The Cattle Business -- Retained Ownership Results
Livestock Update, October 1997
Bill R. McKinnon, Animal and Poultry Sciences, Virginia Tech
The results from the last set of cattle fed in Kansas as a part of the VA Retained Ownership Program provide interesting and valuable information to all those interested in improving the efficiency of the beef industry. This overall efficiency improvement can improve the net dollars returned to the cow/calf sector.
In early December of 1996, a load (73 head) steers and a load (68 head) of heifers were sent to the Hitch II Feeders in Kansas as part of the VA R.O.P. feedout program. The cattle came off feed in the spring of this year. Both sets of cattle made a profit with the steers netting their owners $50.04 per head and the heifers making a $53.77 average. Profit was determined by assigning a feeder cattle value on each head as they left the state based upon feeder cattle sales at the time. An interest rate of 10% was assumed on the opportunity cost of the money tied up in the feeder cattle and trucking costs. Examining factors affecting profit variability provides some valuable insight.
Whether the cattle get sick while on feed has a dramatic impact upon profitability. The cost of treatment is only one of the factors influencing profit. Typically, those cattle which enter the hospital pen never catch up with their penmates in terms of weight gain. The average decrease in average daily gain for both the steers and heifers which became sick was .51 lb/day. Those cattle which got sick but did not die lost an average $30.86 per head while those cattle never pulled for sickness made $76.33 per head. That means that when a calf gets sick, he costs the cattle feeder over $100 per head. These results are comparable to the data produced in the Texas Ranch to Rail program, a similar commingled retained ownership program.
Another major factor influencing profit was average daily gain. The steers in the 1996-97 trial gained 3.51 lbs./day on feed while the heifers grew at 3.15 lbs./day. Faster growing cattle tend to have better feed conversion and lower feed costs since a smaller portion of what they eat goes to support only maintenance. In the steer pen, the steers which averaged over 3.25 lbs./day made the owners $78 per head while those growing under 3.25 lbs./day made a profit of only $18. With regard to the heifers, those gaining over 3 lbs./day made a $50 profit while their faster growing mates netted $97 for their owners.
If the cattle are sold on a carcass value based marketing program, differences in carcass merit can have a huge impact upon profitability. With Choice carcasses selling for $111/cwt. and Standards at $85, there was a difference of $186 per head on the average 714 pound carcass. With the bulk of fed cattle in the country currently being sold "on the average," the packer buyer must protect himself from the irregular or low grading pens of cattle by bidding less for the whole "show list."
Whether the individual cow/calf producer ever retains ownership on his own cattle or not, he has a long term economic incentive to breed and produce a better raw product. The industry beyond the cow/calf producer needs feeder cattle which stay healthy, grow rapidly and perform on the rail. The industry currently has built into its pricing structure a safety margin for the feeder cattle that do not perform and add inefficiency to the cost of producing a pound of beef. As the industry moves more toward value based marketing and alliances, both vertical and horizontal, the cost of nonperformance in cattle will be reflected directly in their price as feeder cattle. Those cow/calf producers with healthy, rapidly growing cattle with carcass merit will be rewarded through retained ownership, alliances or simply by marketing a product with performance history.
As of this writing, Virginia producers plan to ship a load of steers to the Decatur County Feedyard in Kansas on September 20 as part of the R.O.P. program. Decatur County conducts an extensive scanning and sorting program and then markets the sorted cattle using a carcass value grid as part of an alliance agreement with Excel in Dodge City. The next R.O.P. shipment date is slated for December 2. Please refer to the accompanying consignment form.