Budgeting

Budgeting is an essential tool in lotfeeding. A budget should be completed before stock or feedstuffs are purchased. Generally, if the budget fails to indicate an acceptable profit, other options should be considered. Profitability depends on the ability to secure a sale price for prime lotfed steers to cover all costs and return an acceptable profit. Key elements of the budget are:

  • value of store cattle — weight, condition and price;
  • costs — feed, overheads, labour, animal treatments, interest, losses, freight and selling charges;
  • expected animal performance — daily weight gain, rate of improvement in finish;
  • price of prime cattle — seasonal price trends, opportunities for forward contracting.

These budgets do not include any GST allowances. This is because all GST payments on inputs will be subsequently claimed back. However, producers should be aware of the cash flow consequences. Significant amounts of GST may be paid on purchased animals and on feed. Depending on the timing of the payment, it could be up to 3 months before you are compensated for the GST you have paid. New entrants should discuss the GST consequences with their accountant.

Time on feed

The time cattle spend on feed depends on a combination of factors, particularly the market specifications, which generally nominate carcase weights and finish (fat depth). Entry weight and feedlot performance are also critical. In addition, some markets may specify a minimum period of time on feed.

The National Feedlot Accreditation Scheme is linked to AUS-MEAT identification of product as ‘grain-fed’. Both ‘grain-fed beef ’ (symbol GF) and ‘grain-fed young beef ’ (symbol GFYG) must be sourced from the carcases of cattle that have been fed in an AUS-MEAT Accredited Feedlot for a minimum time on a nutritionally balanced ration of a recognised high-energy feed, of which grain is the highest single component. Rations must have an average metabolisable energy (ME) content greater than 10 megajoules (MJ) per kilogram of dry matter. See ‘Accreditation’.

For GF beef, cattle must have been fed for not less than 100 days and for not less than 80 days of that on the specified ration.

For GFYG beef, the minimum feeding time is 70 days (in the case of females 60 days) and for not less than 50 days of that on the specified ration.

Time required to change degree of finish

As a general guide, to reach fat score 3:

  • a forward store (fat score 2) yearling steer needs approximately 60 days in the feedlot;
  • an average store (fat score 1 to 1+) yearling steer needs around 90 days in the feedlot.

Budget examples

The following sample budgets should be used as guides only. Producers considering the viability of an opportunity feedlot should substitute their own costs and up-to-date selling prices into the budget to determine profitability.

Note that feedlot experience is that cattle treated with hormonal growth promotants (HGPs) can have better weight gains. (See ‘Using hormonal growth promotants (HGPs)’ in the section Feeding management.) These represent both improved efficiency of feed conversion and increased feed intake.

However, remember that some processors, especially if they supply the EC, may not accept cattle that have been treated with HGPs.

WARNING

Budgets are presented with the underlying assumption that feed is on hand for the opportunity feedlotter. The ration is valued at either the landed cost, or the farm gate price for home grown product, at the time feeding starts.

In the case of opportunity lotfeeding, if seasonal conditions are deteriorating — e.g. moving into a drought — purchase prices of grains and roughages can be expected to skyrocket. It is essential that sufficient grain and roughage has been secured for the entire feeding period before feeding begins. This also eliminates the problems which may be encountered with having to change ration part-way through the feeding period.

Table 1. Cattle fat scores
Site Fat score
123456
P8: rump fat depth (mm) 0–2 3–6 7–12 13–22 23–32 32+
12th rib fat depth (mm) 0–1 2–3 4–7 8–12 13–18 18+

Lotfeeding budget — example 1

Fat score 2 yearling steers, at 310 kg liveweight, can be purchased for $1.40/kg or $434 per head. They are to be lotfed for 70 days to gain 1.3 kg per day and finish as (approx.) 400 kg fat score 3+ steers.

Their average weight in the lot will thus be 356 kg and should, on average, require 10.68 kg of ration daily (356 kg × 3%*) or, over the 70-day period, 748 kg. The ration cost is $200 per tonne. The finished steers will be sold direct to the abattoir.

*With ‘dry’ rations (around 90% dry matter), i.e. grain, plus hay as the roughage, calculate feed requirements and prepare budgets based on individual animal capacity of 3% of liveweight and actual weight of feed fed, i.e. air dry weight. For further information, see 'Daily feed intake' in the The Feedlot ration section.

Budget 1 Costs per head $
Costs $ per head
Purchase of store beast (310 kg at $1.40)   434.00
Feed cost (748 kg at $200 per tonne)   149.60
Running costs

Cartage:  saleyards to feedlot
Health cost:  vaccines, drenches etc.
Losses:  1.0% of $434
Fuel, repairs etc.
Labour
Cartage:  feedlot to abattoir
Selling costs (commission etc.)
Transaction levy
Interest (feed + stock) 7% over 70 days

5.00
6.50
4.34
3.73
12.00
10.00
0.00
3.50
7.83

52.90
Overhead costs (e.g. depreciation)   3.50

Total
 
640

The break-even point (to cover costs) for the 400 kg prime steer is then ‘$640.00 divided by 400 kg’, or $1.60 per kg liveweight. This would equate to an over-the-hook or carcase price of approximately $2.85 per kg HSCW. This assumes the steer dresses at 56 per cent and produces a 224.5 kg carcase.

For an operating profit, a price greater than $1.60 per kg liveweight would need to be secured. Table 2 shows the influence different sale prices have on the profitability.

Table 2. Budget 1 break-even point
Sale price Profit
Cents per kg (live) $ per head Cents per kg (live) $ per head
155 620 –5 –20
160 640 0 0
165 660 5 20
170 680 10 40

In this example, if a sale price of 160 cents could not be expected, it would be better not to lotfeed these stores.

The feedlotter may, alternatively, select a suitable operating profit level (say, $30 per head), build this onto the budget and determine the required sale price to cover costs and provide the profit needed.

In this example, to make a profit of $30 a head, a sale price of $670 ($640 + $30) would be needed, or $1.68 per kg.

By securing a forward contract price of at least this $1.68 the budget becomes not simply a cost budget, but a profit budget by protecting the built-in profit level (see ‘Forward selling’ in the section Marketing).

Another budgeting approach is to calculate the maximum price that can be paid for store cattle. This requires the sale price and feed, running and overhead costs to be known before stores are purchased.

Lotfeeding budget — example 2

A price of $1.60 per kilogram for 400 kg fat score 3 steers has been secured through a forward contract. The steers are to be lotfed for 70 days to gain 1.3 kg per day, therefore starting at 310 kg liveweight.

Their average weight in the lot will thus be 356 kg and should, on average, require 10.68 kg of ration daily (356 × 3%) or, over the 70-day period, 748 kg. The ration cost is $200 per tonne.

Budget 2 income per head $
Income $ per head
Sale value (400 kg @ $1.60/kg) 640  
Total income640 
Costs  
Feed cost (748 kg @ $200 per tonne)   149.60
Running costs

Cartage:  saleyards to feedlot
Health cost:  vaccines, drenches etc.
Losses:  1.0% of $434
Fuel, repairs etc.
Labour
Cartage:  feedlot to abattoir
Selling costs (commission etc.)
Transaction levy
Interest (feed + stock) 7% over 70 days

5.00
6.50
4.34
3.73
12.00
10.00
0.00
3.50
7.83

52.90
Overhead costs (e.g. depreciation)   3.50

Total costs (excluding purchase price)
 
206

The break-even purchase price (income covers costs) for the 310 kg store steer is then:

(640.00 – 206.00) ÷ 310 = $1.40 per kg or $434 per head.

However, to allow for an operating profit, the steers need to be purchased for less than $1.40/kg. Table 3 shows the influence that different purchase prices have on profitability.

Table 3. Budget 2 break-even point
Purchase price
cents per kg
$ per head Profit
$ per head
150 465.00 –31.00
145 449.50 –15.50
140 434.00 0
135 418.50 15.50
130 403.00 31.00

In this example, if the store steers could not be purchased for less than $1.40 per kg, or home-bred steers could be sold for more than $1.40 per kg as stores, it would be better not to lotfeed them.

As in example 1, the feedlotter may select a suitable operating profit level (again, $30 per head), and build this into the budget and determine the purchase price required to provide the required profit.

In this example a purchase price of ($434 – $30) = $404 is needed, or $1.30 per kg liveweight.

By completing either of these budgets, substituting your own costs, you can determine whether the market conditions are favourable for making a profit from lotfeeding at this point in time.