In the recent past as we've made decent money at home finishing cattle, I always had an excuse for not going on winter vacation. It was pretty solid. " . . . can't leave with cattle to feed in the winter." Considering today's economics, if Connie figures out I've filled the barn with feeders and locked in a loss just to avoid going to Florida or Black Butte this winter, the ensuing conversation won't be comfortable. I think it won't fly!
I have an earth shattering news flash! There aren't enough cost saving feed alternatives anywhere in this State of Ohio which will allow us to put together a cattle finishing budget for the next year which shows a profit. At least not at the feeder cattle prices we presently see and the feed costs we can anticipate today. Francis Fluharty, Coordinator of the Ohio Beef Industry Center puts it like this, "It's pretty simple, if corn is $7.50 per bushel (.1339/lb) and an average feed efficiency for calf-fed calves is 6.5:1, then the feed cost of gain would be .87 per pound not including things like minerals and protein (which may actually lower the cost). However, when the cost of the calf, interest, yardage, treatment cost, death loss, and labor are added, there is no possibility for a profit."
Of course, there are a few who suggest because we have our own calves to wean, the economics of retaining ownership and feeding them is somehow different, and profitable. Unfortunately, that dog won't hunt. The opportunity (to sell them) costs of our own calves is essentially the same as the value of those we may purchase. Simply put, cow/calf producers today will optimize profit by selling their feeder calves at today's projected prices to the western feedlots, or to Ohio feedlot owners who haven't run the numbers but who know that they've "always done it this way" and simply want to feed cattle!
So what's my point ? ? ?
We're in uncharted waters here. As Nevil Speer, animal science professor at Western Kentucky University recently suggested to me, the beef cattle industry is ". . . a new world with the business defined by chaos and complexity!" As was suggested last winter during our series of beef Extension meetings where we explored feed cost alternatives, it's now a time for understanding "New Realities" in the beef cattle business.
Before we go any further, I challenge you to run the numbers for yourself. If you don't have a user friendly tool you're presently using for feedlot budgeting, here's a link to the recently revised 2008 Ohio Enterprise Beef Budgets in both xls and pdf.
As a starting point, on the Budget page linked above, go to Slaughter Steer, Days on Feed = 232 and plug in a feeder calf price of $1.10 for a 650 lb calf (SEP, OCT and NOV 08 Feeders on the CME are $1.14 to $1.16 this morning), a finished steer price of $1.10 LIVE WEIGHT (The APR09 CME shows $1.16 right now, and the Ohio basis typically ranges from -$2 to -$10), cash corn is valued at $6.88/bu or $245/ton in Columbus and then for good measure zero out the costs of labor, management, and building charge. This scenario still loses money! Plug in your own estimates and see what it takes to return enough dollars to your pocket that you will be satisfied you filled the barn this year.
While many keep telling me to "just wait, calves will get cheaper, and it'll work then" many more are suggesting they don't see feeders coming down anytime soon. In fact, a friend who works at Blue Grass in KY says he's moving 8 weights at $1+ and he's not sure it won't continue that way.
Typically, we'd expect the value of feeder calves to come down to match up with the value of feed and the projected value of fed cattle, thus allowing some profit. At the current feed prices and projected value of fed cattle, how cheap do feeders need to get to see a profit? Regardless of why feeders are still high, presently somebody is willing to pay more than than those of us with small Ohio lots can afford for calves (and then haul the calves out to their lots with $4.50+ fuel!)
While it won't be popular with many Ohio feedlot owners, purely from a profitability standpoint one must consider leaving feedlots empty in 08-09. Better yet, perhaps it's time to explore alternative uses for our feedlots. Until profitability returns to traditional feedlot management as we've known it for decades, we might consider backgrounding in those lots, assembling and upgrading young bull calves into like kind pot load size groups for sale to western lots, or purchasing cull cows and fleshing them up a little, or maybe even storing machinery, grain or perhaps dry fertilizer in empty cattle barns??
As you make those tough choices, I'd challenge you to utilize the OSU Extension beef budgets and explore the alternatives in great detail. It may also be time to take another look at risk management tools such as Livestock Risk Protection (LRP) insurance in an effort to lock in a profit if/when one presents itself.
Nevil Speer recently suggested, "Agriculture is no longer simply about working long hours. It now requires information, risk management, careful budget analysis, etc...." Speer also suggests that what we are really discussing is "change management" . . . perhaps the hardest thing in the world to do. However, he goes on to suggest it's a concept that's " . . . increasingly important to the most important industry in the world - feeding people!"
Source: Stan Smith, PA, Fairfield County OSU Extension