“Commercial Feeding Economics”
by Chris Reinhardt, feedlot specialist
A feedyard is a business, but a very different kind of business than a cow/calf operation. It’s important to understand what the revenue streams are and how the feedyard adds value to a beef animal.
The first way feedyards add value is simply by turning grain into added animal weight and fatness, ultimately resulting in a more desirable market animal for the packer. But there are often-overlooked subtleties within this process as well.
Most ranchers, with some investment of capital, time, and training, could effectively background or finish their calves. Specialization and economies of scale make this transition from calf rearing to finishing difficult and potentially unprofitable.
The cow-calf producer is the person in the beef production chain who actually “produces” something; the rancher turns grass (originating from sunshine and CO2) into a live calf (some might say the process is a bit more complex than that, and perhaps they’re right.) The remaining links in the chain simply modify inputs (calf, corn, grass) into a slightly different output. The stocker, backgrounder, and cattle feeder provide the calf with additional feed, to make a bigger, fatter, calf. And the packer takes the fed animal and reduces it into its constituent components.
All segments add value, but each in a different way. The good news for the stocker and feedlot is that if the price of calves or corn are too high, they have the choice to not feed cattle (probably not a very attractive choice, but it’s there nonetheless). The rancher, on the other hand, has cows and bulls and grass and sunshine, and can’t simply decide to not ranch this year because of high input costs; once you’re out of the game, it may be cost-prohibitive to get back in.
The real challenge is that the segments which add and extract value from an already existing calf are limited by those very same input costs. Most of the profit obtained by feeding cattle is created during the buy or the sell. So when margins are tight, the only real opportunity left is to increase efficiency. This is accomplished either by applying additional technologies to the process of feeding cattle, or by simply adding more units of throughput to the existing system—and usually both.
A short list of the enterprises within a feedyard include: manufacturing a balanced, energy dense diet; adapting cattle to the diet; delivering the diet to the cattle; managing multiple sources of operating capital; and squeeze the utmost efficiency out of the each enterprise within the system. These enterprises require a very specialized skill set which may be very different from the skills needed to run a cow-calf operation.
However, ranchers may have an advantage in reduced cost of feed, labor, or facilities. By acquiring the alternative skill sets needed to step outside the world of beef calf production and into the world of cattle feeding, many ranchers have become successful, effective, and profitable cattle feeders. However, the rancher must not mistake a lifetime of knowledge of cattle with knowledge of cattle feeding.
Before taking on the challenge of finishing calves, bring the needed expertise into the operation in the form of nutritional, veterinary, and business management consulting. With trustworthy counsel, the knowledgeable cattleman can become highly efficient at feeding cattle, and potentially create profit opportunities during economically challenging times for the cow-calf operation.
