Fed Cattle Can Make Money, Even With High Inputs

Fed cattle can make money, even as high input costs continue to plague cattle-feeding profitability.

December 1, 2011

6 Min Read
Fed Cattle Can Make Money, Even With High Inputs

With high feeder cattle and ration costs putting fed-cattle breakevens in the $1.25/lb. range – or higher – “anything cattle feeders can do to improve performance is important,” says Shawn Walter of Professional Cattle Consultants (PCC), Weatherford, OK.

Just how important that performance really is revealed in a detailed PCC study on cattle-feeding profitability. The study found that monthly profit and loss can range from a repressive $250/head loss to a take-it-to-the-bank $350/head profit.

The survey by Walter and Ron Hale for PCC used data provided by Certified Angus Beef LLC and its Feedlot Licensing Program (FLP). They examined closeouts on 443,000 steers finished from January 2004 to December 2009. No natural cattle were included and the profit and loss (P&L) statement didn’t include any risk-management strategies by feeders.

Walter says a full range of Choice-Select spreads, from $0 to $23/cwt. was accounted for, as were a wide range of ration prices that more than doubled from $153/ton in 2006 to $315/ton in 2009. A standardized cost-in variable was achieved by using the average CME feeder-cattle price index with a 5¢ slide applied either way from 750 lbs.

The mass of data was analyzed by looking at the P&L of each lot and ranking it within the month it closed, then assigning it to a low-, middle- or high-profit group. The result was a profile for low-profit lots, average-profit lots and high-profit lots, Walter says.

Obvious results, with a twist

“We found the most profitable steers had the highest weight gain, the heaviest carcasses and the highest percent Choice and Prime,” Walter says. “The top third of lots averaged a $90.26/head profit, while the bottom third had a $39.15/head loss.”

However, the results underscored the importance of balance. Feeding cattle to a very high degree of finish can cause reduced feeding performance, which adversely affects profitability.

“We found that added gain can easily overcome USDA Yield Grade (YG) 4 and 5 discounts in most cases,” Walter says. “And, regardless of the market, there are nearly always individual lots that are making money and some that are losing money.”

Of all the cattle surveyed, the top-third, high-profit lots had an average daily gain (ADG) of 3.31 lbs. That compares with 2.68 lbs. for the low third, and 3.13 lbs. for the middle third.

He says both live and carcass performance contributed to improved profitability in the PCC survey. “High-profit lots had a 56.20% Choice or higher carcass, with 12.28% in the premium Choice category, while the low-profit lots had 49.83% Choice or better and 9.6% premium Choice,” he says. “The middle-profit cattle were 51.66% or higher Choice and 10.88% premium Choice or higher.”

The high-profit lots had about 13% YG 4s and 5s, compared with 11% for the low-profit lots. “That showed us that the additional carcass weight and improved quality grade (QG) overcame YG discounts and probably additional carcass weight discounts, netting more profit to the bottom line,” Walter says.

Feed efficiency important

The PCC survey illustrates the importance of feed efficiency and gain when ration prices are high. “In 2006, the average ration price was $166/ton (dry matter basis),” Walter says. “But prices doubled by July 2008, topping out at $315/ton.” Effects showed up at closeouts.

He says that for cattle finished in 2009, when late-2008 ration prices were highest, ADG widened even more – from 3.71 lbs. for the high-profit group, to 2.35 lbs. for the lowest group.

“As Choice-Select spreads narrowed from 2006 to 2009, ration costs magnified the effect of feeding performance,” Walter says. “Average QG improved and became less of a factor in influencing profitability.”

As carcass weights increased throughout the six years the data was collected, the profit profile remained similar, with a 26- to 30-lb. range between the high and low groups. In 2004-2006, lighter-weight cattle fed to heavier weights were the most profitable. But after higher ration costs became common in the latter years, the most profitable cattle averaged 100 lbs. heavier when placed on feed.

In further examining QG, high QG cattle had a 3.18-lb. ADG, compared with 3.09 lbs. for the middle-quality group and 2.97 lbs. for the low QG group. Walter notes that it’s often perceived that you give up feeding performance to get grade, yet the higher-grading cattle also tended to gain better.

“We typically think that as an animal attains a higher degree of finish, its live performance declines,” he adds. “This is true when evaluating performance at various days on feed. But, if we look at it from a feed utilization standpoint, the QG profile actually makes a lot of sense.

“If the poorer gain is a result of a less-efficient use of feed nutrients, we could expect the poorer nutrient utilization to limit fat deposition. We would expect to see more YG 1s and 2s and fewer Choice and Prime carcasses. But, if an animal is more efficient at utilizing feed nutrients for gain, there is potentially more energy available for fat deposition. That means fewer YG 1s and 2s and more Choice and Prime carcasses.”

In looking specifically at the QG profiles, the low-third group had an $18.03/head profit, compared with $24.02 for the middle third and $35.21, or nearly double, for the higher third.

That compares with ADG profile profits of $45.20 (based on 3.66 lbs. ADG) for the higher third, $27.69 (3.15 lbs.) for the middle third, and $4.32 (2.44 lbs.) for the lower third.

“Higher gainers were almost 40 lbs. heavier when they went on feed (753 lbs. vs. 714 lbs.),” Walter says. “However, they achieved an out-weight (1,334 lbs.) that was 121 lbs. heavier than the slower-gaining cattle that finished at 1,213 lbs. – and they did it with 41 fewer days on feed.”

Too much Choice?

Again, the PCC survey indicates that as grade improves, so does ADG, but to a point. “It would appear that once cattle reach a threshold level of finish, gain drops off,” Walter says. “ADG improves until 70-75% of the lot is Choice or higher, at which point ADG begins to drop off.

“About 30% of the cattle (in the survey) grading 90% Choice or higher were still in the low-profit group. It confirms our theory that reaching a certain degree of finish kind of flips a biological trigger that starts limiting intake, which is often seen at the end of the feeding period.”

Walter concludes that continued gain throughout the feeding cycle should add to profit potential.

“However, we found that there is an ADG threshold, which is about 4.3 lbs.,” he says. “Cattle that outperform expectations begin to push through the weight ceiling and get too much of a heavy weight discount to offset the value of the additional gain.”

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