TheCattleSite.com - news, features, articles and disease information for the cattle industry

Featured Articles

Carcass-Based Measures of Cattle Performance and Feeding Profitability

23 April 2013

Widely used metrics for comparing cattle growth could be up for review after research has shown that current factors provide biased estimates for cattle sold on a carcass basis, write J. D. Tatum , W. J. Platter , J. L. Bargen , and R. A. Endsley.

Commonly used metrics for pen-level and feedlot-level comparisons of cattle growth and economic performance such as average daily gain, feed to gain, and cost of gain normally are expressed on a body weight basis. This is according to an article in The Professional Animal Scientist which was edited by S L Bolyes, Ohio State University Beef Specialist. 

Recent research has shown, however, that for cattle sold on a carcass basis, measuring growth and economic performance on a body weight basis results in a biased estimate of the point at which adding weight is no longer profitable.

As cattle become heavier, average daily gain and feed efficiency eventually decrease, while cost of gain increases. Because carcass weight gain (carcass gain) outpaces body weight gain during finishing, reductions in carcass-based average daily gain and feed efficiency and concomitant increases in carcass-based cost of gain are less abrupt during later stages of finishing than are changes in comparable performance indicators expressed on a body weight basis.

Consequently, cattle sold on a carcass-weight basis can be profitably fed to heavier weight endpoints compared with cattle marketed on a body weight basis (MacDonald et al., 2007; Walter and Hale, 2011).

Materials And Methods: A subset of records from the Benchmark Performance Program database (AgSpan, Overland Park, KS), which included closeout records for 67,570 lots of commercially fed beef-type steers and heifers together with individual carcass records for animals in each lot, was used for the analysis.

Results And Discussion: Temporal fluctuations in prices of fed cattle (sale price) and feeder cattle (purchase price) have exerted the greatest effect on cattle feeding profitability. Feed cost (driven primarily by corn price) also is an important determinant of differences in cattle feeding profit over time, explaining a large proportion of the variation in cost of gain.

However, for any particular set of price conditions, differences in cattle performance (gain, feed efficiency, carcass merit, morbidity, and mortality) can result in substantial variation in net return among lots of cattle. For example, even with static prices for cattle and carcasses and standardized feed costs, lot values for net return per animal in the current analysis averaged $4.09 with a standard deviation of $48.80.

Factors Affecting Cost of Carcass Gain: When feed cost is held constant, cost per unit of gain is largely determined by feed conversion. In this analysis (with feed cost standardized) Feed efficiency was not only the primary determinant of cost of carcass gain , but also the single most important contributor to differences in net return per animal for all sex and body weight classes. Medical expenses and death losses increased cost of carcass gain, more so among lots of cattle placed on feed at light weights than among those placed on feed at heavier weights.

Average cost of gain, calculated using pen closeout data, is a widely used metric for both lot-level and feed-yard-level comparisons of economic performance. However, cost of gain provides only partial insight into cattle feeding profitability.

In the current analysis, independent variables that were the primary drivers of differences in cost of carcass gain (i.e., carcass-based feed efficiency, medical expenses, and mortality rate) explained 63 to 72 per cent of the within-class variation in net return per animal. An additional 25 to 34 per cent of variation in net return was explained by factors associated with differences in value of carcass gain.

Factors Affecting Value of Carcass Gain: The total amount of carcass weight gained during finishing was a fundamental driver of revenue per animal. Correspondingly, days on feed and carcass-based average daily gain were the 2 most important determinants of value of carcass gain and the second and third most important contributors to differences in net return for all sex-body weight classes.

Another gain-driven contributor to differences in value of carcass gain, particularly among lots of steers and heifers placed on feed at lighter weights, was mean body weight at placement. Within each sex-body weight class, revenue generated per unit of carcass gain decreased as placement weight increased.

In each sex-body weight class, lots of cattle that were placed on feed at lighter body weight had less beginning value, gained more carcass weight during finishing, and generated more added value per unit of carcass gain compared with lots placed on feed at heavier body weights.

Other important determinants of value of carcass gain were variables associated with differences in carcass grid price, including percentage of Choice and Prime carcasses, percentage of YG 4 and 5 carcasses, percentage of carcasses weighing 1000 lbs or more, and percentage of carcasses in the other discount category.

Of these latter 4 variables, percentage of YG 4 and 5 carcasses had the greatest effect on net return, followed (in order) by percentage of other discount carcasses and percentage of Choice and Prime carcasses. It is noteworthy that the percentage of carcasses weighing 1000 lbs had relatively little effect on net return, except among steers weighing more than 800 lbs at placement.

In the current analysis, amount of revenue generated per unit of carcass weight gained during finishing was more strongly driven by increased weight than by carcass grade performance. Johnson and Ward (2005) reported similar findings, concluding that about 67 and 33 per cent of variation in grid-based revenue could be attributed to differences in weight and carcass grade performance, respectively.

When finished cattle are priced on an individual carcass basis, as is the case in various grid-marketing scenarios, variation in hot carcass weight among cattle within a lot becomes a potentially important source of differences in revenue and profitability.

As mentioned previously, the average cost per unit of weight gain is commonly used as an indicator of economic performance of finishing cattle. Value of gain directly complements cost of gain by providing a measure of the average amount of value added per unit of weight gain.

Although value of gain has been advocated as an economic performance indicator in stocker cattle, it seldom is considered in cattle finishing operations. Results of the current analysis suggest that assessing the value of carcass gain is fundamentally important for reflecting differences in revenue and profitability among cattle marketed using a grid-based carcass pricing system.

Collectively, results summarized above seemed to favor finishing cattle for extended periods of time, continuing to add carcass weight (and value) as long as animals were capable of converting feed efficiently and did not become too heavy or excessively fat.

Cattle marketed on a carcass basis can be fed to comparatively heavy final body weight endpoints and remain profitable. In a recent analysis involving steers only, Walter and Hale (2011) found that feeding profitability of grid-marketed cattle increased as body weight increased, peaking between 1400 and 1500 lbs. These findings (Walter and Hale, 2011) are consistent with results for steers presented in this project.

Implications: Benchmarking economic performance of cattle feeding operations enables feedlot managers to identify strategic opportunities for improving profitability. Carcass-based performance metrics characterized in this study are applicable for quantifying, comparing, and managing economic performance of cattle sold on a carcass basis.

Results of this study suggest that management strategies for improving cattle performance and profitability of finished cattle that are marketed using a grid-based carcass pricing system should have a dual focus: 1) controlling cost of carcass gain and 2) enhancing value of carcass gain. Moreover, profit maximization was shown to require finishing cattle to heavier-than-normal hot carcass endpoints.

Further Reading

You can view the full report by clicking here.

Literature Cited

Johnson, H. C., and C. E. Ward. 2005. Market signals transmitted by grid pricing. J. Agric. Resource Econ. 30:561-579.

MacDonald, J. C., T. J. Klopfenstein, G. E. Erickson, and K. J. Vander Pol. 2007. Changes in gain through the feeding period. Pages 55-57 in 2007 Nebr. Beef Cattle Rep. Accessed Mar. 23, 2011. http://beef.unl.edu/beefreports/200719.shtml

Walter, S., and R. Hale. 2011. Profit profiles: Factors driving cattle feeding profitability. Accessed Mar. 23, 2011. http://www.cabpartners.com/news/research/CABProfitProfiles.pdf

References

J. D. Tatum , W. J. Platter , J. L. Bargen , and R. A. Endsley, The Professional Animal Scientist 28 (2012):173-183 (Condensed by S. L. Boyles, OSU Beef Extension Specialist)

March 2013

Our Sponsors

Partners


Seasonal Picks

Charismatic Cows and Beefcake Bulls