With tighter returns on fed cattle, feedyards are working to minimize their risk on the front end.
Feedyard returns have been exceedingly challenging the past several years, but analysis by Professional Cattle Consultants (PCC) provides some insight into the increasing importance of initial genetic strategies and management to net return.
According to PCC data, average feedlot profit was approximately $33/head during the period of 2004-2012. However, there was nearly a $130 spread across three respective profit groups (low, middle, high). Perhaps even more important is the relative range across the groups. That is, the low-profit group had downside risk of a minus $400/head, vs. the high-profit group possessing downside risk of a minus $150/head. That difference is hugely important when it comes to making risk management and marketing decisions.
Meanwhile, the high-profit group possesses a long tail relative to upside potential with some closeouts managing to provide positive returns averaging $400/head.
Feedyard and carcass performance within that data further highlight the meaningful profit drivers and include the following key points:
- High-profit cattle had the best feedlot gain, a 0.3 lb./day advantage over low-profit cattle, thus adding 27 lbs. to carcass weights (though all groups were fed the same length of time).
- Quality grade and feedlot performance are inherently related.
- High-profit cattle also possessed a quality grade advantage.
- Simultaneously, higher-grading cattle also grew faster than lower-grading cattle while producing a higher percentage of Choice and Premium Choice carcasses.
This type of data underscores the desire by calf buyers to have more knowledge about their purchases, and their efforts to build networks of preferred suppliers to source the right kind of cattle that both perform and help minimize economic risk in the feedyard. This trend likely portends even more market differentiation at the feeder calf level in the years to come, as well as an amplification of the premiums and discounts based on documented inputs at the farm/ranch level.
How are you preparing for that transformation? Are you making decisions based on that potential? What factors might further influence your genetic and management decisions? Leave your thoughts in the comments section below.
You might also like: