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A case for retained calf ownership

Gene Johnston 08/19/2013 @ 10:35am On the scene at the 2012 Cattle Convention, Nashville

With feeder calf prices and expensive feed at record highs, it doesn’t make sense to retain ownership and finish calves through a custom feedlot, does it? Just sell the calves and take a good profit.

Well, not so fast. It’s not that hard to project an estimated budget that says you’re leaving significant money on the table. The fictitious – but reasonable – estimated budget shown on this page makes the case for a nice return to retained ownership. After all, someone will buy your just-weaned calves expecting to make a profit. It could be yours.

Beef producers who retain ownership through finishing do so to capitalize on at least two benefits of the good genetics they’ve bred into their herd: The cattle exceed average feedlot growth performance, and they earn a quality premium when sold at harvest.

Plus, retained ownership of a part of your calves can spread your market risk. You can sell some calves on this very good calf market and some on an equally strong fed cattle market. You might also benefit from a declining feed market.

Greg Lardy of North Dakota State University (who helped prepare the estimated finishing budget) says he isn’t necessarily hearing of more interest in retained ownership, and he isn’t pushing it either.

“Right now, returns are pretty good at the cow-calf level, selling weaned calves,” he says. “Some people are interested, especially if they’ve made the investment to upgrade the quality of their cattle. There’s an opportunity to make more money on them. One historical study indicates it’s profitable to retain ownership in 10 out of 13 years.”

The estimated budget shown here assumes good performance and a modest-quality premium for the finished cattle based on current futures markets.

You could feed the cattle yourself if you have the feed and facilities, but there may be advantages to using a custom feedlot, notes Lardy. Most operations have pen space now due to smaller U.S. cattle numbers, and they’re anxious to fill them.

If you use a custom lot to finish calves, Lardy says you need to do your homework to find the one that fits you best. Some may buy a share of your calves to share the risk. They also have different methods of billing for their services. Some charge a daily yardage fee with no feed markup; some do just the opposite and charge only a feed markup. Many use a combination approach.

“Visit the feed yard before sending your cattle,” Lardy advises. Observe the condition of the cattle and ask to see some closeouts (gains, feed costs, returns) on recent pens. Most feed yards like to get semitrailer truckloads of at least 80 to 85 head, but some feed yards accept groups as small as 25 to 30 head.

“Definitely ask about their nutrition program,” recommends Lardy. “You want your cattle to perform. They can have inexpensive feed, but if the cattle don’t gain well or convert efficiently, then you won’t be happy. Most custom feedlots have a professional nutritionist. That gives assurance that your cattle will have good care.”

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