Beef Cattle Handbook

BCH-8050 Product of Extension Beef Cattle Resource Committee

Factors Affecting Cattle Feeding Profitability and Cost Of Gain

Martin L. Albright, Ag Economist, Kansas State University
Michael R. Langemeier, Ag Economist, Kansas State University
James R. Mintert, Ag Economist, Kansas State University
Ted C. Schroeder, Ag Economist, Kansas State University

Cattle feeding is a risky business. The variability in cattle chase price, placement weight, days on feed, total gain,
feeding profit for steers in two western Kansas feedyards daily gain, sale weight, feed conversion (as fed), yardage
placed on feed from January, 1980, through May, 1991 is charges, feed cost, feed consumption (as fed), feeding
illustrated in Figure 1. Monthly average steer feeding
PROFIT ($/hd)
profit ranged from a loss of $100 per head to a gain of 175
$165 per head. The monthly average cost of gain for the 150
same group of steers varied from $38 cwt. to $65 cwt. 125
Changes in cattle prices, feed prices, and perfor- 100
75
mance are significant factors contributing to fluctuations
50
in cattle finishing cost of gains and profits. Approxi-
25
mately 93 percent of the variability in cost of gain over 0
time can be explained by changes in corn prices, feed -25
conversions, and daily gains (1). Further, 93 to 94 per- -50
cent of steer feeding profit risk can be accounted for by -75
fed steer prices, feeder prices, corn prices, interest rates, -100

feed conversions, and daily gains (1). Because all of -125
80 81 82 83 84 85 86 87 88 89 90 91
these factors are important in explaining the risks of cat- YEAR AND MONTH PLACED ON FEED
tle feeding, producers should consider them when
developing budgets, calculating break-even points, or Figure 1. Monthly average steer profit for steers placed at 700-799
placing cattle on feed. lbs.

Feedyard Closeout Study cost per pound of gain, fed cattle sale price, and process-
Results from the recent study (1) conducted at Kansas ing date. The feeder steer price was not available for all
State University (KSU) can be used to identify the most closeouts, so the average Dodge City, Kansas cattle auc-
important factors affecting cost of gain and profitability. tion price (4) for the week the steers were placed was
This study utilized closeout data on 6,696 pens of steers used. Average corn prices during the placement month
at two western Kansas custom feedyards placed on feed were obtained from Agricultural Prices (3). Interest rates
from January, 1980, through May, 1991. Only pens of on feeder cattle loans were obtained from the Federal
steers weighing between 600 and 899 lbs. at placement Reserve Bank of Kansas City (2).
were used. The steers were divided into three 100-lb. Profits averaged from $25.38 to $27.28 per head for
placement weight categories. Information collected from the three placement weight groups in the KSU study.
the closeouts included placement date, feeder cattle pur- Feed conversion ranged from 8.24 lbs. of feed for lighter

BCH-8050 1

of feed per lb. and forage prices all influence feed costs—the contemplating placing cattle on feed... Percent of Steer Feeding Cost of Gain Variability Over 10 Time Attributable to Selected Factors.1 percent of the volatility in cost of gain..6 2. January 1980 . both increase feeding cost of gain. feed conver.66 to to 3. A Conversely. feed prices. average daily gain accounted for 2.1 58.2 25 800 to 899 lb. performance increase costs and break-even levels.25 lbs.... per head per day. Monthly average fed steer profit distributions by weight Feed conversion is the second most important factor category. of gain for heavier percent of the variation in cost of gain for lightweight weight placements. 5 0 -125 -100 -75 -50 -25 0 25 50 75 100 125 150 175 200 Profit ($/head) important for lighter placed steers as they require more grain to reach processing weight than heavier placed steers.9 25. cy of feeding heavier weight cattle.7 32. Average profits were in the $0 to $100 feed conversion. for the three placement weight groups. and 58 percent for steers 25 600 to 699 lb. feed grain prices. steer feeding profits corn prices explained the greatest amount of cost of gain for 600-799 lb.6 6. placements averaged more than $100 per variability for all placement weights.4 Feed Conversion 22. Figure 2...6 percent Average feeding cost of gain ranged from $48. 1980...6 5 Total Explaineda 92. placed at 800-899 lbs.May 1991. Changes in During 5 percent of the months. 20 Placements . interest rates. interest charges. feeding cost of gain are shown in Table 1. in determining cost of gain variability. processing and yardage fees. Finally. lbs. Factors Affecting Variability in Cost of Gain 1991 placement period are depicted in Figure 2. while the rate of gain for because they are not as efficient as lighter weight steers. feed costs decline as rate of gain increases. $199 per head.57 lbs. reflecting the reduced feed efficien. depressed fed cattle market will decrease the amount of Increases in veterinary costs and cattle health problems gross revenue a producer will receive.. Profits Approximately 93 percent of the variability in steer feed.9 65. It explained 23 2 Beef Cattle Handbook . The primary performance factors fluctuating feeder and fed cattle prices. 10 b Unexplained variability is 100 minus total explained.8 10 Daily Gain 3. placements and 33 percent for heavier placed steers. lighter placed steers was 3. Corn price is relatively more 20 Placements 15 Table 1. through May.06 lbs.. and Net returns to steer feeding are susceptible to risks from miscellaneous costs.8 0 Unexplained Variabilityb 7.% . Placements 20 a Total explained variability is cost of gain variability explained by 15 the explanatory variables. 5 Explanatory Placement Weight 0 25 Variable 600/699 700/799 800/899 700 to 799 lb. 15 Corn Price 66. The heavier placed Feed conversion is more crucial to heavyweight steers steers gained 3. Rising feeder cattle largest component of cost of gain. veterinary Steer Feeding Profitability costs. Cost of Gain Feeding cost of gain consists of feed costs. per day.4 93. and interest rates. Corn price account- ed for 67 percent of the variability in cost of gain for Percent of Months (%) steers placed at 600-699 lbs.1 2. Cattle performance. These factors should be sion. ranged from a negative $134 per head to a positive ing cost of gain over time was explained by corn price. The daily $50. The profit distributions across the three placement weight categories for the January. and average daily gain. rate of gain is more important for lighter placed steers as they are on feed for a longer period of time. and death loss. performance. and poor cattle a result of higher feed conversion rates or death loss.08 cwt.1 6. lbs. lbs.placements to 8. The relative per head range in approximately 58 to 65 percent of contribution of these factors to the volatility of steer the 137 months in the study.9 93. feed grain considered when determining budget projections and prices. cattle affecting cost of gain are average daily gain. Feed costs will rise as prices.

- Factors Affecting Profit Variability Fed Price 54. . or the use of options.7 profitability by placement weight. January Downside risk varied among placement weight cate. management of purchase prices is more important for heavyweight a Total percentage of variability in net return explained by variabili- steers since the impact of purchase price on profitability ty in the explanatory variables. Unexplained Variabilityb 7. accounting for 3 to 5 percent of net return risk. The information from this sensitivity analysis can be incorporated into production and marketing plans.3 price. In 34 percent of the months. ers should consider these factors when developing bud. T. effect of fed cattle price is greater for lighter placements as they require more days on feed. the combination of average daily gain and inter. Professional Animal Scientist.% ..8 94.. or placing cattle on Agricultural Marketing Service..2 6. Albright. Management Recommendations Regional Economic Digest. gets.3 54. Kansas Agricultural Statistics. Finally. Moreover. 800-899 lb.9 6. place- ments were not profitable.8 41.2 38. as did 29 percent Variable 600/699 700/799 800/899 of the months for the lightest weight category. gories. cattle feeders should consider actively managing fed cattle price risk through forward cash contracts... in 32 percent of the months. Table 2 reports the relative contributions of Feed Conversion 3. This emphasizes the importance producers need to place on Total Explaineda 92. feed prices. Brazle. Langemeier. Movements in corn price had the greatest impact on the profitability of lightweight steers. interest rates. The authors acknowledge the generosity of the two Feed conversion was the next most important ele. 2. in accounting for the risks of feeding cattle.head. 4.0 About 93 to 94 percent of the variability in steer feeding Feeder Price 16. 1993. fed and feed- er steer prices explain 71 to 80 percent of profit risk. lbs.May 1981. Schroeder..0 age daily gain. increases as placement weight increases.6 profit over time was explained by fed price.0 0.4 3. LS- feed. Thus. the b Unexplained variability is 100 minus total explained. corn prices. and aver. Cattle prices..3 cattle prices when developing budgets and preparing pro. Interest Rate 2. Conversely. The as possible. Various Issues.R. Rate 1. ment. of gain is more important for heavier placements as Mintert. produc. lbs.7 curement and marketing strategies. feed conversion. lbs. References est rates explains 2 to 4 percent of profit variability. calculating break-even points. Because 38 to 54 percent of the variation in profits is attributable to movement in sale prices. placements were greater Table 2.8 93.4 1...R. Dodge City. Kansas. Agricultural Prices. allowing for greater fluctuations in fed cattle price. input price risk. Various Issues. 9:138-145.C. Break-even price calculations should be calculated 214. cattle feeders should strongly consider attempting to manage their BCH-8050 3 . United States Department of Agriculture.2 1. Explanatory Placement Weight 700-799 lb. Results from the KSU study indicate that 33 to 48 percent of the variation in cattle feeding margins is attributable to movement in feeder cattle prices and corn prices. The next most important factor in explaining profit risk is corn price. Further. as they will consume more feed during the finishing Acknowledgements period than heavyweight cattle. As a result. anecdotal evidence suggests that many cattle feeders do not attempt to manage feeder cattle or feed price risk.8 these factors to the risks associated with steer feeding Daily Gain 0. M.. anonymous feedyard managers for providing data. M.L. Profits for 800-899 lb. corn price.5 4..1 3. J. and performance are important 3. Together. Cattle Feeding Profit and they need to gain the last expensive pounds as quickly Cost of Gain Variability Determinants. 1980 .2 5. and F.. Federal Reserve Bank of Kansas City. Percent of Total Explained Steer Feeding Net Return than $100 per head during 7 percent of the months.9 8. and per- formance measures when placing cattle. for a range of feeder cattle prices. placements realized losses. feeder steer Corn Price 15. hedging.9 24. Variability over Time Attributable to Selected Factors. Various Issues.

Albright. Ag Economist. Kansas State University This publication was prepared in cooperation with the Extension Beef Cattle Resource Committee and its member states and produced in an electronic format by the University of Wisconsin-Extension. ACTS of May 8 and June 30. Issued in furtherance of Cooperative Extension work. Kansas State University Michael R. Langemeier. Cooperative Extension. Schroeder. 1914. Ag Economist. Ag Economist. Kansas State University James R. Kansas State University Ted C. Mintert. Ag Economist. BCH-8050 Factors Affecting Cattle Feeding Profitability and Cost Of Gain 4 Beef Cattle Handbook .Authors: Martin L.