Custom cattle feeding is a viable option to consider as a cattle feeder. There are several ways to go about it and good reasons to consider doing it. We’ll attempt to address the pros and cons in this space. Current feeder prices make locking in a profit difficult. So, custom feeding may be an alternative to full ownership. As we head into fall it looks like the corn market will continue to be under downward pressure, which will not be favorable to lowering feeder cattle prices. For the feeder, custom feeding frees up capital and reduces or eliminates risk while still keeping the barn full. Home-grown feeds can still be marketed on the farm and a positive cash flow exists depending on terms of the agreement. As for the owner, he can get performance data on his cattle as well as carcass data if sold on the rail. This information may not be available if his feeders are sold through a broker or sale barn. Knowing this information can help him improve the genetics of his herd.
There are three ways to charge an owner for feeding his cattle: charging a fee per pound of gain, billing for feed plus yardage and charging a fixed amount per head per day (this is rarely seen in feedlot situation-more prevalent in pasture cattle). We’ll look at the two more common scenarios.
Charging per pound of gain or an amount per head per day exposes the feeder to the most risk. This is because the feed prices can’t be changed during the feeding period. The risk factors are: 1) absorbing shrink (both in and out) because most owners want the terms to be from pay weight to pay weight 2) being at risk for price increases in purchased feeds that can’t be locked in 3) exposure to higher than expected gain costs due to cattle not being marketed when fed to a desirable weight or degree of finish. Keeping cattle for an extra 50 or 100 pounds significantly increases cost of gain 4) the feeder has no input or control over quality, origin, or health of the cattle coming in. If price per pound of gain is based on a certain incoming weight and the cattle come in weigh more than expected, it may be difficult to re-negotiate a higher cost of gain price. Death losses usually count against total pounds of gain unless it’s understood that losses in the first few weeks are the responsibility of the owner.
In contrast, charging for feed cost plus yardage shifts some of the risk factors listed above to the owner of the cattle. Incoming shrink is the responsibility of the owner, but outgoing shrink is best managed by the feeder and it’s expected that it be kept as low as possible. It’s important for both parties to understand how feeds will be priced, both purchased and home-grown.
Death losses (unless due to fault of the feeder) are the responsibility of the owner. Incoming and outgoing weights are irrelevant to the feeder. It’s incumbent on the owner to market the cattle when ready to keep cost of gain lower. One opportunity that exists in this type of arrangement is for the feeder and owner to partner on the cattle.
In both of these custom feeding scenarios veterinarian costs, animal health products used, and implants are charged to the owner and not included in the cost of gain or feed costs. There is typically a chute charge as well. It is best to have an informal contract drawn up outlining the terms of the feeding program. This explains who is responsible for what (especially insurance on the cattle), and when payments will take place.
If considering custom feeding, consult your Agri-Basics, Inc. nutritionist to assist in making performance projections that estimate performance and cost of gain.
by Jim Hogue, Agri-Basics, Inc., Nutritionist