CATTLE PRODUCERS MUST ANTICIPATE HIGHER FEED COSTS

by: Stephen B. Blezinger
Ph.D., PAS


For all practical purposes, it appears that cattlemen need to continue to brace for higher feeding costs as we move farther into 2011. That's not a very pleasant way to start off an article but unfortunately, while we need the truth it's not what we necessarily want to hear. While grain prices appear to continue on an upward trend, even at a time of the year when we typically see grain prices backing off, as cattlemen, 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.

It just keeps rising. . . . .

As mentioned, cattle producers have and continue to anticipate more expensive feeding and supplementation costs. In years past we could often determine a single factor such as drought and short grain supplies, forage supplies or both.

Many market analysts have commented that much of the increases seen in feed and grain costs are related in some way to the supply of fuel and energy to the United States. While crude oil reserves may not be as short as previously believed, a lack of refinery capacity plus environmental policies which are not allowing us to tap into recognized oil reserves (utilization of which could feasibly reduce or eliminate our dependence on foreign oil supplies) continue to drive the cost of oil to unprecedented levels .

With our continued dependence on foreign oil, situations like those in the Middle East and North Africa are unsettling to the oil trade and subsequently create an increase in the cost of oil. At the same time, our current administration's commitments to alternative energy sources, even when these cannot provide for our energy needs to a significant degree for years, also results in a support of current fuel costs.

With current governmental policy restricting exploration (i.e. offshore drilling continues to be restricted following the BP accident almost a year ago), as well as the construction of new refinement facilities, several things occur that affect the feed and grain costs.

1) Continued emphasis on the production of renewable fuels sources (ethanol and biodiesel) place an increased demand on grain or other materials that are typically used as nutrient sources for livestock (including starch grains corn, sorghum, molasses and proteins soybeans, cottonseed). This demand competes with the demand for feed ingredients.

2) Fuel/transportation costs increase. With the rising cost of diesel and gasoline, the cost of transportation of grains continues to increase. Production costs also increase as fuel/energy costs for planting, cultivation and harvest continues to grow.

3) These energy costs also have driven up the cost of fertilization. As fertilizer costs increase it is possible to see a diminished use of fertilizer in certain sectors which can reduce yields and quality, especially in forages. Ultimately this can and does depress animal performance.

Weather conditions contribute to much of the feed supply and ingredient pricing situation. Much of the east and southern United States have either suffered drought or semi-drought conditions for an extended period. While this is not uncommon for many of the western states, the exceptionally dry conditions in the south and east most importantly in heavy cow-calf and stocker states, have created some significant problems.

Exports to foreign countries may be in a position to also increase. Russia has experienced a drought greatly reducing their stocks. With the earthquakes, tsunami and nuclear issues in Japan, their ability to provide for their own needs is diminished so they may very well be looking to increase their imports and finally, China, with its population exceeding 1.3 billion, will continue to struggle to meet the food and feed needs.

Finally, acres planted and sub optimal carry-over stocks also indicate that the anticipated supply of grain may not be adequate to provide for the demand.

What This Means for Producers

Obviously this is not particularly good news for cattle producers who have suffered from less than stable cattle prices in recent months and many of whom lost significant equity positions in the feedyards due to high close-out costs. The increase in feed costs will increase production costs. This situation may be compounded if inadequate forage supplies exist in certain areas and additional hay must be purchased, hay or forage sources 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 four pounds per head per day. If he supplements from December 1 to March 15 he will feed 420 lbs. of cubes per head for the feeding period. At $180 per ton, his total cost for this supplementation is $37.80 per head. Let's look at how this cost will be affected as the price of these cubes moves higher:

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. It needs to be mentioned here that molasses prices have also been increasing as has urea, the source of much of the NPN used to provide the crude protein equivalent in liquids. 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). In areas such as the Midwest, where much of the ethanol production takes place producers have seen an increasing availability of both wet and dry distillers grains. Extensive research has taken place in the last couple of years to evaluate the use of increasing levels of DG's in both beef and dairy rations. Distiller's grains are good sources of protein and energy but limitations must be recognized and steps taken to compensate for some problems that do exist (i.e. high sulfur contents, high fat contents).

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 to $30 per ton to the cost of feeds. In most cases a feed company can deliver bulk product to you in a three to five 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 pounds per head per day) of cubes or something similar, if your herd is made up of 50 head, you will use 6,000 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 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 you 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, varying 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.

Dr. Steve Blezinger is a nutritional and management consultant with an office in Sulphur Springs, TX. He can be reached at 667 CR 4711, Sulphur Springs, TX 75482, by phone at (903) 352-3475 or by e-mail at sblez@verizon.net.







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