The feeding cycle that began in late 2010 will be one to be remembered for a variety of reasons — increasing feeder and feed prices, increasing fuel prices, volatile fed cattle prices and the narrow Choice-Select spread.
If that was not sufficient, the weather contributed its own challenges by delivering one of the coldest and wettest winters, as well as extreme heat in the summer.
Based on the projection one could have made back in late 2010 of fed cattle prices at $1.10/pound or above, and a relatively low corn price ($4.10 per bushel), there was ample optimism for decent profit margins.
This fact remained true for feeder farmers that raise their own hay crops as well as silage, earlage or high-moisture corn, and appraised them at corn prices in late September 2010. For the rest of feeders, who relied on weekly spot prices for corn grain, feed prices nearly doubled — tracking corn grain from $4.10 per bushel to as much as $7.50 per bushel in June 2011.
In addition, the impact of the wet and cold winter and hot summer maintained a negative impact on feed conversion; therefore, profit potential would easily vanish if certain measures were not taken.
This year may be considered a turning point for cattle feeders as herd reduction and continued demand for corn both domestically and for export will support high feed and feeder cattle prices. The wild card is and will continue to be fed cattle prices. At the present time, live cattle futures are bullish and support purchase prices for a 750-pound steer in the range of $1.25 to $1.30 per pound if costs of feeding are maintained at under $1.05 per pound. Weather unpredictability can dictate whether a cattle feeder is able to retain feed conversion and gain.
Following is a review of measures cattle feeders should keep as lessons learned from feeding cattle in 2011:
High Feeder Prices – In late September 2011, yearling prices for 700-pound steers are trading at $1.25 to $1.35 per pound, and for 500-pound steer, calves prices are between $1.40 and $1.60 per pound. This means that the initial investment in feeders is likely $100 to $200 per head more than in late 2010. Costs of mortality; therefore, increase $1-$2 for each death in 100 cattle. More importantly, reductions in feed efficiency, due to sustained disease, have a greater impact due to the initial cost of feeder cattle and high feed prices.
Due to the high cost of feeder cattle, cattle feeders are encouraged to begin discussions early with their veterinarians to establish a solid disease preventative program, and an immediate response system in the event of sickness.
Additionally, although high feed costs normally lead to finishing cattle on fewer “days on feed,” cattle feeders may have considered retaining finishing cattle on feed longer, particularly if they market cattle on a carcass basis.
We do know that feed efficiency decreases with time on feed and the multiplying effect this decrease in efficiency has on cost of gain.
On the other hand, if we consider that the start-up cost for a replacement feeder is $150 per head more than for cattle currently in the feedlot, holding a 1,300-pound steer for 30 additional days permits up to $5 per head feeding costs daily for cattle already on feed. Assuming a daily gain of 2 pounds per day during this month, feed costs at $250 per ton dry matter, and yardage costs at 50 cents per head per day, this retained fed steer could consume up to 36 pounds of feed dry matter, for a feed conversion of 18-to-1, to break even with the replacement cost of a new steer in the feedlot. This measure must be managed with caution to avoid discounts on heavy carcasses or those reaching Yield Grade 4.
High Feed Prices — As already indicated, the high cost of feed will force cattle feeders to achieve and maintain feed efficiency. The temptation to consider alternative feeds purchased at a cost advantage to corn, though, will likely lead to some reductions in feed efficiency.
In addition, the greater moisture or smaller particle size of alternative feeds will impact feed waste at storage and feeding. Wetter feeds also impact mixing load weights and mixing integrity. Therefore, the decision to use alternative feeds is not simply based on cost and procurement logistics, but also on our ability to manage feed in storage, and during mixing and delivery.
An unintended consequence of feeding wetter feeds is also the increase need for bedding as manure moisture increases. This will have an implication on finishing costs, particularly when combined with wetter or colder weather events such as occurred in 2010-2011.
Choice-Select Spread — If current economic conditions continue, the likelihood of wider spreads is low; therefore, cattle feeders must focus on maintaining production efficiency while retaining a sufficient quality grade.
If feedlot operators retain cattle on feed longer, based on a need to reduce yearly feedlot cattle replacement costs, then the quality grade will likely be retained as long as heavy carcass discounts or excessive Yield grade 4 discounts are avoided.
Preparing for Weather Events — Whether the reader agrees or disagrees on climactic change arguments is immaterial to this factor. Recent winters have been colder and wetter than normal. Summers had not been as warm as what we experienced in 2011.
Feedlot operators in northern latitudes are, in my opinion, experts at preparing and managing for cold weather events — from facility design and management, to dietary management. However, we may not be as prepared for summer heat events. The summer of 2011 proved this in a dramatic way. Estimates of cattle-on-feed losses range in the thousands. This definitely decreased profits. Therefore, feedlot managers have learned to prepare for hot weather events, including access to additional water fountains, reducing stocking rates, and installing inexpensive garden sprinkler systems for cattle to better cope with heat.
Preparations for these events must begin in the late spring. Cattle that are not used to sprinklers will not readily move under them until they recognize that relief comes from being near/under the water pattern.
The feeding cycle that began in 2010-2011 will likely be remembered as both an opportunity to make $100 per head or challenging enough to lose $200 per head, depending on commodity prices and management in the feedlot.
Learning lessons from having fed cattle through this cycle is a requirement for all feedlot operators to elevate our management level to meet the new challenges in cattle feeding.
Visit the website www.extension.umn.edu/beef for more information, or phone 218-327-4490.
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