Partial budgets are tools producers can use to make management and marketing decisions.
With feed price forcasts to remain high throughout the spring and summer months, cattle feeders need to look at feed prices and price forcasts for fat cattle.
Average prices for SD crops were released from USDA National Agricultural Statistics Service the end of January: Corn – $6.80/bu., Soybeans – $13.90/bu., Oats – $4.20/bu., Alfalfa – $229/ton and Other Hay – $158/ton. The full report can be found in the USDA National Agricultural Statistics Service Agriculture Price Report. Using those prices in a traditional ration for a 600-pound calf fed to 1350 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-$132/cwt prices for live cattle, again using a 1350-pound steer, that would imply revenue of $1728-$1782 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/cwt prices. However, a typical 600-pound calf at a price of $165/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 $1760 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 $10-15 per-hundred weight 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.
Source: Heather Gessner