AgDM newsletter article, February 1997

What affects cattle feeding profitability?

John LawrenceBy John Lawrence, Extension Livestock Economist and Director Iowa Beef Center, 515.294.6290, jdlaw@iastate.edu

Pens of cattle from more than 200 feedlots in the Midwest were examined to determine what factors affect cattle feeding profitability. As shown in Table 1, over 80 percent of the variation in cattle feeding profits is due to the six factors listed. Almost 50 percent of the variation in profits between pens of cattle is caused by variations in fed cattle prices. An additional 20 percent of profit results from feeder cattle price variations. These results confirm the importance of careful marketing and price risk management. Corn price had less impact than feed efficiency and average daily gain.

All else being equal, lighter replacement weights were more profitable and steers were more profitable than heifers. Although not significant to the 95 percent confidence level, partial confinement was more profitable than open lots and total confinement pens were less profitable than open lots. After accounting for the identified variables, feedlots marketing at lest 40 pens during the five-year period were more profitable than feedlots selling less than 10 pens. This difference could be attributed to lower overhead cost in larger lots that more fully use their resources.

Table 1. Percent of variability in cattle feeding returns explained by selected price and performance variables.

 Placement weight (lbs)

 

Less than 600

600-699

700-799

Over 800

Avg.

 

Steer

Heifer

Steer

Heifer

Steer

Heifer

Steer

Heifer

Avg

Fed price

55%

42%

49%

48%

53%

42%

42%

36%

46%

Feeder price
0
9
13
19
21
31
30
29
19
Corn price
-1
11
5
2
3
4
9
6
5

Feed conversion

6

15

3

1

3

6

4

8

6

Avg. daily gain

29

2

3

5

3

3

3

7

7

Interest rate

-2

1

1

0

0

4

0

5

1

 

 

 

 

 

 

 

 

 

 

Total explained

87%

76%

74%

75%

83%

90%

88%

91%

84%

 

|Ag Decision Maker Home Page|