“Estimating Placed Cost of Gain Using the Focus on Feedlots”
By: Justin Waggoner, Ph.D., Beef Systems Specialist
The K-State Focus on Feedlots has many uses. Foremost, it provides many of us that are not directly connected with the cattle feeding industry a means of staying abreast of cattle performance and closeout data from commercial feeding operations. Additionally, the data generated may be used to build economic budgets for cattle producers considering retaining ownership or placing a group of cattle on feed. One of the common questions that come up in these discussions is “what the projected cost of gain will be?” One of the simplest ways to estimate placed cost of gain is to look at the relationship between reported corn price and reported projected cost of gain for steers and heifers. The data obtained from the Focus on Feedlots from 2015, 2016, and 2017 is shown in the graphs below.
The relationship between corn price and placed cost of gain is expressed in the following formulas: Projected Steer Cost of Gain ($/cwt) = $22.32 + ($14.09 x Corn Price). Projected Heifer Cost of Gain ($/cwt) = $21.16 + ($15.21 x Corn Price). These formulas may be used to forecast the projected cost of gain if corn price is known. For example, when corn is $3.50/bushel, cost of gain for steers equals $71.64/cwt ($22.32 + $14.09 x $3.50). Based on this formula, cost of gain will increase $14.09/cwt for every $1.00 per bushel increase in the price of corn. The incremental cost of gain for heifers is slightly higher ($15.21 vs. $14.09) for every $1 per bushel increase in the price of corn. The table below lists the projected cost of gain at various corn prices from $2 to $7 per bushel. The intercept values ($22.32 and $21.16 for steers and heifers respectively) reflect other costs associated with feeding cattle (e.g., labor, equipment, and facilities).
There are many factors that influence cost of gain, primarily cattle performance (ADG, feed conversion. etc.) which is not necessarily taken into account with this method. However, this does provide a simple method that can easily be adjusted up or down to fit specific groups/types of cattle and expected weather conditions during the feeding period. For more information, contact Justin Waggoner at jwaggon@ksu.edu.
