Thinking About Retaining Ownership in a Custom Feedlot?

By: Dan Loy, Iowa Beef Center Director

While cattle feeding can be a narrow margin business, retained ownership of spring born calves through the feedlot historically has added value and improved profitability. Recent record feeder cattle prices and cattle feeding losses may be an exception.

A 2005 summary of retained ownership by John Lawrence showed that on the average net returns for the 19-year period were improved $51 per head by placing spring born calves into the feedlot at weaning and marketing them as fed cattle. At this writing crush margins suggest that opportuni-ties may exist through risk management to protect some profit for calves (www2.econ.iastate.edu/margins/cattlecrush.htm). Retained ownership offers cow-calf producers the ability to capture the value of selection programs for performance and carcass traits, and now also for feed efficiency.

For the cow-calf producer considering custom feeding calves, here are a few considerations from a customer’s perspective.
Yardage is the daily non-feed cost charged by the feedlot. Unless feed or other charges are marked up, it also should include the profit margin for the feedlot. There is tendency for some custom feedlot customers to shop for feedlots on the basis of the daily yardage charge. This can be a mistake. Yardage may not include certain costs such as bedding, medicines, chute charges and other items. Also, environmental protections and other factors that add to yardage charges may reduce the cost of gain. Feedlots that mark up their feed, either directly or indirectly can charge daily yardage charges at less than their actual costs. The best comparison of one custom feedlot to another is the final cost of gain, the value of the fed cattle at market and the services provided by the feedlot that may be important to a client.

Services that may be important to a retained ownership client include smaller pens for less than full load lots, and the ability to split or share ownership of a pen. Financing or partnering may also be important to some customers. Feedback such as individual cattle growth and carcass data is an important service to some cow-calf producers who are working on herd improvement. Other services such as grain banking can be important for clients that are looking to market their corn through cattle. Custom feedlots in Iowa provide a range of services and some may excel or specialize in some areas. The custom feedlot client should evaluate what is important to them and find the yard that meets their needs.