Figure 1

Figure 1. Return Over Direct Costs for Cash Corn and Corn Fed to Cattle.

What is the “best” way to evaluate profitability of an enterprise, more specifically feeding cattle? The most common approach is to look at the enterprise through an accounting lens; value of cattle sold minus the purchase price and total feeding costs equals profit or loss.

That approach works well to evaluate returns on a pen basis or to examine the impact of marketing or production decisions. However, most cattle feeders in South Dakota and the Upper Midwest also grow corn and use feedlot cattle to add value to home-raised feeds. In those cases what is the best way to evaluate how cattle feeding fits into the entire farming business?

Alfredo DiCostanzo presented some interesting data on how cattle feeding fits into an integrated crop-livestock operation at the 2018 Northern States Beef Conference held in Watertown, S.D., in December 2018. Using historical closeouts from an industry database, he determined the net value of corn grain as cattle feed. He derived that value by subtracting all non-corn costs from cattle sales and added back the net value of cattle manure to meet phosphorus needs. He then compared those values on a corn feed value per acre basis to the FINBIN (Center for Farm Financial Management, Univ. of MN) return over direct costs for corn production on owned land.

The net returns for the two different scenarios over the last 19 years are shown in Figure 1. Over that period the average return over direct costs per acre for corn marketed through cattle was $173 compared to $108 for cash corn. Those values do not include any efficiencies that might be gained by early harvest of high moisture corn, reduced drying costs, or reduced handling/shrink of the corn crop.

One of the most striking features from this graph is that marketing corn through cattle results in returns that are greater over time but also more variable. Adding a feedlot enterprise increases the exposure to cattle market risk and weather risks outside the normal growing season. Including mechanisms to mitigate the downside risk either through risk management tools or by simply having more working capital available is critical to avoid crippling financial losses.

Another factor to keep in mind that while it is very easy to look at a chart and pick out the years where feeding cattle was highly profitable and the years where it made more sense to simply sell corn, it is much more difficult to do so in real-time. Jumping in and out with the idea of timing the market could easily result in missing the highs but still hitting unexpected lows. Taking the long view increases the probability of success over many years.

A portion of the added returns from feeding cattle comes from the cattle manure used to reduce the direct costs of growing corn. This is one of the key reasons that integrations of crops and livestock can work so well together. To optimize returns we can’t treat livestock manure as a waste product, but rather as a valuable resource. Calibrated applications based on accurate manure and soil sampling data as part of a management plan will win compared to a strategy of spreading on the most convenient fields.

Finally, there needs to be an honest assessment of management ability and available resources to determine the right enterprise mix. Many operations could benefit from diversification and integrating livestock and crops, but not all. These values are based on averages from two different databases and if the livestock or crops segment of the farm can’t both be average or better, the wiser course of action might be to specialize in where there is the best match between strengths and opportunities.

(0) comments

Welcome to the discussion.

Keep it Clean. Please avoid obscene, vulgar, lewd, racist or sexually-oriented language.
PLEASE TURN OFF YOUR CAPS LOCK.
Don't Threaten. Threats of harming another person will not be tolerated.
Be Truthful. Don't knowingly lie about anyone or anything.
Be Nice. No racism, sexism or any sort of -ism that is degrading to another person.
Be Proactive. Use the 'Report' link on each comment to let us know of abusive posts.
Share with Us. We'd love to hear eyewitness accounts, the history behind an article.