Breaking even feeding cattle
By Heather Gessner
SDSU Extension Livestock Business Management Field Specialist
Partial budgets are tools producers can use to make management and marketing decisions.
With feed price forecasts to remain high throughout the spring and summer months, cattle feeders need to look at feed prices and price forecasts for fat cattle.
Average prices for South Dakota crops were released from USDA National Agricultural Statistics Service the end of January: corn, $6.80 per bushel; soybeans, $13.90 per bushel; oats, $4.20 per bushel; alfalfa, $229 per ton and other hay, $158 per ton. The full report can be found in the USDA National Agricultural Statistics Service Agriculture Price Report at http://usda.mannlib.cornell.edu/usda/nass/AgriPric/2010s/2013/AgriPric-01-31-2013.pdf. Using those prices in a traditional ration for a 600-pound calf fed to 1,350 pounds, the feedlot will incur close to $770 per-head in feed costs alone.
The Livestock Marketing Information Center provides price projections for live cattle through the summer months. They are forecasting $128 to $132 per hundredweight prices for live cattle, again using a 1,350-pound steer, that would imply revenue of $1,728 to $1,782 to the feedlot.
Feeder cattle prices remained relatively steady from the peak sale time last fall. There have been dips and spikes and some reports of $200 per cwt. prices. However, a typical 600-pound calf at a price of $165 per cwt. implies a $990 cost per-head of the feeder calf to the feedlot.
The two larger line items of calf purchase and feed expenses combine for a total of $1,760 in costs, before any death loss or other expenses are added to the equation. Those costs alone leave little to no margin for the feed lot operator.
This does not mean the feedlots and potential feeders should not feed cattle in 2013. There are management tools that could be considered that help improve the bottom line:
--Implement various feed stuffs that still provide a balanced ration that cattle will gain on, may be done at a cheaper feed cost.
--Consider feeding heifers versus steers as there is typically a $10 to $15 per hundredweight spread in price. Make sure to analyze changes to average daily gains (cost of gain) to determine if this is a profitable option.
--Improve feed conversion and reduce days-on-feed by using implants, ionophores, and beta-antagonists, which in turn reduce costs.
--Reduce feedlot stress and practices that decrease feed intakes and negatively affect conversion and rate of gain.
--Watch for pricing strategies that offer above breakeven potential.
--Consider Livestock Gross Margin insurance (or a similar protection strategy) to help cover the cost of corn and the price of live cattle.
--Consider call options on corn and put options on live cattle as long as volatility in these markets remains low.
The cattle feeding industry is facing a period of high expenses--feeder cattle, feed and mileage. However, management strategies can be implemented to reduce feed costs and protection tools are available to guard the bottom line.