Evaluating the dairy steer enterprise

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It is common for dairy farms to have a dairy steer enterprise.  A number of farms also transition to finishing dairy steers when the owners have decided that they wanted to partially retire and cut back on labor demands by selling the milking herd, and are able use some of the existing facilities with minimal remodeling.

Some farmers who are finishing dairy steers are doing an excellent job, and others do not realize how much money their “source of profit” is costing them.  At the time of writing this article, fed cattle prices have reached record levels and many producers comment on how big the check will be for those steers when sold, and I have heard some farmers comment that they “don’t have anything in them”.  While I agree that right now those checks are big, it is important to take a close look at how much money it costs to finish those steers.  If people are honest with themselves they will find that it is very unlikely that they really “don’t have anything in them”.

To examine the wide range in profits and losses realized from finishing dairy steers, let’s compare the high net return group to the low net return group from the Center For Farm Financial Management’s FINBIN (http://www.finbin.umn.edu) database of 117 farms in Wisconsin and Minnesota that reported finishing dairy steers in 2009.  The data showed a $220 per head difference in direct costs between the high and low net profit groups and a $77.18 per head in overhead costs difference between the two groups.  When looking at the net returns per head when including direct, overhead, labor and management costs, the high net profit group saw a return of $186 per head profit, while the low net return group saw a loss of $408 per head. This information should encourage cattle feeders to examine their costs of production to see where they are doing a good job and where they may have opportunities for improvement.

In order to make determining cost of production and evaluating strengths and weaknesses of a cattle finishing enterprise an easier task, UW Extension folks have recently developed a number of spreadsheets and evaluation tools for producers to use. All of these tools can be found at the Wisconsin Beef Information Center in the “Resources” section.

One of these spreadsheets is a Feedlot Yardage Calculator.  If you are not familiar with the term yardage, it is a cattle feeding industry term that is used to describe overhead costs.  Typically buildings, machinery, utilities, and in some cases labor, and bedding may or may not be included in yardage.  The spreadsheet provides a systematic process for cattle finishers to determine how many “cattle on feed days” in the feedlot operation; to identify the buildings and equipment used in the cattle feeding operation; and assign a value for the percentage of the time for those assets used in the cattle finishing enterprise.  It is important that cattle feeders use honest and fair values for their inputs when using this tool to get an accurate yardage cost.

Another tool available, is an Feedlot Enterprise Budget Worksheet, that provides feeders with a template to enter in their direct expenses including animal costs, feed costs, and other expenses, including the yardage calculated from the yardage tool.  The spreadsheet then calculates the expected return from the sale of the animals, as well as calculates the breakeven price, which determines how much they can afford to pay for cattle.  A  Feedlot Closeout Worksheet had also been developed that allows producers to analyze the actual return on a group of animals in order to determine if changes need to be made in the future.

Another valuable tool for dairy steer enterprises to consider is the Feedlot Cost of Gain Assessment, which is used as a self assessment to analyze current management practices on how those choices contribute to improving feed efficiency.  Several factors affect feedlot profitability, but one of the factors feeders have the most control is feed efficiency.  When feed costs are high, the importance of improving feed efficiency to reduce cost of gain is important.   When using the cost of gain assessment tool feeders should keep in mind the best answer may be dependent on economy of scale considerations.  The most successful feeders are those who match resources and efficiency in the best combination and this is different depending on size of operation.

In summary, there is a very wide spread in the profitability of dairy steer feeding enterprises, and as costs and potential revenues increase so does the risk.  A number of new spreadsheets and assessment tools have been developed and are available for cattle feeders to use at the UW Extension Wisconsin Beef Information Center.

Source: Bill Halfman, UW Extension County Agriculture Agent


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