If you can’t make money on healthy calves, you sure can’t on sick calves

If you can’t make money on healthy calves, you sure can’t on sick calves

Cattle feeders are not only taking on more price risk, but more health risk too.

Life for a cattle feeder is a lot more challenging than it used to be, what with high-priced feeder calves. It’s hard to make much money with today’s market dynamics.

And that’s just on the cattle that stay healthy. It’s nearly impossible to make it work when they get sick, and any level of death loss will, if you’ll pardon a bad choice of words, kill you financially. Unfortunately, says Tom Brink, formerly with JBS Five Rivers and now with Top Dollar Angus, the health status across the board of cattle entering the feedyard is, to use another bad choice of words, in a death spiral.

Using data from Professional Cattle Consultants (PCC), Brink says death loss in feedyards has increased almost 50% in the last 10 years, with most of the increase coming in the last three years. On average, the numbers look like this: Historically, feedyards feeding yearling cattle could pencil a 1% death loss and be in the ballpark. Now, Brink says, it’s closer to 2%.

But those averages don’t tell the tale. It’s the distribution within the data set that spins the cattle feeder’s tale of woe. Again referencing PCC data, Brink looks at the results of 274 groups of fed cattle that were closed out across 120 different feedyards. “Those cattle would have averaged about 580 pounds going in,” Brink says.

Most of those cattle got along fine—63% saw an average death loss of 1.2%. However, 16.4% experienced an average 3.9% death loss; 12% saw a 7.4% death loss and 8.4% had a devastating 16.1% death loss.

In  dollars, the pens that had a 3.9% average death loss lost $112 per head at closeout; the pens with an average 7.4% death loss took a $318 per head debit; and the high death loss pens had a breathtaking $1,431 per head loss.

Perhaps “breathtaking” isn’t the appropriate word.

If you put all those groups together, across the board on those 274 groups of cattle, the loss was $190 per head. And if you’re a cattle feeder looking to fill pens, that’s the number that sticks in your head, Brink says. “In a perfect world, I would do the math on where I could hedge the calves and what they would perform like with zero death loss, then back up my bid by $190 per head. Depending on weight, that’s $30-35 per cwt.”

Is the market allowing buyers to do that? “Not even close,” Brink says. That means feedyards are taking on both price risk and health risk when they buy feeder cattle.

What about VAC-45 (value-added cattle) programs? Does preconditioning matter? Yes it does, Brink says. Looking at data from 1990 to 2000 on calves that went through a VAC-45 program and were received at a commercial feedyard, Brink says the preconditioned cattle had only a third as many sick calves and less than half as many deads. “And they had better performance—they gained more and they converted better.”

So, if you believe in the value of preconditioning, you can assume that a cattle feeder could cut death loss at least by half by buying preconditioned cattle. Using Brink’s calculations, that should be worth about $95 per head.

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But it isn’t, he says. Using 2013 data from Superior Livestock Auction, VAC-45 calves commanded about a $6 per cwt premium over unweaned calves. That’s somewhere around $30 to $36 per head on 5 to 6-weight calves, he says.

Brink says there are several reasons for that disparity. First is skepticism brought about by the school of hard knocks. Every cattle feeder, somewhere along the line, has bought a set of supposedly preconditioned calves that weren’t, and they broke hard when they got to the feedyard. So they’re going to factor that risk into their bids.

“Here’s the other one, and I think this is the big one,” Brink says. “The market is pushing buyers so hard right now; they’re taking greater price risk and they know they’re taking greater health risk.” The market is forcing them to do things they know are going to challenge their people in terms of the health of the cattle.

“And now you present me with a good set of VAC-45 calves. Am I going to give you a premium for them? Some. But am I going to give you all of it, even if I believe it’s worth $95 per head? No, I’m not, because I’m so compromised on the rest of my buy. I think that’s a lot of what’s going on right now.”

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