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The increase in factors that impact the price of cattle feeding inputs today necessitate more information to deal with them. But there’s a huge difference between information in general and the kind of timely information coupled with analysis that enables informed decision making.
“The feedlots we see staying the fullest are taking on the added risk of feeding a higher percentage of the cattle themselves,” says Kevin Good, senior analyst at CattleFax. “With that added risk they are also utilizing risk management to a much higher degree than in the past. They’re also more likely to be involved in owning or contracting the cattle longer through the calf and feeder phase before getting to the feedyard.”
That’s the nutshell perspective of how cattle feeders are battling against dwindling cattle numbers, historically higher input costs and gut-wrenching volatility.
“Capital requirements are so high that you have more risk. You have to do more with less,” Good explains.
Feedlot profit center drivers
More feedlots owning more of the cattle in them also means more folks are fully vested in each of what Good defines as traditional feedlot profit centers: the feedlot itself, the profitability of the cattle flowing through it, and the risk management of commodity inputs and outputs.
In order to maintain feedyard occupancy levels, Good explains, “One thing we’re seeing is yards reaching further back into the feeder supply. They’re owning cattle longer (grow yards and backgrounding) to minimize some risk and to maximize returns by owning cattle in two different segments.”
On the other end of the equation, Good explains, “As we think about methods of merchandising fed cattle, a higher percentage are being marketed on some sort of grid or formula marketing arrangement. The vast majority offer some sort of premiums, whether yield-based or quality-based. We’re trying to maximize the dollars per head that we can spread over the input costs, and one of the ways we’re doing that is adding value to the carcass.”
In between, with performance critical to fed cattle profitability, Good explains, “There’s less margin to work with so you have to use any and all technology to be competitive. Even if you’re not using it, your neighbor is… Cattle feeders are utilizing all of the technology they can get their hands on to remain competitive in a very competitive business.”
With competition so fierce and margins so thin, in part because of excess bunk capacity, Good says, “The feedlots that are making it, and will make it, are those that adapt to technology and are on the forefront of it.”