Researcher

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The live weight and fat content considered acceptable for slaughter cattle is determined by market demand. Animals can be fed in many ways to obtain a heavier carcass with the correct amount of fat within and over muscle.

Most cattle marketed through abattoirs come from feedlots.In an on-farm feedlot, the farmer fattens young cattle in pens or large paddocks, using bought-in or home-grown feed. The livestock can be self-produced or bought in. Commercial feedlots are the major finishers of beef. The feedlot owner, often a speculator, buys animals specifically for the feedlot. Ownership of the animals and the risk associated with feeding them becomes his responsibility.

In a custom feedlot, the feedlot operator does not buy in animals. Instead, the owner of the animals sends them to the feedlot for fattening and usually retains any risk involved.

The profit margin
Factors affecting a feedlot’s profit include the price margin, feed margin, management, cost of feed, and the buying/selling price of feeders. The selling price is usually quoted as the carcass price.

Price margin
This is the profit or loss that the feedlot makes as a result of an increase or decrease in price from the time the animal is bought (cost price) to the time it is sold (sale price). It is calculated as follows: Price margin = Initial live mass x (sale price/kg – cost price/kg)

The price margin includes the difference between purchase price and selling price resulting from beef price fluctuations as well as improvement in carcass quality due to feeding.

As the feedlot cannot control price fluctuations, it must rely on a prediction of what the price will be when stock is sold at a future date (speculation).

Although profit is potentially high, so is the risk, and inexperienced speculators often lose money in the process.

When buying livestock, most feedlots use price per kilogram liveweight in their calculations.

They must therefore know the dressing percentage of an animal. This varies, so feedlots base the value they use on experience and knowledge of the type of animal, combined with its body condition.

Lean animals have a dressing percentage of 49%, increasing to as much as 60% at a high level of finish.

At a fat score of 2 to 3, the mean dressing percentage varies from 54% to 56%.

Feed margin
This is the profit or loss made by a feedlot as a result of live mass gain in relation to cost of feed consumed. It is calculated as follows: Feed margin = Live mass gain x (sale price/kg – cost/kg gained).

Through good management, a feedlot can improve the margin by achieving an optimal growth rate and obtaining the best feed at the best price.

Other expenses
These include agent’s commission, slaughtering costs, condemned carcasses, transport, interest on capital, salaries of management and labour, machinery costs, mortalities and veterinary costs (disease control, medicines, vaccinations, veterinarian) and pre-treatment (growth stimulants, dipping, dosing, vaccination).

Feedlots can improve production profit by manipulating certain expenses, but others, such as agent’s commission, are fixed.

Mortalities must be monitored carefully to ensure that a high loss rate does not severely limit profit. A mortality rate of 1% to 2% is normal.

Feedlot profit
The feedlot profit margin is a function of price margin, feed margin and other expenses. Adding these three together indicates profit or loss for the period over which the calculation is made.

A feedlot manager should keep a close watch on feedlot profit, which is a highly sensitive measure of the efficiency of management.

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