Profitability for a cattle feeder is the difference between income and costs. If a feeder markets cattle on a grid or formula, carcass merit will determine income. But, the best grading cattle may not be the most profitable if the costs of owning and feeding them are too high. Feedyard performance must be considered part of the "quality" picture.

Initial cost of feeder cattle, feed cost-of-gain and non-feed cost-of-gain are the three cattle feeding cost centers. Most producers feel they should receive premiums for their calves. If we expect a premium, then cattle must either have the performance (lower feed and non-feed costs) or the carcass merit (higher sale value) to justify them.

If a cattle feeder pays a $3/cwt. premium on a set of 600-lb. steers, there must be at least $19/steer (interest on premium included) of added performance, lower feeding costs or higher sale value to offset the premium. Obtaining information such as that presented on the Beef Quality Challenge calves is the only way for a producer to know if their cattle are worthy of premiums. There are numerous avenues available - from Extension Service programs to direct collaboration with feedyards and packers - for producers to obtain this type of information.

Rate of gain, ration costs and feed efficiency drive feed cost-of-gain. When cattle of similar initial weights are fed to similar slaughter weights or carcass endpoints, cattle that gain faster will usually have better feed conversion.

Age and weight also affect feed efficiency. When comparing cattle of similar type and quality, lighter cattle are typically more efficient than heavier cattle due to differences in composition of gainand maintenance requirements. Daily gain may be lower for younger, lighter calves, but feed conversion is usually better than that of older, heavier calves. Genetics also plays a major role.

Daily gain was relatively similar among the Beef Quality Challenge pens. However, feed efficiency for Pen A was 6.7% better than the average of the other three pens, resulting in a lower feed cost-of-gain. Pen A's better feed efficiency is partially due to the lighter initial weight and lower death loss. Any feed consumed (or at least delivered) to a calf prior to death is charged against the rest of the cattle in that pen. So, death loss will increase feed per pound of gain at close-out.

A final consideration is return on equity. Assume a feeder is required to retain $125/head equity and expects to net $25/head income. If a pen requires 140 days to sale weight, then the annualized return on equity was 52.1%. But, if the daily gain on those cattle decreased 10% and required 154 days to the same sale weight, the $25/head income represented a 47.4% return on equity!

Non-feed cost-of-gain includes interest, yardage, medical expenses, death loss and railers. At today's prices, each 1% increase in death loss adds a $5-10 cost to each beef animal eventually sold out of a pen. Railers, or non-performing cattle sold early (usually at salvage value), also add cost to the cattle eventually sold from the pen.

Information generated by feedyards and programs such as Texas A&M's Ranch-to-Rail Program have pointed out the costs of sick cattle entering the feedyard. Calves never treated for disease in the feedyard are worth $9-17/cwt. more as feeders compared to calves that require treatment for disease (this is a comparison of 0% treatment rate to 100% treatment rate).

Using $13/cwt. (average of $9 and $17/cwt.) as the added value of 100% healthy cattle, the appropriate feeder calf discount for each 1% of treated cattle is $0.13/cwt. So, a group of feeder cattle with an expected treatment rate of 25% would be discounted $3.25/cwt. compared to a group with no anticipated health problems.

The added value of healthy calves results from lower medical costs, higher weight gain, fewer days on feed and higher carcass value.

Morbidity rates in the Beef Quality Challenge pens ranged from 33.33% to 44.54%. Using the initial weights on feed and the reported morbidity costs (which only include treatment costs and don't account for reduced performance), these calves were worth $1.94-3.76/cwt. less at purchase than similar pens of calves never treated for disease.

The morbidity costs for Pen C increased the breakeven sale price of the finished steers by $2.01/cwt. live basis, or $3.09/cwt. carcass basis. Let's compare Pen C to a pen of cattle with similar gain, feed efficiency and out weights, but no medical costs. Using a $5 Choice/Select spread, the percent Choice carcasses in Pen C would have to be 60 points higher than the other pen to offset the morbidity costs and equalize returns between the pens.

Our perceptions of "beef quality" need to address not only the end-product to the beef consumer but also raw products being supplied to the production segment of the beef cattle industry. Competitive meats have not only striven to produce a more consistent end product but they've also made tremendous strides in production efficiency. We must do the same.