By MIKE MILLER
OSU Extension Medina County

Stan Smith, OSU Extension educator, explains a new era in beef production is upon us. In the past we’ve made decent money at home finishing cattle, and always had an excuse for not going on winter vacation. It was pretty solid. “ … Can’t leave with cattle to feed in the winter.”

Considering today’s economics, I don’t think my feeding plan will fly.

I have an earth-shattering news flash. There aren’t enough cost-saving feed alternatives anywhere in Ohio that will allow us to put together a cattle finishing budget for the next year that shows a profit. At least not at the feeder cattle prices we presently see and the feed costs we can anticipate today.

Francis Fluharty, coordinator of the Ohio Beef Industry Center, puts it like this, “It’s pretty simple, if corn is $7.50 per bushel (.1339 per pound) and an average feed efficiency for fed calves is 6.5:1, then the feed cost of gain would be .87 per pound, not including things like minerals and protein (which may actually lower the cost). However, when the cost of the calf, interest, yardage, treatment cost, death loss and labor are added, there is no possibility for a profit.”
Of course, there are a few who suggest because we have our own calves to wean, the economics of retaining ownership and feeding them is somehow different and profitable. Unfortunately, that dog won’t hunt. The opportunity costs of our own calves is essentially the same as the value of those we may purchase. Simply put, cow and calf producers today will optimize profit by selling their feeder calves at today’s projected prices to the western feedlots, or to Ohio feedlot owners who haven’t run the numbers but who know that they’ve “always done it this way” and simply want to feed cattle.

So what’s my point?

We’re in uncharted waters. As Nevil Speer, animal science professor at Western Kentucky University recently suggested, the beef cattle industry is “… a new world with the business defined by chaos and complexity!” Now is a time for understanding “new realities” in the beef cattle business.
Before we go any further, I challenge you to run the numbers for yourself. If you don’t have a user-friendly tool you’re presently using for feedlot budgeting, there is an online budget (2008 Ohio Enterprise Beef Budgets) in both xls and pdf.

As a starting point, on the Budget page go to Slaughter Steer, Days on Feed = 232 and plug in a feeder calf price of $1.10 for a 650-pound calf. September, October and November 2008 Feeders on the Chicago Mercantile Exchange (CME) are $1.14 to $1.16, a finished steer price of $1.10 live weight. The April 2009 CME shows $1.16 now, and the Ohio basis typically ranges from $2 to $10. Cash corn is valued at $6.88 per bushel or $245 per ton in Columbus, and then for good measure zero out the costs of labor, management and building charge. This scenario still loses money.

Plug in your own estimates and see what it takes to return enough dollars to your pocket that you will be satisfied you filled the barn this year.

While many keep telling me to “just wait, calves will get cheaper, and it’ll work then,” many more are suggesting they don’t see feeders coming down anytime soon.

Typically, we’d expect the value of feeder calves to come down to match up with the value of feed and the projected value of fed cattle, thus allowing some profit. At the current feed prices and projected value of fed cattle, how cheap do feeders need to get to see a profit?

Regardless of why feeders are still high, presently somebody is willing to pay more than those of us with small Ohio lots can afford for calves, and then haul the calves out to their lots with $4.50+ fuel.

While it won’t be popular with many Ohio feedlot owners, purely from a profitability standpoint, one must consider leaving feedlots empty in 2008 and 2009. Better yet, perhaps it’s time to explore alternative uses for our feedlots.

Until profitability returns to traditional feedlot management as we’ve known it for decades, we might consider backgrounding in those lots, assembling and upgrading young bull calves into like kind pot load size groups for sale to western lots, or purchasing cull cows and fleshing them up a little, or maybe even storing machinery, grain or perhaps dry fertilizer in empty cattle barns.

As you make those tough choices, I’d challenge you to utilize the OSU Extension beef budgets and explore the alternatives in great detail. It may also be time to take another look at risk management tools such as Livestock Risk Protection insurance in an effort to lock in a profit if/when one presents itself.

Speer recently suggested, “Agriculture is no longer simply about working long hours. It now requires information, risk management, careful budget analysis, etc.” Speer also suggests that what we are really discussing is “change management,” perhaps the hardest thing in the world to do. However, he goes on to suggest it’s a concept that’s “ … increasingly important to the most important industry in the world — feeding people.

Miller may be reached at 330-725-4911.

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