Understanding cost-of-gain optimizes carcass weight

Mar 9, 2012
by WLJ

Rising prices for cattle, along with high costs-of-gain (CoG) for feeding, force producers to routinely analyze the optimum time, or end point, for selling fed cattle.

The logical end point to maximize return per animal is to feed cattle until the selling price matches the CoG for feeding.

Most cattle feeders can fairly accurately measure the input side of this equation, such as feed deliveries, daily yardage costs, etc. The output side—primarily average daily gain—can be more difficult, but can often be estimated relatively closely through experience or through use of data and models.

For instance, if marketready steers are consuming 25 pounds of dry matter (DM) per day, and this feed costs $250 per ton of DM, the feed costs are $3.13 per day. If we add on another 40 cents per day to account for yardage, feed shrink, bedding, veterinary costs, etc., the total daily cost is $3.53 per day.

If we estimate that these steers are still gaining 3 pounds per day toward the end of the finishing period, their incremental CoG is $1.18 per pound, which means that they can continue to be fed and return increased profit as long as the selling price is greater than $1.18 per pound.

If these steers are instead only gaining 2.5 pounds per day, their incremental CoG is $1.41 per pound, which means their incremental CoG is higher than their selling price, and they should be marketed as soon as possible. With current cash cattle prices near or beyond $1.25 per pound, even some inefficient cattle can continue to be profitable at heavy weights and extended days on feed.

What is more difficult is determining optimal end point for cattle sold “in the meat” or on a carcass weight basis. This is a common practice for many producers in the Upper Midwest where many packing plants offer carcass bids rather than live bids for fed cattle.

Many carcass-based bids are based on a 63 percent dressing percentage, which means a $1.25 per pound live bid would equate to a $1.98 per pound carcass bid. Therefore, a quick approach some use to determine carcass CoG is to divide live CoG by 63 percent. However, we must realize that as cattle progress in days on feed, their dressing percentage increases.

Previous research from Crawford et al. (2006 Nebraska Beef Report pp. 72- 74) suggests that nearly 75 percent of body weight gain during the last 28-42 days on feed is in the form of carcass weight. Therefore, calculating carcass CoG is not as simple as taking live CoG divided by 63 percent. This increase in weight transfer to the carcass is often enough to maintain estimated daily carcass weight gains over the final month on feed while daily live weight gains are decreasing.

For example, assume we have a group of steers that weighs 1,350 pounds today and are eating 24 pounds of DM ($250 per ton) per day and we want to know the value of either selling now or feeding another 30 days.

If we assume they gained approximately 3 pounds the last few days on feed, their incremental CoG is currently $1.13 per pound. At current markets of $1.25 per pound of live weight, we can afford to feed these cattle longer.

If we assume that in 30 days these cattle will be eating 25 pounds of DM per day and gaining 2.6 pounds per day, then their incremental CoG will be $1.36 per pound, or more than the current live cattle market. In this scenario, the steers will retain a positive return over CoG for another 10-12 days, but after that, their incremental CoG will surpass the current market price.

Now let’s consider the above example if we are selling on a carcass weight bid.

If we assume that our 1,350pound steers today would dress 63 percent, this would be an 850-pound carcass. If we assume that any additional pound of live weight gain over the next 30 days will result in 0.75 pounds of carcass weight, then our incremental carcass CoG today is $1.51 per pound.

At $1.25 per pound live price, a carcass bid would likely be somewhere around $1.98 per pound, which means we can definitely afford more days on feed for these steers.

After 30 days, our carcass daily gain will be 1.95 pounds, which means our carcass CoG is $1.81 per pound. With our carcass CoG still lower than the carcass bid, these cattle could be fed longer. In fact, they could be fed approximately two additional weeks beyond the 30 days before their carcass CoG matches the carcass bid price.

Assuming that 75 percent of the live weight gain during this time would be carcass weight, the hot carcass weight of these steers with six extra weeks of feed would be approximately 940 pounds. Most packing plants have a maximum weight of either 950 or 1,000 pounds before overweight discounts are applied, so this should be kept in mind when trying to optimize carcass weights.

Also, though the 75 percent weight transfer from live weight to carcass toward the end of the finishing period is a good rule of thumb, the weight transfer appears to continue to increase as cattle near finishing weights.

Therefore, as cattle reach heavy weights and more days on feed, their weight transfer to carcass may be much higher than 75 percent, meaning overweight carcasses may be reached faster than expected.

The concept of carcass CoG is a difficult one to explain and fully understand, but the basic concept that cattle can be fed for more days on feed when sold on a carcass basis should be clear.

Advanced mathematical models and computer programs can be used to reach a more precise estimate of the optimum end point for cattle sold on a carcass basis, but at the very least, feedlot producers should be aware that opportunities exist to maximize profit, and optimize carcass weights, by calculating carcass CoG for cattle sold “in the meat.”

Visit the Beef Team on the web at www.extension.umn. edu/beef or on Facebook at the University of Minnesota Beef Team for more information on this and many other beef-related topics. — Grant Crawford, University of Minnesota Beef Team