Cattle Today

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PLAN NOW FOR HIGHER FEED AND SUPPLEMENT COSTS

by: Stephen B. Blezinger
Ph.D, PAS

For all practical purposes, it appears that cattlemen need to brace for higher feeding costs as this fall and winter approaches. That's not a very pleasant way to start off an article but unfortunately the truth very often hurts. While grain prices appear to be on an upward trend, the producer can take steps to insure that this additional cost is not excessively injurious to production and profitability. Let's take a moment and examine what many market analysts are saying about feed and grain prices in the coming months and what can be done to offset this situation.

Up, Up and Away

As mentioned, cattle producers can anticipate more expensive feeding and supplementation costs. According to Chris Hurt, an extension marketing specialist with Purdue University: “Grain and protein prices are going to be sharply higher this fall, with the precise magnitude to be highly influenced by weather in the next several weeks.” Much of this can also be related to poor pasture conditions and lack of forage crops in the western Plains and mountain states. Subsequently, forage (hay) is also going for a premium in many areas this year.

Weather conditions appear to be at the root of much of the feed supply and ingredient pricing situation. Much of the mid-west has either suffered drought or semi-drought conditions or from ill-timed rainfall. Subsequently the projected grain yields are not what many producers had hoped for. A picture of this is apparent from the adoption of a drought relief program targeted at cattle producers in Nebraska, South Dakota, Montana and Wyoming to help with supplementation and feed costs for the coming fall and winter seasons. The anticipated availability of grains can also be noted in the availability of many by-products such as wheat midds, soybean hulls and corn hominy, all of which have strengthened in price considerably or have become much more difficult to procure. This indicates that available supplies are in high demand or have already been contracted.

Grain futures have also reflected this pessimism in supplies as winter month contracts continue to move upward. Much of how these markets respond will depend on actual grain yields as harvest takes place. Many of the grain producing states are only now beginning to harvest corn so actual yields are still very much in question. Corn yield in south and central Texas have been poor and have shown high levels of aflatoxin, making the availability of quality corn much smaller and increased southern producer's demand for northern grains.

What This Means for Producers

Obviously this is not good news for cattle producers who have suffered from shaky cattle prices in recent months and many of whom lost significant equity positions in the feedyards. The increase in feed costs will increase production costs. This situation may be compounded if inadequate forage supplies exist and additional hay mush be purchased, hay which will go at a premium in many cases.

So what will this mean for cattle producers? Remember that virtually all grain pricing is factored against corn and soybean prices. The higher these go the more the demand for replacement grains increases resulting in the increase in the cost of virtually everything. If we look at the actual effect this will have on the bottom line, consider the following example:

Let's say that in an average year a cattleman supplements his cow herd with 20 percent range cubes at an average feeding rate of 4 lbs per head per day. If he supplements from December 1 to March 15 he will feed 420 lbs of cubes per head per day. At $180.00 per ton, his total cost for this supplementation is $37.80 per head. Let's look at how this cost will be effected as the price of these cubes moves higher:


Cost/ton of Cubes                                      Cost per head 
(for entire feeding period)

    $180.00                                                     $37.80
    190.00                                                        39.90
    200.00                                                        42.00
    210.00                                                        44.10
    220.00                                                        46.20
    240.00                                                        48.60


From this chart we see that if cubes move up $60 per ton, the producer will pay an additional $10.80 per head, an increase of 28.57 percent. Obviously this cuts significantly into the bottom line, especially when the cattleman may also be feeding bulls, heifers or creep feeding calves in the process. What can be done to minimize this effect?

Counter Measures

There are a number of things a cattleman can do to minimize the effects of rising feed costs. Let's examine a few of these.

1) Consider your forage situation. As we have discussed in so many situations here, you need to consider how much forage you have and what the quality is. Step one is to test all your forages. You have to know where you are in order to effectively supplement. You may have the opportunity to reduce your supplementation levels if forage quality is high enough. Also, you need to determine how much forage you have available and what the condition of any standing forages may be. If you are coming into the fall with short pastures you can assume that not much will be available and more hay will be needed. A rule of thumb under most situations is that you will need approximately three round bales (1,200 lbs) per head per feeding season. Of course this will depend on how severe winter weather conditions are. If supplies are short you may need to look at purchasing additional hay. Do not delay if this is the case. There is nothing worse than waiting until mid winter and discovering you have a two-week supply of hay left. Consider purchasing additional hay now or at least contracting the hay you need for future delivery. This also helps delay your cash outlay for these supplies. Other forage options are also available which leads us to No. 2.

2) Consider planting winter pasture. If conditions allow the availability of growing wheat, ryegrass, oats, rye, etc. can be very effective for meeting forage needs. In many cases this will supply all necessary protein and a large portion of energy requirements. Winter pastures can be used effectively as a supplement by turning cattle in for only short periods each day. This allows you to stretch hay supplies while still providing the roughage needed plus critical nutrients.

3) Examine your feed and supplement requirements. Yes, you may have fed cubes every year since Moses was a small child but it may be of great value to examine other supplementation methods. These might include liquid feeds, blocks, commodities or a combination of these. Some of this depends on your equipment and labor resources. Liquid feeds are probably the simplest since your dealer normally sets and services the lick-tank for you. Liquids are normally a good source of protein, fat, minerals and vitamins. They tend to be short on energy but a small amount of grain can offset this situation. Blocks can be effective as well and don't require much labor but are normally more expensive. Commodities such as whole cottonseed, cottonseed meal, rice bran, soy hulls, etc. can be much less expensive but are more difficult to handle and will require larger storage areas, troughs and a front-end loader on your tractor (or lots of five gallon buckets a shovel and a strong back). Here are a couple of additional items you could consider under feeding and supplementing:

a) If you commonly feed out of sacks, consider putting up a storage bin where you can take your feeds or supplements in bulk. Bagging normally adds $25.00 to $30.00 per ton to the cost of feeds. In most cases a feed company can deliver bulk product to you in a 3-5 ton minimum and unload directly into your storage area. This saves not only the bagging cost but the time, effort and dollars you spend to go get it. Consider this, if you normally supplement your herd as discussed above (four lbs per head per day) of cubes or something similar, if your herd is made up of 50 head, you will use 6000 lbs or three tons per month. Over the Dec to Mar 15 feeding period you will use a total of 21,000 lbs or 10.5 tons. In bagging cost alone you can save about ½ of the additional feed cost the $60 additional market cost might incur. Yes, you will have the cost of the feed storage to consider but this can be done quite inexpensively and is a long-term investment.

b) Contracting feeds and supplements. By contracting your feed requirements you can lock in the cost of the feeds or supplements you require. While this contract price might be a little higher right now than what the cash price is, in the long term (over the feeding season) it stands to save you a huge amount of dollars. If you are not comfortable with locking in a price now you might consider contracting a portion of your feed needs, maybe 50 percent or so. This way you can take advantage of any price reductions IF the market goes down but you are at least protected to some degree if the market moves upward.

4) Cull the non-performers. Any cows that are not pulling their weight should get a ride to town. It is extremely detrimental to your operational efficiency if you are carrying cows that are open or who wean substandard calves. Now is the time to palpate spring calving cows to determine if you have any open females that need to go.

5) Select replacements using strict standards. Do not keep any more heifers than necessary and make sure the ones you do select are the cream of the crop.

6) In fall calving herds, you may want to consider early weaning of calves. By taking calves off the cows a little earlier you save some of the nutritional demand on the cows and allow them to maintain body condition on lower amounts of feed.

Conclusions

Since every operation is different, different combinations of these or other options may apply. The main thing, as I have stated before here is planning, planning, planning. The more steps you can take to get a handle on your operation and what you will be doing a month, two months, six months or a year from now, the better your opportunity to control costs and improve your profitability.

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