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Five questions to ask custom feeders

If you plan to retain ownership of calves, here are some questions to ask the custom feeder:

How much will be charged for feed, yardage, veterinary expenses and other miscellaneous expenses?

With today’s volatile markets, it would be advisable to have corn prices “locked in,” preferably with the feedyard. If that isn’t possible, you can use the futures market to protect the cost of corn.

What’s the payment schedule?

The feedyard will likely expect expenses to be paid monthly or every 15 days. A down payment might be required when the calves go to the feedlot. Most feedyards will provide competitive financing. Besides funding feeding expenses, it’s possible the feedyard will finance a major portion of a calf’s value when it enters. This is like an advance payment for a percentage of the calf. You can borrow money from another source to finance the feeding operation. 

Will the feedyard protect the selling price of the calves for you on the futures market?

If so, you might have to use feedyard-provided financing to get this service. You should know how margin calls will be covered. If the feedyard isn’t utilizing the futures market, you can obtain risk protection by securing livestock gross margin insurance, livestock risk protection insurance, or a futures market contract.

How will calves be marketed?

If you know your calves will grade and yield well, selling on the grid may be the best choice. If you expect calves to be high-yielding but unlikely to grade well, selling in the meat (yield or carcass weight) may be the best alternative. If you do not know how the cattle will grade or yield, selling on live weight may be the best option. A drawback to selling on the grid or in the meat is that you won’t know the income from the sale until after the calves are slaughtered. Also, on the grid or in the meat the owner pays the shipping costs from feedyard to packing plant, while the packer pays those costs for calves sold on a live-weight basis. When selling on live weight, a 4% or 5% shrink will be taken when they are shipped from the feedyard. The calves’ owner will be paid on the resulting weight. Thus, he could know the total income from the sale before the calves get to the packing plant.

When will the calves be sold for slaughter?

Will all of your calves be sold at the same time, or will they be sorted and sold in groups with all individuals in the group finished for slaughter? Money can be lost if the animals are all sold at the same time, and some are not finished and are too light for slaughter. You can improve odds of the calves finishing together by shipping a uniform bunch of calves to the feedlot.

Hagen is a North Dakota Farm Business Management instructor at Glen Ullin, N.D. Contact him at 701-348-3590 or at Donald.Hagen@
sendit.nodak.edu
.

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Ask questions: Cattle in a feedyard represent a big investment. You should ask the custom feeder lots of questions about cost, financing and marketing.

This article published in the November, 2011 edition of DAKOTA FARMER.

All rights reserved. Copyright Farm Progress Cos. 2011.