Custom Feeding Cattle

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, certain fundamental issues must be in place to protect both the Owner and the Feeder. The three most essential issues become:

• Pricing
• Payment
• Liability

One of the first mental adjustments to be made is that the Feeder is no longer in the cattle business, but is in the business of selling labor and management, documenting everything you do, renting facilities, 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. Generally, good custom feeders will charge for the feed eaten by the cattle and add a daily yardage charge to cover the costs of labor, facility use, utilities, and insurance. The yardage charge can vary significantly because it may or may not include expenses such as marketing charges (checkoff, transportation, price discovery, shrink, etc.), labor for treating cattle, bedding, or any number of other expenses. For pasture costs, the Feeder should ensure that they account for the depreciable costs 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? Will the price of grain fluctuate with the market? Is the price of the complete ration based on a lab analysis or component prices? How will you, as the Feeder, verify all 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, asking for references, and making sure the management program is effective. Talk to the Feeder often and be aware of what is happening with your cattle. Review the results and ensure 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 that they will perform like other cattle you feed 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 is more likely to ensure that you cover your costs while minimizing the risk of loss. The method also allows you to be more flexible in the type of cattle you feed, as 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.

Payment

It is one thing to know what the charge is for feeding someone else's cattle, but it may be another thing to get paid for it. In many cases, there are payments made monthly throughout the feeding period. This implies that there are exact and sufficient records of feed use or animal performance available on a daily or weekly basis. When the price of feed is high, the Feeder should insist on payment draws throughout the feeding period, as 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 event that no payment is made, the risk may need to be mitigated by marketing the cattle to cover the bill.

Who Does What?

The only way to be sure the risks are covered for 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 start with "I did not know he was…". The best way to avoid these conflicts is to have a contract that spells out what will happen and who will be responsible. 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 determines marketing date, where they are to be marketed, transportation, which cattle are marketed, etc.), health charges (treatment charges for labor and medicine, who withstands 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 that 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 ensure a profit is available for both the Feeder and the Owner.

In Beef Production Column, Dr. John Comerford, Penn State Extension Beef Specialist