The cost of transportation has rekindled an interest in feeding cattle in the East. This includes grain-feeding steers and heifers, custom care of cow herds, and backgrounding feeders and replacement heifers.
Regardless of the type of cattle there are some fundamental issues that need to be in place to protect both the Owner and the Feeder. The three most important issues become:
One of the first mental adjustments to be made is that the Feeder in no longer in the cattle business, but is in the business of selling labor and management, documentation of everything you do, facility rental, and selling feed.
Know your costs
As a Feeder, it is imperative that you know your costs before feeding someone else's cattle. The cost of corn or supplements is pretty easy; the cost of pasture or facility use may be less so. In general good custom feeders will price the feed that gets in the cattle and add a daily yardage charge for the costs of labor, facility use, utilities, and insurance. The yardage charge can vary greatly because it may or may not contain costs such as marketing charges (checkoff, transportation, price discovery, shrink, etc.), the labor for treating cattle, bedding, or any number of other costs. For pasture costs, the Feeder should be sure to count the depreciable cost of fencing, watering equipment, fertilizer, and a prorated replacement cost for seeding pastures. Even the costing of grain has issues: Do you have scales to verify what went in the feeder? Is grain going to have a set price for the length of the feeding period? If not, how is the price set? Is the price of grain going to vary with the market? Is the price of the complete ration based on a lab analysis or component prices? How are you as the Feeder going to verify all of these costs? In general, the Owner is not going to pay for a pig in a poke, so records and verification are necessary.
For the Owner, knowing something about the cost of feeding cattle is also needed. You have cattle at risk under someone else's care, so do your homework by reviewing feed costs, visiting the facility, ask for references, and make sure the management program is effective. Talk to the Feeder often and be aware of what is happening with your cattle. Study the results and make sure you have been treated fairly.
What is the charge?
The most common method of charging for custom feeding feedlot or stocker cattle is by rate of gain. This is also the best way for the Feeder to come out as the loser. You as the Feeder can control the value of the feed that goes in the feeder, but you have little control over the cattle that are eating it. The assumption they will perform like other cattle you fed or like they did last year is a good way to make a mistake. A more effective charge is for a marked-up value of the feed you fed plus daily yardage. This method more likely insures you of covering your costs while removing the risk for profit. The method also allows you to be more flexible in the kind of cattle you feed since there will be a significant difference in the weight gain of high-performing crossbred steers and that of novelty, lower growth breeds. This is true for both pasture and grain feeding. There are many other combinations of charges that can be used, including partial or shared ownership of the cattle, performance premiums for growth or carcass value, and fixed rates of return based on sale value.
It is one thing to know what the charge is for feeding someone else's cattle, but it may be another thing getting paid for it. In many cases there are payments made monthly throughout the feeding period. This implies there are exact and sufficient records of feed use or animal performance available daily or weekly. When the price of feed is high-as it is now-the Feeder probably should insist on payment draws through the feeding period because you can become the loser from interest charges accruing on higher-priced feed. In any case, a complete, detailed closeout billing should be available to the Owner. In the case there is not a payment made, risk may need to be reduced by marketing the cattle to pay the bill.
Who Does What?
The only way to be sure the risks are covered to you as a Feeder or an Owner is to have a written contract for the feeding period. All of the conflicts and bad experiences I have encountered regarding custom feeding cattle starts out "I did not know he was…". The way to avoid these conflicts is to have a contract to spell out what will happen and who will do it. A sample contract is available on this website. This contract should spell out in great detail how the cattle will arrive (health, weight conditions, estimated weight, date, etc.), how they will be fed (balanced rations, feeder size, pasture management, feeding schedule, etc.), how they will be marketed (who determined marketing date, where they are to be marketed, transportation, which cattle are marketed, etc.), health charges (treatment charges for labor and medicine, who stands the death loss, who pays the vet, who calls the vet, necropsy charges, vaccination charges, deworming charges, etc.), how the Feeder will get paid, how the charges are made for feed, pasture, or yardage, etc., the beginning and ending dates of the contract, and what happens if there is a conflict. It should also include language about insurance, particularly for the Feeder. Legal experts point out if someone is killed or injured by cattle in your facility-even if they are owned by someone else-the Feeder is responsible.
For those with the facilities, feedstuffs, and management expertise, custom feeding cattle is an excellent risk management tool. However, there are some fundamental issues to be addressed to be sure a profit is available for both the Feeder and the Owner.
in Beef Production Column, Dr. John Comerford, Penn State Extension Beef Specialist