Considerations for Retained Ownership of Feeder Cattle

Retaining ownership of feeder cattle beyond the traditional time of sale at or near weaning is an option some cow-calf producers may consider.
Considerations for Retained Ownership of Feeder Cattle - Articles

Two options for management of weaned calves include moving directly to feedlots for finishing or to a backgrounding operation with grass or high forage diets. There are advantages and disadvantages to retained ownership:

  • the opportunity exists to take advantage of superior growth and(or) carcass genetics
  • carcass data may be made available to assess a breeding and nutritional program
  • partnerships may be forged with cattle feeders or backgrounders for economic advantage
  • there are excellent local markets for finished cattle
  • marketing can be accomplished in a larger window of time for backgrounded cattle
  • the herd health program can be assessed
  • unused facilities can be put to use
  • grain and other commodities on the farm can be marketed through cattle
  • there is higher risk of ownership due to death loss, sickness, and commodity prices
  • profitability is cyclical and determined largely by grain prices
  • cattle will normally be transported at least once prior to sale
  • small groups (less than 45,000 lbs. of like animals) are often difficult to place with a custom operator
  • cash flow will be altered

As noted above, there are some good reasons for retaining ownership of feeder calves. One opportunity that does not exist for all retained cattle is higher profits. Many calf producers consider retaining ownership when calf prices are low in the hope of higher profits on the calf crop. However, one of the reasons the price of calves is lower is because there is a lower expectation of profit in the cattle feeding enterprise, which is driving down the price of calves. Secondly, the price of feed grains is an important driver for the price of feeder cattle. When corn prices are edging higher, as they are now in the late summer of 2002, this will reduce demand and price for calves. Many custom feedlots price their services by selling the calf owner feed at a marked up price, plus additional costs for the use of their facilities and labor. Therefore, the cost of feeding the calves, and the profit risk, will be borne by the calf owner.

One of the main reasons calf producers can profit from retained ownership is to take advantage of an excellent genetic program in their herd. Most custom feeding enterprises price the cost of gain based on industry average feed efficiencies and daily weight gains. When genetically superior cattle actually have better feed efficiency and weight gain, the price can be lower. However, this feature will only be true when custom feeding is priced on feed intake and grain price. If the custom feeder is pricing his services strictly on the cost of weight gain, the advantage of genetically superior cattle is lost since owners of highly efficient cattle will be paying the same price as one with poor gains and feed efficiency.

A good preconditioning program will be essential to success of retaining ownership. It has been shown in numerous demonstrations and research studies that cattle that get sick in the feedlot will have lower weight gains, lower feed efficiency, and lower quality grades than those that remain well. Secondly, the cost of treatment is usually higher than the cost of vaccine to prevent disease, particularly when the calf owner has to pay the custom operator or his vet to treat sick cattle. The essential parts of a good program include vaccinations and boosters for IBR, BVD, PI3, BRSV, and pasturella at least two weeks prior to moving cattle to a new location. If they are to be commingled with other producer's cattle in the same pen, some good insurance includes the use of intranasal IBR vaccine as well. The next most important feature is to have the calves weaned, eating a small amount of grain from a bunk, and drinking from an automatic waterer starting at least a month prior to shipping.

Why would a calf owner consider retained ownership? The following table from South Dakota shows the returns to retained ownership over several years.

Table 1. Returns for retained ownership of steer calves
YearAve. Return ($/head)Best return ($/head)Lowest return ($/head)
1990-9138.49131.21-56.57
1991-9227.9498.54-53.01
1992-93113.67176.4151.75
1993-94-87.84-20.63-173.03
1994-95-12.0333.74-115.10

Wagner, et. al (1995)

Profitability from retained ownership is obviously highly variable, and can change dramatically from one year to the next. Therefore, calf owners must sharpen their pencil and use realistic values to assess the potential for profit. A sample budget is shown in Table 2 that can be used as a benchmark to evaluate retained ownership. However, care must be taken to insert individual costs and expectations for each farm or herd situation.

The same method can be used to budget a backgrounding scenario, except, of course, the sale weights, cost of gain, and sale prices will be different. The data in Table 2 shows very clearly that the "average" calf under these conditions will not be profitable. Again, the calf producer who has above average cattle for weight gain and efficiency can reduce feed, interest, and yardage costs, while an excellent health program can contribute to a lower death loss. Assuming your cattle are above average can be dangerous. There should be some good evidence of excellence prior to assuming anything but average performance.

Table 2. Sample budget for retaining ownership of feeder calves
ItemCalculationCost or value per head
Finished Steer1200 lbs @$.65/lb.$780.00 (a)
Feeder Calf Value550 lbs. @$.85$467.50 (b)
Feeding margina - b$312.50
CostsCalculationCost or Value per head
Feed7.5 lbs. feed/lb.gain@$.06/lb.$292.50
Yardage$.30/day for 232 days
@ 2.8lbs./day gain
$69.64
Trucking$10.00
Vet/Med$12.00
InterestValue of feeder calf ($467.50)
for 232 days @ 6%
$17.80
Death loss1% of feeder calf value$4.67
Total Costs$406.61

Returns to retained ownership $312.50 - $406.61 = ($94.11)

How can a Pennsylvania calf producer take advantage of retained ownership? One of the objectives of the Blueprint for Success cattle feeders initiative is to identify and support custom feeding in Pennsylvania. Contact the PA Beef Council office at 717-939-7000 to help identify a custom feeder.

Prepared by: Dr. John Comerford, Retired Extension Beef specialist, Penn State