Can you make money preconditioning feeder calves?
The answer depends on whom you talk to.
Attendees at a University of Calgary conference last month were told about an Indiana producer who pocketed an extra $80 per calf by preconditioning his animals.
“The producer realized that the more days he preconditioned those calves, the more money he made,” Dr. Mark Hilton, a veterinarian with Elanco Animal Health, said at the U of C Veterinary Medicine Beef Cattle Conference.
But most Alberta producers aren’t fully preconditioning — a practice where a feeder calf is vaccinated, castrated, weaned, and fed from a feed bunk — because there’s not a strong economic incentive, said Dr. Cody Creelman of Veterinary Agri-Health Services in Airdrie.
“Guys are very, very hesitant to keep their cattle around if they’re doing a preconditioning program where those cows are backgrounded for a little bit post-weaning before they’re shipped off — introduced to a bunk, introduced to stored feed and water troughs,” said Creelman.
“They say, ‘If one animal dies, that’s basically my entire profit margin for doing this preconditioning.’ They like to defer their risk in terms of mortality to the feedlot.”
However, these two views aren’t irreconcilable — rather it’s all about the specifics, and the economics, of individual operations.
In the case of the Indiana producer, who was the subject of an 11-year research project, “the profit was directly tied to average daily gain,” said Hilton.
“The big deal in dollars with preconditioning calves is putting weight on those calves efficiently,” he said.
Newly weaned cattle are “pretty darn efficient at putting a pound of gain on,” but as their weights go up, so too do the costs per pound of gain. As a result, producers are generally better off taking advantage of those ‘cheap’ gains, he said.
“Our cost of gain was very reasonable on these calves.”
At the beginning of the project, the average daily gain was 1.2 pounds, but as the producer tweaked the feed ration and gained more experience with preconditioning, he “pushed three pounds a day of gain once we got those calves on a ration that was really good,” said Hilton.
“Weight gain the first year was 58 pounds, and by the end (of the study), we were putting 200 pounds on these calves. That’s what really paid for him.”
And as he added more days of feeding for those calves, his profit “tended to go up.”
“We started out feeding these calves for 48 days, and then he decided that feeding for 70 days made him a lot more money.”
But even with the increased gain and preconditioning bonus, his profitability “really changed a lot over the years,” said Hilton, adding that feed costs were the No. 1 reason for that.
“We don’t have much control over that, but I can control gain on those calves by putting them on a ration where they do really, really well,” said Hilton.
“We’re in charge of the weight, and when we put weight on these calves, the owner made money.”
By the end of the project, the producer “got $174.30 more for these calves than he would have.”
“It cost him $93.60 to put that on, which gave him a net profit of $80.70 per calf. Over the years, that was about $90,000 extra,” said Hilton.
By comparison, the producer made $20 per cow per year in his cow herd.
“He made $80 by owning a calf for 63 (extra) days. That’s four times as much money for owning a calf for two months versus owning a cow for a year.”
The situation in Alberta
The biggest barrier for most Alberta producers is that auction marts don’t pay extra for preconditioned calves.
“Cow-calf producers are right in saying, ‘I’m not sure if I’m getting an appropriate premium for all the work I’m putting in to do the preconditioning.’ That’s a very fair statement,” said Creelman.
“What you would need to do is figure out for yourself what that cost actually is.”
Producers are often guilty of not knowing their breakeven costs, but it’s critical in a preconditioning program.
“Most importantly as a cow-calf producer, you have to know your true input costs and figure out what works best for your system,” said Creelman. “Preconditioning might be really good for one person and they can make money at it, but they may not be able to do it in another system.
“Before you implement a program, know what the cost is to do preconditioning.”
In general, a 30-day preconditioning program costs about $50 a head in production costs, including feed, veterinary care, yardage and interest, he said.
“Each producer is going to have to figure out a number for themselves, and that’s the number you’re going to need to work with carrying forward when you’re talking to a feedlot.”
But the “real work” is in marketing those preconditioned calves.
“It’s hard to get that premium back on your calves in a typical open auction mart system,” said Creelman, who advocates selling direct to feedlots using tools like e-sales and satellite auctions. That way, producers can track the performance of their calves through the system to command higher prices with that buyer in subsequent years.
“I do think that’s the best system to be able to see the benefit from preconditioning,” said Creelman. “You can say, ‘My breakeven is $50. We followed these calves through last year and saw that they had pretty good carcass data and half the bovine respiratory disease and half the death loss that was average for your feedlot. If we calculate that all out, we get $100, so let’s meet in the middle at $75.’
“But that takes a lot of work and takes a lot of time to develop the relationships.”
Producers need to remember that preconditioned does not always equal more money, he added.
“We’re very market dependent in our industry. Sometimes, doing all of these nice things on the cow-calf side can negatively impact your overall revenue,” said Creelman.
“You do need to find the balance and recognize that you’re in a free-market system where things can change from year to year.”
The bottom line
Hilton was at pains to emphasize the Indiana producer didn’t see an immediate benefit.
“We didn’t do all this at once. This took a while to happen, and he could have easily thrown in the towel the first year,” he said.
“I get really tired of reading that someone tried something once and it didn’t work, so they’re not going to try it again. If it didn’t work the first time, maybe you didn’t do it right.”
Creelman also said there’s a steep learning curve in getting a handle on “all the tools and options out there.”
“It does take more work. It takes more planning. From that regard, it is a little trickier,” he said.
And with recent high prices, most producers have just been enjoying the ride, he added.
“When you’re making money without doing it — like what the industry has been experiencing over the last five years — that extra hard work isn’t seen as worth it,” he said.
“But I always say most good things are hard.”
This article was originally published in the July 18, 2016 issue of the Alberta Farmer Express.