Cheap Feed Makes Expensive Stockers

Cheap feed makes expensive stockers – whose turn is it to make money in the beef business? There are more critical factors than cheap feed that feedlot operators need to consider when deciding whether they should expand their operation. Maximizing your current resources should be a critical first step when considering an expansion. Operators need to ask themselves – am I making the best use of the resources I currently have? Am I feeding the type of cattle that perform best on the feed available? Am I getting optimum performance from the cattle in the yard – i.e. feed efficiency, average daily gain, days to market. Can I move more cattle through the existing facilities – have less down time? Are feeds tested and rations balanced on a regular basis.

Knowing your cost of gain is the key to making sound management decisions. What does it cost you to produce a dollar of income? This simple question gives considerable insight into the economic efficiency of the business – will it pay to expand. Prices for feeder cattle, fed cattle and feedstuffs impact profit potential. Each operator has a different cost of gain with feed costs being over 50% of the total cost of gain. The "DIRTI 5" depreciation, interest, rent (long term), taxes (property) and insurance need to be considered in projections. Interest is one variable that can change projections for profit quickly.

Expand for a specific purpose i.e. a backgrounding pen or finishing pen. Are there facilities available to rent or will it involve a capital expansion? Is there home grown feed available or will it have to be purchased. Will the expansion involve extra labour and at what cost? Where are we in the beef cycle? Beef producers need to understand the beef cycle to plan for expansion. All indications are that the cattle cycle has peaked and supply declines are expected. Operators need to consider "Cattle on Feed Reports" and don’t forget the "other" guy. There are lots of pigs in the pen. It is probable that there will be an abundant supply of hogs for the foreseeable future providing consumers with a cheaper alternative at the meat counter. If your market includes the U.S., you will need to factor in the 4.73% duty – even though the buyer pays the duty, it is going to be reflected in the price you receive.

Can you sleep at night? Can you handle the risk of an expansion? Is financing available? When doing your projections – be conservative! If you can make a profit with "worst case" scenarios, you will feel more confident with your plans for expansion. Budgeting tools are available from OMAF to help producers make sound management decisions when considering expansion.

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