More cattle producers may keep ownership of feeder animals this fall as feedlots, stung by heavy losses during the past cycle, try to share risk with cow-calf producers.
“While it may be too early to tell, I expect we’ll see an increase in retained ownership again this year,” said livestock economist Sandy Russell of Saskatchewan Agriculture.
She said for many cow-calf producers, it might be the first time they have retained ownership of more than a few of their calves. However, the rules still apply about break-even pricing and reducing production costs wherever possible, she added.
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“Cattle feeding is a risky business and any time you can reduce losses you often see significant rewards on the bottom line,” she said.
“This year that might mean not going too far into the red.”
Larry Hicks of Cattlehedging.com in Colorado said many of his former western Canadian feedlot clients will likely be forced to manage risk by partnering with cow-calf producers this season.
“Without the Chicago (Mercantile Exchange), feeders need somebody to share the risks with and their banks won’t want all of the exposure,” he said.
Shawn Stang of Meyers Norris Penny in Lethbridge said cow-calf producers will need to know all of their costs, whether they are keeping calves at home or entering into a custom feeding arrangement.
“And that includes interest on the money they’ll need to borrow to replace lost fall cash flow they normally would be counting on,” he said.
Russell said the difference between individual farms and their feeding and husbandry costs can make or break cattle feeding.
“The same thing applies to custom feeding. You need to know how those costs will affect your net returns.”
Anne Dunford of Canfax estimated that break-even costs of production for yearling steers this fall will be approximately $75 per hundredweight of gain, depending on feeding costs and assuming fat prices hold in the $70 per cwt. range.
Should fed prices fall to $60 per cwt., then break-evens must also come down to the low $60 range.
At a fed price of $70 per cwt. and if the cost of gain per cwt. increases to $60 from $55, the break-even price on a yearling rises by $39 per head. On a steer calf the price needed to break even goes up $104 per head.
Stang said there are “plenty of cycles when cattle feeders get by on margins well under $50 (per head). For some cow-calf producers that might be a bit nerve wracking, but it shows how important costs are to cattle feeding.”
