DUBUQUE, Iowa — Cattle feeders are in the corn conversion business to create muscle.
“We smash up corn to make muscle,” said James Lowe, associate professor for veterinary clinical medicine at the University of Illinois.
“We’re in the efficiency business,” Lowe said during a presentation at the Driftless Region Beef Conference, organized by the University of Illinois Extension, Iowa State University Extension and Outreach and the University of Wisconsin-Extension.
“The simple way I think about efficiency is a way to pay the bills and put shoes on the kids,” he said. “We do not keep score with average daily gain, feed conversion or market price, we keep score with how many dollars are in the bank at the end of the year.”
As situations change, Lowe said, it is important for cattle feeders to adapt.
“If you are going to be successful, you have to do that systematically,” he said. “You need to understand what you give up when you make one decision versus another.”
Every time a cattleman makes a decision it’s a tradeoff.
“There is no golden goose,” Lowe said. “You need to think about how to make that tradeoff to minimize the negative impact and maximize the positive impact to create the optimal decision.”
Total pounds sold out of the operation determine the revenue.
“If we don’t have a pound to sell we’re in trouble because that’s how we get paid,” Lowe said.
“There are two kinds of bills — bills that you pay only if you are feeding cattle and bills you have to pay if you’re feeding cattle or not,” he said.
“The bills you pay when feeding cattle are buying cattle and feed or the variable costs,” he said. “And whether you’re in business or not, you have to make the loan payment, pay for equipment, taxes, labor etc.”
How many cattle are sold, their weight and their selling price determines the revenue bucket.
“Out of that I have to buy calves and put feed into them,” Lowe said.
“I’d rather make $10 on 10,000 head than $20 on 1,000 head,” he said. “Because it’s about the total dollars, so I’d much rather have $100,000 and a slightly lower margin per unit if I can put out more units.”
The protein industry is going through a consolidation.
“The chickens did it in the ‘60s, the pigs in the ‘90s, the dairy industry is undergoing it today and it will happen in the beef industry,” Lowe said. “Consolidation happens because our customers have gotten bigger and they have a demand for fewer suppliers and it doesn’t matter if you like it or not.”
That’s why, he said, it is important for cattlemen to be able to adapt.
“When the industry starts to consolidate, if you’re not in the top half, you might not be in business,” he said. “So it is really important to think about where you are at for efficiency.”
Lowe works with western feedlots that are using a fairly aggressive implant program.
“They implant on arrival and again 70 to 90 days ahead of slaughter,” he said.
“Thirty-three percent of our steer closeouts have average daily gains above 4 pounds per day, 62 percent had dry matter feed conversions of less than 6 pounds per day and 30 percent of the groups have both,” he said. “We can get cattle to perform and these are the expectations of where we need to be at in the cattle feeding business.”
Maximizing Use Of Space
The ability to maximize the use of space is a critical driver of profitability of high fixed cost confinement systems, Lowe said.
“I have to have pounds out of that system to pay for that concrete because open days are a killer,” he said.
“Every day a calf is standing around he makes $2 so if I leave a barn set open for 10 days, that’s worth $2.50 per hundredweight on purchase price,” he said. “Full barns in high fixed expense operations are a key ticket for long-term profitability.”
Lowe encourages cattle feeders to optimize their total revenue.
“It’s not price per pound that matters, it’s revenue per calf over expense that matters,” he said. “There are two ways to get pounds, more days or higher growth rate so buying fewer cattle and selling more pounds from the same calf is a huge economic benefit to your business.”
Cheaper ingredients in the diet don’t necessarily have value if they have a negative connotation on growth, Lowe said.
“Growth is still king in the cattle business,” he said.