Does the extra work and cost of preconditioning bring extra calf dollars?

For operations with the necessary facilities and time, the cash costs of PC are relatively low.

Few topics generate greater disagreement among cow/calf producers than the value of preconditioning (PC) calves. University research, state-sanctioned initiatives and private sector programs regarding PC feeder calf sales have been active for at least three decades, and yet cattle producers still line up on both sides of the debate.

Most agree that PC adds value to calves, but do the benefits outweigh the costs?

The challenge for sellers is to identify what's valuable to the buyer, and then add and capture a portion of that value — not just add costs. Buyers are generally willing to pay for value, but they need to be assured that the PC program will deliver it.

With improved information flow in the beef sector, buyers will be able to sort special programs and cattle sources as easily as they sort cattle. As a result, source verification (SV) of feeder cattle may take on as much value as PC.

There are various definitions for PC and SV. For this discussion, SV is defined as the process of identifying the origin of cattle and the ability to verify management practices. PC implies that feeder cattle have been vaccinated, castrated, weaned 30-45 days prior to sale date and bunk-broke.

What Are PC Calves Worth?

There are several opinions on the value of PC feeder cattle to feedlots. Two recent studies, however, provide some indication of PC's benefits to feedlots. Allen Trenkle, Iowa State University, compared three sources of purchased calves in feedlot trials. The sources were:

  • Ranch-direct PC calves (RDPC), all from a single source.

  • Calves from multiple sources commingled on sale day, but sharing a common source-verified, PC program (SVPC).

  • Auction market calves, not weaned or preconditioned (NOTPC). Little was known about these calves except that they were right off the cow.

Table 1 indicates that non-PC calves had slightly lower average daily gain (ADG), more days on feed, and higher health treatment costs, pulls and retreats. For 650 lbs. of gain the NOTPC calves were on feed 10 days more (approximately $2.50/head in yardage) and had about $4/head higher health product costs.

The trials didn't allow for an easy comparison of feed efficiency, but ADG and health are worth slightly more than $1/cwt. If you add a $1/head chute charge for treating sick calves, the PC calves are worth an additional 56¢-70¢/head over NOTPC calves.

A second Iowa State study evaluating several years of steer test data representing cattle from numerous farms found a higher value to PC calves.

  • Non-weaned calves were 3.4 times more likely to experience bovine respiratory disease (BRD) than weaned calves, independent of age, feedlot or vaccine status.

  • The research also found that net profit was $57.48/head lower for steers treated for just BRD, and 20% of the calves were treated. Thus, feedlots have an incentive to buy cattle that they don't have to treat.

What Will Feedlots Pay For PC?

Research shows that 40% of the treatment for BRD occurred in the first 14 days in the feedlot, while 81% of the first treatment of high-morbidity cases was in the first 42 days. While cross-contamination between cattle of multiple sources may trigger onset of BRD in the feedlot, these data suggest the seller will bear the brunt of the post-weaning treatment cost in a PC program.

Table 2 is an estimated budget for a 42-day PC program including feed, vaccination and treatment costs. In addition, the producer must have facilities to wean and start the calves. While some of the pasture weaning research shows promise, generally producers need corrals, bunks, waterers and more importantly the time and management skills to care for newly weaned calves.

Table 1. Feedlot performance and health costs by feeder cattle source.
RDPC SVPC NOTPC
Number 71 56 66
In Weight 612 611 619
Out Weight 1,263 1,291 1,308
Days on Feed 258 264 278
Average Daily Gain 2.52 2.58 2.48
Health Costs ($/head) $1.48 $2.17 $6.13
Pulls 2% 14% 47%
Retreats 0% 2% 25%
Castration 0% 0% 2%
Dehorn 1% 0% 23%
RDPC — Ranch-direct and preconditioned calves.
SVPC — Calves sharing a common source-verified, preconditioned program.
NOTPC — Calves not weaned or preconditioned.

For operations with the necessary facilities and time, the cash costs of PC are relatively low. The PC program in the table is fairly aggressive and pays for itself after accounting for weight gain and price slide without a price premium from feedlots. Variables that can change the results include feed prices, expected price change during the PC period, death loss and treatment costs.

While research indicates feedlots can benefit from PC calves, they must have confidence in what they are buying. SV and documentation of the calves back to the herd of origin is one method. Participating in a recognized PC program that requires third-party validation (vet, auction market, state agency, cattlemen's organization) can also provide assurance that stated PC practices are followed.

Buyers do pay more for calves with information. Similar to the sorted feeder cattle sale in Table 1, the Iowa Missouri Beef Improvement Organization (IMBIO) organized by the Bloomfield Auction Market has provided SV sorted feeder cattle sales for six years. While not PC, these calves are SV and have a common health program administered by an approved veterinarian. Calves are sorted into truckload lots by sex, weight, frame, breed and color and sold at featured sales.

Table 2. Estimated budget for 42-day PC program.
Weaning Price, Weight
and Revenue, Respectively
$1.00 500 lbs. $500
Preconditioning Assumptions
Days in Feed and ADG,
Respectively
42 days 2.25 lbs./day
Price Slide and Final Weight $0.05 595 lbs.
New Price $0.9528
Revenue at End of PC Period $566
Feed Costs Amount Cost
Corn (bu.) @ $2.30/bu. 6.6 bu. $15.18
Hay (lbs.) @ $60/ton 135 lbs. $4.05
Supplement (lbs.) @ $400/ton 21 lbs. $4.20
Total Feed Cost $23.43
Vaccination Costs $12.00
Treatment Cost @ $13/head 20% $2.60
Death Loss @ 1% $5.00
Estimated Cash Cost $43.03
Return to Facilities, Labor
and Management
$23.38

After accounting for other factors that impact feeder cattle prices, such as weight, grade, sex, fed cattle and corn prices, and lot size, IMBIO calves brought higher prices in the fall of 1997 and 1998. For example, an Iowa State study found a pooled group of 90, 550-lb. steers received $20-$35/head more in an IMBIO sale than 10 head of similar steers in a non-IMBIO sale, all else being equal.

Because of the nature of the data, the price impact is a combination of the SV and the large lot size. However, it can be argued that without the common health program and traceback features, it would not be practical to pay more for the large lot sizes.

They would be no different than purchasing small groups of cattle of unknown origin or health program and combining them into larger lots. Yet, the buyers paid a higher price, all else equal, and sellers took home more money from the special sales. Value was created and captured by the seller.

John D. Lawrence is an Extension livestock economist and director of the Iowa State University Beef Center in Ames. He can be reached at 515/294-6290; e-mail: jdlaw @iastate.edu.