Rethinking fed cattle marketing plans
By: Ron Hale & Shawn Walter
Cattle feeders have been facing new challenges during the past year as the result of record breaking corn prices pushing ration dry matter cost to $345 and higher, cost of gain being more than 45 percent higher than a year ago, lower feeder supplies causing higher prices and future supply questions, higher fed cattle prices, and increased market volatility. Because feeding, cattle management, and marketing practices seem to be relatively unchanged, a couple questions need to be asked – “Do these new market conditions affect how long gain can be put on cattle at a profitable level? Can cattle continue to be fed to the current slaughter weights?”
A number of factors affect the marketing decision process. They include days on feed, feed intake, estimated weight, pen space, market swings, customer cash flow, weight sorts, topping pens, computer projections, etc. Price per pound, whether on a live or carcass basis, as well as feed conversion and cost of gain have typically been the measures used to evaluate the success of the marketing decision.
While all the above factors and methods have been successful and are commonly used, one that seems to be overlooked, perhaps because of its difficulty to measure, has been to feed cattle as long as the cost of a pound of gain is lower than the value of that gain. The difficulty lies in being able to calculate a daily incremental cost of gain using daily feed consumption and the feed cost. While the difficulty lies in accurately calculating current daily gain, the whole process should be viewed as an opportunity rather than a brick wall.
Professional Cattle Consultants has been collecting and analyzing feedlot performance data since 1971. The database was used to create the following two examples comparing the incremental costs of gain of a 7-weight steer during August 2010 and 2011. Using a ration cost of $220/DM ton, live selling price of $95/cwt, and a carcass price of $118/cwt for 2010, the first graph shows live sales should happen before 165 DOF when the cost of gain begins to be higher than the value of the gain. The graph also shows about 10 extra days on feed if the same steers were sold on a carcass basis, providing an opportunity for a somewhat higher income since a few more pounds would be sold.
But that difference becomes much wider with record high ration prices. Using 2011 values of $118/cwt live, $185/cwt carcass, ration DM cost of $345/ton results in the next graph. It becomes alarming that the sale of live cattle needs to happen approximately 60 days earlier (day 105), when the cost of gain becomes higher than the value of that gain. It is interesting that carcass sales do not need to be moved. This, of course, means that live cattle would be sold at a lighter weight which is in opposition to the more recent trend of heavier weights. The difference between optimum live and carcass days on feed stretches from 10 days in 2010 to 60 days in 2011. This difference, and the greater reduction in days fed for live sales, ought to cause managers to consider selling cattle on a carcass basis. It enables cattle to be fed for the same number of days on a carcass basis this year as on a live basis last year.
Feed prices and market values of 2010 are certainly not applicable today. Perhaps it’s time to rethink marketing strategies given the new challenges. Examining all the possibilities and putting a pencil to it now is certainly better than head scratching and wondering what in the world just happened.