of beef produced. This area
of the country has the lowest feed prices in the nation--especially
when wet shelled corn and corn silage are the basic feed ingredients.
2. Conversion rate of feed to beef is the other determinant of feed costs.
Research results suggest that the following factors increase feed con-
version efficiency:- .r) -
11’:~F+tcIr daily gwins
Less hay and corncob in ration
Lighter marketing weights
Less market finish
Improved breeding and crossbreeding
Flaking or high moisture grain
Standards for feed conversion are:
Calves Yearlings
pounds of air dry feed/pound of gain*
Excellent 8.0-9.0 8. 5-9.5
Average 9.5-10.5 10,0 -11.0
* Dry corn, concentrate and hay plus 1/3 of corn silage weight.
This amounts to feed requirements of about 10 bushels of corn
per cwt. of gain on calves and 12 bushels on yearlings. Forage
needs are usually met with about .5 tons of corn silage per cwt.
of gain on calves and .4 tons on yearlings (or .2 tons of hay for
calves and .16 for yearlings). Protein supplement is usually fed
at a pound per day.
c, Decisions which influence nonfeed costs
1. The major components of nonfeed costs and their relative importance are
shown in Table 2. Some areas of the country can save about $2.00 per
hundredweight because they do not, need housing nor bedding, and labor
requirements are lower. Somewhat similar conditions might exist on
some lots in southern Minnesota and South Dakota.
2, Ration type influences nonfeed costs. Higher roughage rations result
in higher storage and handling costs as well as increases in those costs
associated with length of stay in feedlot. (Electricity, interest, bed-
ding, labor and facility overhead. ) Thus, although high silage rations
reduce feed costs with current high grain prices, they increase nonfeed
costs and slow down the feedlot turn-over rate. High silage rations
are most desirable if only one lot of cattle is to be fed each year (see
Table 3).
v. Planning Feedlot Expansion
A. The cattle feeder who has a good performance record in cattle feeding may
be considering several different types of housing as part of an expansion
program.-(;-
‘r:tlll(’ 2. Nonf{?(!dCofit.s Pcr Calf Fed in Cmventi onal l%edlots of 200 Head Capacity
..----.--.—.-.--- ..—-,.- - .—
Itcsourc(’
Resource Requirement Rate or Annual Cost
Per Head Price Per Head
Capital in feedlot
Capital in equipment
Bedding
lntercst on animal
Materials handling
Veterinary expense
Insurance and telephone
Death loss
Labor
Total
$60.00
40.00
400 lb.
$225.00
--
--
--
225.00
4 hr.
12,0%~
18. 0%~
O.9$/lb.
8%
--
--
--
2%
$3.00
$ 7.20
7.20
3,60
18.00
2.00
4.00
1.50
4.50
12.00
$60.003
~ Annual rate, as a percentage of investment, calculated as follows: depreciation,
5%; interest, 4%; repairs, 1%; taxes and insurance, 2%.
u Annual rate, as a percentage of investment, calculated as follows: depreciation,
10%; interest 4%; repairs, 4%
~ This equals $10 per cwt. of gain if 600 lbs, are added per head. If manure is used
in field, the manure credit would cut net cost to about $9.00 per cwt. of gain.
Table 3. 1.ffects of Capacity Use and Type of Ration on Costs and Returns
Capacity
One Lot Per Year use
All Silage Full Feed Full Feed
Itc m Unit Ration Ration Ration
Nonfced costs ti $/cWt. 6.24 5.01 4.44
Net return ~/ $/cWt. 3,94 3.31 3.79
Total added return $ 11,598 9,928 16,467
~/ Excludes labor costs which are higher for the all silage program.
~ Calculated from computer results.-7-
1, Twble 4 shows the pcrfornumce of cattle at our different Morris, Minn.
beef housing units.
2. ‘M-)1(! 5
housing
13. Our research
shows average returns and capitalized values of four diffcrt’nt
s,ystcms,
on beef housing suggests that:
1. The open lot appears most economical for the once a year feeder who
has adequate bedding available so that the top of the mound can be kept
dry.
2, The conventional system will probably remain more popular than the
open lot since most farmers want to provide some housing. However,
the Morris results show no particular advantage for this system.
‘3 ,. Animal performance has been the best in the manure scrape confine-
ment barn but labor and bedding requirements are the highest in this
unit.
4. The cold slat confinement system will become more economically
desirable as bedding and labor increase in cost. If the cold slat unit
is built it should be fully utilized the year around,
VI. Summary
A,
B,
c.
D.
E.
There will be less cattle feeding and sporadic returns to feeding during the
next few years as total beef production is adjusted downward to meet demand
at a higher cost structure.
Current high feed and energy costs improve the comparative position of the
midwcst cattle feeder, who already has invested in facilities and feeding equip-
ment, relative to the southwest commercial feedlots.
Creditors should keep minimal performance records on cattle feeding clients.
Those with below average abilities in controlling feed costs or in obtaining
favorable gross margins should be discouraged from expansion.
Annual planning of the feeding enterprise requires a knowledge of feed
requirements, nonfeed cash costs and current grain and cattle price outlook.
If cattle feeding facilities are to be expanded, the relative availability of
labor, bedding and credit should be considered before deciding upon the
type of housing to construct.-8-
‘ihblc 4. Av(!~i~~t) D:tily Gains and l?ecd Clmversi(ms for i3cef Cntt.lc by housing Systt’ms
Average Daily Gain
Opcn lot 2.41 3.29
Conventional 2.43 3.54
Manure scrape 2.53 3,57
Cold slat 2.47 3.29
Warm slat 2.51 3.54
Dry Matter/100 Pounds of Gain
Open lot 619 592
Conventional 606 557
Manure scrape 584 555
Cold slat 598 559
Warm slat 593 523
Table 5. Average Returns and Capitalized Building Values by System Assuming One Set
of Calves Each Year and One Set of CaIves per Year Plus One Set of Yearlings
Every Other Year
One Set of Calves only Open Lot Conventional Manure Scrape Cold Slat
Return over feed cost/cwt. gain $ 7,73 $ 8.01 $ 8.83 $8.58
Return/head to labor & housing 8.94 10.26 15.11 17.39
Return to housing, per head* 3.60 4.66 8,95 12.91
Capitalized building value:
Value over 20 years life 30.00 38.83 74.58 107, 58
Repayment maximum, 7 yrs, 44.23 50.77 74.76 86.05
(with no labor costs)
One Set of Calves Plus 1/2 Set of Yearlings
Return per unit of housing* 11.92 14.57 17.88 22,68
Capitalized building values:
Value over 15 years life 79.43 96.73 119, 19 151020
Repayment maximum, 7 yrs. 91.74 108.51 128,06 141,37
Original cost, 1969 basis 25, 00 68,00 78.00 111.00
Current estimate 40.00 80.00 100.00 190.00
* Labor costs of $1/cwt. of gain in the conventional barn. Manure scrape takes 10% more
labor, the open lot takes 10% less labor and the cold slat building about 20% less.

THE BEEF FEEDING ENTERPRISE - SOME MANAGEMENT CONSIDERATIONS

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