What is in this article?:
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.
Understanding technology value
With that said, Derrell Peel, Oklahoma State University Extension livestock marketing specialist, explains high input costs are also changing the relationship between technological and economic efficiency.
“When inputs are cheap, technological efficiency equals, or is very close to equaling, economic efficiency (average daily gain, conversion, etc.),” Peel explains. “When inputs are expensive, technological efficiency becomes a less reliable indicator of economic efficiency.”
Fertilizer application relative to crop yield serves as an example. When fertilizer was cheap, maximizing technological efficiency (as in applying the maximum) resulted in economic efficiency(maximum yield). As fertilizer costs grow, however, economic efficiency means optimum fertilizer application and crop yield are somewhere short of maximum.
“To some extent, that’s like feedlots,” Peel says. “For the last several decades, anything that promoted corn consumption (technical) was good economically.”
With higher grain costs, Peel explains, it’s not a question of whether or not to use current technology but re-evaluating its role. “Re-examine the rules of thumb that have driven our decisions in the past,” Peels says. “When inputs are cheap, you tend toward maximum production. When input prices increase, the cutoff for the value of the technology comes sooner.”
In other words, those most successful at navigating that gaping maw of recent changes seem to be those most adept at collecting data and transforming it into decision-enabling information.
Conversion and In-Price Drive P&L
Consider a recent financial analysis conducted by Elanco Animal Health.
“We analyzed performance data from Elanco’s Benchmark® database for 7-cwt steers in the High Plains, Central Plains and North Plains regions that closed over the period January to April 2013. A total of 1,394 lots (247,800 head),” explains Michael Genho, technical services consultant with expertisein analytics at Elanco.
Keeping in mind that the analysis includes deads, the profit drivers explaining 97% of the variation in profit and loss were: in-price (35.97%), average feed conversion (25.00%), ration price (19.92%) and out-price (15.85%).
Spun differently, the incremental change in decreasing in-price by $1/cwt. increased profit $7/head (Table 1). Reducing feed conversion by 0.1 lb. increased profit by $10.45/head.
That may not surprise some, but the relative opportunities available might.
For instance, Genho says, “Depending on the operation, if you see out-weights creep up, that’s something to visit.” With feeding to optimum out-weights a key driver of average feed conversion, he explains there is merit in understanding the cost of chasing additional yield.
“Sit down and look at the economic tradeoffs of what heavier out-weights are costing you,” Genho suggests. “If you’re losing 0.2 lbs. in conversion by feeding them longer, are you making up the lost $20 on grade and yield?”
Incidentally, Genho explains a profitable exercise Elanco uses to help customers. They sit down with customer yards, and get the entire crew together – pen riders, hospital crew, feed callers, feed truck drivers, everyone.
Each is asked to list the things that impact feed conversion. It’s a long list, of course, everything from bunk management, to subclinical disease, to ration quality, to dirty waterers.
“Pick four or five items you want to address and get the crew to set goals and then have weekly accountability meetings to monitor the progress,” Genho says. “Over time, you will see improvement. I think we sometimes underestimate the opportunity that comes with this.”
As for in-price, Genho sees opportunity in more accurately evaluating the worth of specific cattle to specific operations, based on knowing and tracking more information about cattle.
Everyone has a breakeven tool, but Genho thinks both sides of the equation could be improved with precision.
“The input that goes into breakeven calculators is not specific enough,” Genho explains. “It doesn’t account for where the cattle are coming from, how they’ve been handled in terms of nutrition and health, things that better inform you of the value the cattle have to you.”
More precise input information yields more accurate estimates of when cattle can be marketed.
“Risk management tends to be viewed in terms of market risk, but we need to account for performance risk, too” Genho says. “If you’re off by a contract month (when cattle finish), that impacts the P&L… It’s easy to say, ‘If they convert an extra tenth of a pound…’ but is it realistic for those specific cattle?”