Baseball has the sacrifice fly. Give up an “out” with a long fly ball, but advance the runners into scoring position. Maybe not the most exciting play, but the sacrifice has strategic value toward winning the game.
In cattle feeding, a few heavyweight or Yield Grade 4 carcasses could serve a similar purpose. The owner sacrifices some discounts on the “out” cattle, but if the strategy that created them increases the value of the entire pen, chalk it up as a win.
The play book
With the advent of grid pricing for fed cattle, much of the game plan for managers understandably focused on avoiding discounts. Penalties for out cattle, after all, range as high as $20 per hundredweight. But lately, some managers are thinking in terms of acceptable discounts as they push cattle to achieve heavier end weights and higher grading percentages. Several market factors contribute to cattle feeders’ willingness to push the limits and accept some discounts, including:
Fed-cattle prices have averaged around $90 per hundredweight on a live basis and over $150 per hundredweight on a carcass basis for most of 2005.
Wide Choice/Select spread.
Grain prices are relatively low, and cost of gain has averaged below $50 per hundredweight.
On a live-weight basis, feed efficiency declines toward the end of the feeding period. But carcass weight tells a different story. About 90 percent of gain during that period is carcass gain, so actual cost of gain remains relatively low for cattle sold on a carcass-weight basis.
Variability among feedyard cattle is a fact of life, says Intervet manager of technical services John Hutcheson. But good management, he says, can minimize the risk associated with variability and maximize the average value of marketed cattle.
With strategic sorting and timely marketing, managers should be able to minimize the number of out cattle. But, even in sorted groups, variation could mean that a few grow overly fat or overly heavy before the majority of the group reaches optimum endpoints. The key, Dr. Hutcheson says, is to manage the carcass weight and carcass traits’ (yield grade, quality grade) distribution curves to maximize profits. “Heavier average carcass weights and better average quality grades across the group can make up for a reasonable level of deductions. To maximize profits, we might need to have 5 percent Yield Grade 4s or 10 percent heavies.”
Steve Koontz, an economist and livestock marketing specialist at Colorado State University, agrees that feeding cattle to heavier endpoints can increase returns. He also cautions that the strategy can backfire without effective controls to limit out cattle.
Underfeeding an animal, he says, leaves money on the table, but probably just a few dollars per day. But for an animal that’s on the threshold of becoming heavy or Yield Grade 4, more time on feed quickly begins to cost tens of dollars per day.
Kansas State University agricultural economist Ted Schroeder stresses that cattle feeders juggle multiple variables in their marketing decisions. Cost of gain increases late in the feeding period, but carcass gain and improved dressing percentage influences the equation. The relationship between time on feed, quality grade and yield grade is complex and varies between animals, Dr. Schroeder says. With more time on feed, some cattle will deposit marbling with little or no change in yield grade. Others will just get fat without any improvement in quality grade. Rate of gain is another major variable, he says.
Dr. Koontz and a team of researchers conducted an analysis of data on 7,173 animals from 99 pens, to determine returns attributed to market timing and sorting of fed cattle. The analysis, Dr. Koontz says, shows that after a pen reaches its peak value and optimum marketing date, value declines quickly with additional days on feed (Table 1). The steep drop in value is due to the growing percentage of out cattle, and to avoid those discounts, most of the cattle in the study went to market early. The average difference between actual and optimal marketing dates was 32 days.
The game plan
Hitting a sacrifice fly with two outs is a bad choice. Likewise, producing too many out cattle will destroy profits. Managers need objective information for effective sorting and timely marketing. They need a game plan.
Dr. Schroeder says that to push cattle toward maximum end weights without too many crossing the limit, you need to know how they are gaining, especially as they get down to the last 50 pounds or so. It comes down to knowing the cattle and using objective measurements to make sorting decisions and project endpoints and marketing dates, he says.
Dr. Koontz says his research indicates that sorting cattle prior to marketing can improve returns by $11 to $25 per head. Sorting improves feeding and feed-use efficiency, and carcass quality. The data also show that simply sorting one group of cattle into two more uniform groups captures 40 percent of the potential returns. Sorting into additional groups continues to improve returns but in smaller increments, indicating that feedyards can use fairly simple sorting schemes to improve endpoints and increase returns.
Pen size and an operation’s ability to sort cattle and market smaller groups influence the feasibility of marketing this way, Dr. Koontz says. This should be an opportunity for smaller operations to gain a competitive edge by managing endpoints for smaller groups of cattle, he adds. Several larger operations, though, have adopted sophisticated technology to measure performance and carcass traits and sort cattle into marketing groups.
“You need to support these decisions with objective measurements,” Dr. Koontz says. Many feedyards could improve their ability to sort and track performance just by weighing cattle at different stages of the feeding period, he adds. Ultrasound measurement for carcass performance is helpful, but using the scales is the first step.
“Understanding factors that can affect quality grad-ing percentage, weight gain and other carcass traits becomes very important,” adds Dr. Hutcheson. “Also, it is important for people to understand the relationship between quality grade, carcass weight and yield grade so they can manage it to their favor.” Finally, he stresses the need to understand the basics of carcass growth and that the transfer of live weight gain to carcass weight gain changes later in the feeding period. “If you are selling on a carcass basis, you need to think about carcass performance and carcass breakeven,” he says. “Evaluating strictly live performance will undervalue actual carcass performance particularly late
in the feeding period.”
Dr. Schroeder sums it up. “This is a prime example of how better data offers opportunity for better returns.”