Want to make more profit feeding cattle? Try aiming for higher quality. Data on more than 440,000 steers fed and harvested from Iowa to Texas across six years starting in 2004 show a linear, positive relationship between high quality grade and profit per head.
The analysis is detailed in the white paper, "Relationship of gain and quality grade to feedlot profitability," (http://www.cabpartners.com/news/research/index.php) by Shawn Walter and Ron Hale, Professional Cattle Consultants (PCC) and Larry Corah, Certified Angus Beef LLC (CAB).
A cattle feeder can't depend on much, especially with commodity calves. A higher selling price may not matter. Keeping a lid on Yield Grade (YG) 4s and 5s may be counterproductive. One simple fact remains: feeding long enough to reach adequate finish generates more profit.
Still, the monthly range in profit is often $250 per head and sometimes $350 per head between lots. What's the secret to consistent profit?
PCC, Weatherford, Okla., has millions of cattle in its database with ties to hundreds of feedlots over the decades. Company president and chief analyst Walter has identified 443,129 entries that feature extra-rich data, including that from cooperating CAB-licensed yards.
The Choice/Select spread covered a range of $0 to $23 per hundredweight (cwt.) for those six years, when ration prices more than doubled from $153/ton in March 2006 to $315/ton in July 2008. Fed cattle prices ranged from 75 cents to $1 per pound. Through it all, hitting the quality target meant more profit.
The cattle records contain information on origin, type, in-weight, out-weight, feed efficiency, and more. They include cost figures and sale prices for the cattle, along with their individual carcass data. Noting little correlation between feeder cattle price and feeding profit, PCC utilized a weekly Chicago Merchantile Exchange Feeder Cattle Price index with a nickel slide either side of 750 pounds.
"If we segregate these data into low, middle and high monthly profit groups, we can see that it pays to get enough finish on cattle," Walter says. "If they are a high-percentage Angus type eligible for the Certified Angus Beef (CAB) brand, that's true whether or not they receive a CAB premium, as long as the cost of adding pounds of carcass stays below the value of those additional pounds."
That doesn't mean grid premiums are irrelevant; it just means the cattle that win premiums tend to work best in the everyday world of pen performance, too, says CAB vice president Larry Corah. "Data from several marketing alliances has shown that higher grading cattle return higher premiums," he says. "However, this could be the first time an analysis has been able to show those higher grading cattle are ahead in the profit game before they even enter the grid."
Grade maintained a linear trend from 56.2 percent Choice and 12.3 percent premium Choice for the most profitable third, where cattle made $90.26 per head profit. That was nearly $130 per head more than those in the lowest third, with 49.8 percent Choice, 9.6 percent premium Choice and a loss of $39.15 per head.
Average daily gain (ADG) stood out as a key profitability figure, high-profit groups logging 3.31 pounds while the lowest profit third held on with a 2.8-pound gain, Walter points out.
Regrouping the dataset into low, middle and high quality grades, the highest grading third (72.8 percent Choice or better) had the highest ADG compared to the middle and lower thirds, which helped lead to profits of more than $35 per head, $11/head above the middle and nearly twice as much profit as the lowest grading third (33.3 percent Choice).
"A common misperception is that you have to give up feeding performance to get grade," Walter says. "Yet, the higher grading cattle also tend to gain better." Days on feed were not significantly different between the high- and low-grading groups.
When evaluating performance at varying days on feed, an animal's live performance typically declines with higher degree of finish. "But if we look at it from a feed utilization standpoint, those animals that are most efficient would have more energy available for fat deposition, meaning fewer YG 1s and 2s, along with more Choice and Prime carcasses, depending on feed intake level," Hale says.
The white paper also profiles the steer database by feeding performance, days on feed and carcass weight before getting into a profit threshold analysis. When ADG hits 4.3 pounds, better-than-expected performance overcomes other factors to enter the top third for profit. Similarly, when the Choice or higher share reaches the 70 percent to 75 percent range, those cattle tend to reach the upper profit profile. However, Walter notes 30 percent of the steers grading 90 percent Choice or higher were left in the lower third group due to failure in other areas.
Overall, the profit-or-loss analysis showed that some cattle sold on an average cash price at breakeven could stay another 40 days to sell on a grid for more net profit. "The bottom line is, selling on a carcass weight basis does affect the point at which you can no longer add weight profitably. Selling on a carcass basis widens the window by several weeks," Walter says.
That provides ample opportunity to market high-quality cattle so as to earn the highest net premiums.