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E..55no. 110a fp 2)
Beef Cattle Feedlots in Oregon. . . a Feasibility Study
SPECIAL REPORT 170
MARCH 1964
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N';) 4 4FEB 1966
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Cs1 UN/ VED STA TE rfj'• SI Ty A1.)
62 8Z L2,CICV
Agricultural Experiment Station • Oregon State University • Corvallis
in cooperation with
Farmer Cooperative Service
United States Department of Agriculture • Washington, D. C.
TABLE OF CONTENTS
Page
Summary and Conclusions 1
Introduction 3
Operating Policy, Cattle Prices, Feed and Other Costs 5
Nonfeed Costs -- The Feedlot 10
Nonfeed Costs -- The Feed Processing Plant 16
Ownership and Operating Costs 19
Summary of all Feedlot Costs 21
Returns to Management and Profit 25
Effect of Variations in Selected Coats 26
Other Feedlot Sizes 28
Appendix 36
AUTHORS: Jack A. Richards is a Research Assistant in AgriculturalEconomics and Gerald E. Korzan is Professor of AgriculturalEconomics at Oregon State University.
FOREWORD
This technical assistance study was done in cooperationwith Farmer Cooperative Service, USDA, with funds from theArea Redevelopment Administration of the Department of Commerce.Initial interest in a beef feeding feasibility study was shownby farmers and business interests in Sherman and Wasco Counties,which is an eligible area under the ARA program. Thesecitizens were interested in investing in a new beef feedingenterprise and certain associated facilities as a means ofexpanding employment in the area if it could be determinedwhether.such an enterprise would be economically feasibleand on what scale of operation its performance would bemost efficient. These people made contact with the regionalcoordinator for ARA, who in turn brought the proposal to theattention of the United States Department of Agriculture andOregon State University. Meetings with OSU personnel led toa request for funds to do the work and the development of acooperative agreement with Farmer Cooperative Service.
Interest in this study goes beyond Wasco and ShermanCounties. Beef cattle feeding has been increasing rapidlyin the northeastern part of Oregon and moderately in central-,eastern, and southern parts of the state. The results of thisstudy are generally applicable to all potential cattle feedingareas in the state of Oregon.
SUMMARY AND CONCLUSIONS
The purpose of this study is to show costs and returns that might haveprevailed from 1956 through 1963 for commercial beef cattle fattening operationsin Wasco and Sherman Counties in particular and in Oregon in general. Thisinformation is designed to show probable net returns and how they varied frommonth to month and year to year. Feasibility of this industry is thusdetermined.
In this study, most of the emphasis has been on showing in detail a planfor a beef cattle feedlot with 2,000 head capacity. The plan shows all theexpenses involved which include cost of feeders, feed, feedlot expense, andfeed processing expense. Also an allowance is made for shrinkage and amarketing expense is included. The plan shows the feeding period to be anaverage of 150 days with the cattle gaining 2.75 pounds per day and a feedconversion ratio of 8.5. This means 8.5 pounds of feed are required on theaverage for each pound of gain.
The plan shows only high quality steers are fedfeeders have both steers and heifers in the feedlot.there may be times when feeding other market classes(or less) profitable than steers. It should be keptfeedlot plan in this study is shown in detail, it iswhether or not feeding cattle in Oregon is feasible.follow this plan in all of its details.
although most OregonIt is recognized that
and grades may be morein mind that while theonly illustrative ofNo one would likely
A feed processing plant is shown in connection with the feedlot eventhough it is not operated at capacity unless mixed feed is sold. Mixedfeed could be purchased in most parts of the state thus reducing capitalinvestment by more than $60,000 but the cost per ton will be greater. Feedprocessing cost at the feedlot site should not exceed $3.00 a ton. Further-more, reliability of supply and quality is assured, and labor can be usedinterchangeably between the feedlot and the processing plant.
The study shows sketches of feedlot and feed processing plant designand layout that should be useful to those contemplating cattle feeding on acommercial scale. These designs were developed. after interviewing commercialfeeders in Oregon and Washington and obtaining data and information fromthem concerning their operations.
Capital investment in land, feedlot, feed processing plant, trucks, andother equipment is estimated at $143,000 for a 2,000 head capacity feedlot.In addition, another $400,000 will be invested in cattle ownership and workingcapital to buy feed assuming 90 percent of capacity or 1,800 head. Of course,if all cattle were on custom feed, only about $58,000 in working capitalwould be required.
It is believed this study can be of considerable use to the cattlefeeding industry because returns to management and profit (or loss) areshown by months and for several years. Profit per head varied from a highof nearly $27 in 1958 to a loss of almost $12 for 1963. If 4,320 head werefattened in 1958 when the profit per head was nearly $27, the total net returnwould have been $115,000. This figure is based on a feedlot of 2,000 headcapacity which has an average of 1,800 head in the lot at all times with anannual turnover of 2.4 times. As slaughter cattle are sold, new feeders are
purchased and placed on feed. The feedlot plan provides for a continuous-type feeding operation.
In 1961, the profit per head amounted to less than $.50, resulting ina total of less than $2,000 for the entire year. The early part of 1963 wasa "bad" feeding year (for the classes considered in this study) becauseslaughter cattle prices declined more than $4.00 per hundredweight betweenthe fall of 1962 and May 1963, while feeder steer prices did not declineat all during the same period. However, the largest loss in one monthoccurred in December 1963 ($3.88 per hundredweight) because slaughter steerprices in Portland declined nearly $2.00 per hundredweight between Novemberand December.
This study clearly shows how changing price relationships between slaughterand feeder cattle may affect the profit position.. Another important variableis that of the price of feed per ton. A drop in the price of barley of $5.00a ton will reduce the cost of gain per hundredweight by $1.17, other costsremaining the same. A drop of $5.00 a ton in the price of alfalfa will reducethe cost of gain per hundredweight by $0.42. Even though the feedlot operatoris efficient there may be times when losses will occur because of changingcost-price relationships.
This study also shows feedlot designs for capacities of 500 and 5,000head. Furthermore, the nonfeed costs of these two sizes are compared withthe 2,000 head capacity layout. The nonfeed cost per hundredweight of gainin the 500 head size was $1.25 more than in the 2,000 head lot. On theother hand, the nonfeed cost per hundredweight was $.81 less in the 5,000head size than .in the 2,000 head plant. These results indicate that costscan be reduced as size of feedlot increases.
Operating a feedlot of given size at capacity thus fully utilizingcapital investment and other input factors can have a greater impact on costper hundredweight of gain than the size of feedlot. For example, in the2,000 head feedlot, the nonfeed cost per hundredweight was $2.23 less at100 percent of capacity than at 62.5 , percent of capacity. In the 5,000head feedlot, the difference between the same percentages of capacity wasnot quite as great, but still amounted to $1.83. It is important thatfeedlot operators construct facilities that can be used fully throughoutthe year regardless of what size they might be.
If even half of the feeder cattle produced annually in the state werefed.to slaughter weights in Oregon, this would amount to 250,000 head. Onlyabout 140,000 head were fed in 1963. An increase of 110,000 head wouldrequire thousands of tons of feed and if a net income of $10 a head isrealized, it would add over $1,000,000 to net income of feeders. As adeficit producer of slaughter beef, most of these cattle would be processedin the state. This increase in slaughter and feeding activity would provideat least 300 new jobs.
This study shows that beef cattle feeding operations in the Wasco-ShermanCounty area and in Oregon generally are feasible. There may, be feeding periodsWhen losses rather than profits result, but over a number of years, if pastprice-cost relations generally prevail, commercial beef cattle feeding inOregon should be encouraged.
BEEF CATTLE FEEDLOTS IN OREGON
---A FEASIBILITY STUDY
Jack A. Richards ---- Gerald E. KorzanOregon State University
INTRODUCTION
The purpose of this study is to determine whether or not commercialbeef cattle feedlots in Oregon are feasible. Costs of building and operatingfeedlots are shown in detail. Costs and returns are summarized to showthe net returns to management on the basis of hundredweight, per head, andfor each year.
Oregon has the ingredients for an expanded beef cattle feeding industry.Figure 1 shows that 55,000 head were on feed in Oregon on October 1, 1963,and a record total of about 140,000 head were fattened during the year. Feedgrain is available to produce at least twice the meat tonnage if wheat becomesavailable at feed grain prices. 1/ An estimated 350,000 feeder cattle andcalves produced in Oregon move into Washington, California and elsewhere forfattening each year. It is estimated that the equivalent of 70,000 onethousand pound fat cattle and carcasses move into Oregon each year to satisfythe demand for beef. If it is feasible to fatten more cattle in Oregon,savings in resource use may result and economic activity generated which isin the interest of the general welfare of the state.
Attention in this study will be focused on feedlots of 2,000 headcapacity located in either, or both, Wasco and Sherman Counties. The modelplan 1/outlined in detail will be a continuous operation; that is, as slaughtercattle are sold, new feeders are bought and placed in the feedlot. The planwill show in sketch form the feedlot and mill design together with the estima-ted cost of each. All costs including feeder and feed costs will be includedso it will be possible to show the estimated net profit per head. Goodbut not necessarily superior management will be assumed.
1/ Grain Feeding Opportunities and Problems in Oregon. Oregon AgriculturalExperiment Station Special Report 146, April 1963.
2/ The purpose of a model is to capture the essence of a given situation ina set of explicit relationships. The model feedlot plan developed inthis study shows detailed expenses and receipts together with net
returns to management and profit or loss per hundredweight.
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Two other model plans will be considered in'this study. One will be afeedlot with a capacity of 500 head and the other will have a capacity of5,000 head. These model plans will not be in the detail of the 2,000 head,but will deal primarily with economies of scale. In other words, how much,if any, will costs per hundredweight be reduced in a large lot compared toa small one?
It is important to keep in mind that numerous but what the authors feelare realistic assumptions underlie the model feedlot plan. For example,if the gain per day per head is lower or the feed conversion ratio isactually greater than in the plan, the profit per head will decline or per-haps disappear. As the price spread between feeders and slaughter cattlechanges, again profit will be affected. If more is spent for the feedlot,
mill, or for labor, again the profit position is changed. This does notmean that good management can always expect the results estimated in themodel plan. Changing cost-price relationships beyond the control of manage-ment may adversely affect net profit. Cost of feed and prices of feeders andslaughter cattle do not remain fixed.
Although this study was generally tailored to the Wasco-Sherman Countyarea, the results are directly applicable to other potential feeding areas incentral and eastern Oregon as well as southeast Washington. When the modelplan in this study shows a profit, it is likely a profit can be earned else-where. Feeders, feed, and personnel to operate feedlots are available through-out the state at fairly uniform prices. Of course, feeders and feed areusually lower in price in more distant areal from Portland due to transporta-tion costs but the cost of moving the slaughter cattle to market may offsetthis advantage. In locating a feedlot, consideration should be given toavailability of rail and truck transportation, adequate water supply and, ofcourse, other site characteristics which are referred to later. Climate isnot a problem in developing beef cattle feedlots especially in central andeastern Oregon.
OPERATING POLICY, CATTLE PRICES, FEED AND OTHER COSTS
The cost structure of each feedlot depends on numerous variables suchas types of feed available and the cost of each ingredient, capital andlabor requirements with alternative methods of operation, flexibility desiredin feedlot operation, tax differences, land cost (as determined by alternative
use value) and cost of developing a water supply and distribution system. Inaddition, consideration must be given to market changes in the value of thefinished product and the availability and market value of different kinds offeed and feeder animals.
In order to make the data assembled generally more useful, most inputcost categories are introduced separately. To the extent that anyone interestedin initiating a feeding operation feels that any cost can be reduced (or shouldbe increased), it will be possible to substitute an alternate value into the
plan to determine the effect of the change. All costs of feedlot operationare assembled to determine the profitability (or , loss) of the model feedlot.
General Feeding Policy. The feed supply in the Sherman-Wasco area islikely to be one of the most influential factors determining the type ofration used in the feeding operation. This area produces abundant suppliesof barley and wheat. Roughage supplies (of types currently popular forcattle feeding) are less abundant. A summary of important types of feedavailable and agricultural production in the area is shown in Appendix Table 1.
The feed ration for the model plan has the following constituents:
BarleyAlfalfahay--- - -Beet pulp Molasses Supplement
55%-- - - -----20%
15%5%5% 1/
It is recognized that the costs of different kinds of feeds change from timeto time, as will the overall feed cost-livestock price ratio and that thiswill result in a variation in the feed ration components. In order to maxi-mize the use of the cheapest inputs, the components of the feed ration shouldbe altered and balanced with new feeds and in different proportions. Also,the feed ration would be different for early stages of feeding than in laterstages. The above ration is considered to be an average of the feeds used sincea continuous feeding operation is assumed and there will be animals in all stagesof fattening.
This study is aimed at determining the feasibility of feeding highquality steers which is the most important class of cattle in Oregon feed-lots. It is recognized, of course, that there may be times when marketclasses and grades other than good and choice steers may be more or lessprofitable to feed.
Feeder Animal. Costs. It is assumed that feeder steers would be purchasedwith an average weight of 650 pounds 2/ when placed in the feedlot and wouldbe fed to a slaughter weight averaging 1,062.5 pounds before allowing for amarketing shrink. Good and choice, 500 to 700 pound feeder steer prices atthe Ontario, Oregon,market were obtained for the period 1956 through 1963(Appendix Table 2) as the basis for feeder animal prices since this marketis influential in determining the prices of Oregonfeeder cattle. 21
1/ Includes salt and serves as a carrier of additives such as Vitamin A.
2/ There undoubtedly will be times when steers weighing more or less thanan average of 650 pounds will be purchased because of price and availability.
3/ It is recognized that many feeder cattle may actually be purchased inSherman and Wasco Counties or from adjacent areas. Also, if a large feed-lot was initiated in this area, it would likely influence the prices offeeder cattle at least in the vicinity of the feedlot. For these reasonsand because feeder cattle are likely to come from a wide area, it is diffi-cult to determine any source that will exactly represent feeder cattleprices. However, the Ontario market is influential in determining feedercattle prices over the general area, and therefore is used as a basisfor estimating the cost of feeder cattle.
Slaughter Cattle Prices. The Portland Market was used as the basis fordetermining the value of slaughter cattle and simple monthly average priceswere obtained for the period 1956 to 1963. It is assumed that slaughteranimals will grade approximately 60 percent choice with most of the remainderfalling in the high-good category. Therefore, prices for good and choicegrade, 900 to 1,100 pound slaughter steers were determined (Table 1). 1/Although slaughter animals might be sold either direct to a slaughterer orshipped to an organized market, the prices at Portland were used as thebasis for estimating the value.
Estimated Rates of Performance. An average daily gain of 2.75 poundsper day (net after death loss) is assumed throughout the feeding period.Although the rate of gain will vary during the different stages of the feed-ing process, between animals, and because of other factors, this representsa reasonable average according to the results being achieved in actual feed-ing operations in Oregon. With an average daily rate of gain of 2.75 pounds,it will take 150 days to feed a 650 pound feeder steer to a slaughter weightof 1,062.5 pounds.
The ration previously outlined can be expected to result in a feed con-version ratio of 8.5. With this conversion ratio approximately 23.4 poundsof feed would be consumed daily by each animal (on the average) in order toachieve a daily gain of 2.75 pounds.
Feed Costs. Feed costs were also determined for the period 1956 through1963. Barley prices were based on the price of No. 2, Western barley atPortland less $4.00 per ton transportation charge from the Sherman-Wascoarea to Portland. This $4.00 per ton transportation charge represents anaverage for various areas in Sherman and Wasco Counties.
Beet pulp prices were obtained from the Utah-Idaho Sugar Co. (MosesLake, Washington) for beet pulp at its plant at Toppenish, Washington forthe 1956 through 1963 time period. An average transportation charge of$6.00 per ton was added to these prices to obtain the cost of beet pulp inthe study area. The same method (with a $6.00 per ton transportation charge)was used to derive the cost of molasses.
1/ It is assumed that 60 percent of the animals will reach the choicegrade when marketed and most of the remainder will fall in the high-good category. It is difficult to determine the market prices forexactly these grades. Available market data are presented eitherin the form of a price range or a simple average of some range thatdoes not account for the number of animals selling at each price inthe range. However, the break between the bottom prices for animalsgrading choice and the top of those grading good, represents a group ofanimals grading approximately 50 percent good and 50 percent choice.These are the prices used (Table 1) even though it is expected thatanimals will average about 60 percent choice at time of slaughter.
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A price of $100.00 per ton (delivered) was used for the supplement thatconstitutes 5 percent of the feed ration. The type of supplement used (andthe proportion of the total ration) will vary between feedlots, resultingin considerable variation in cost. Thus, a cost of $100.00 per ton is usedto represent a reasonable average. An average price was also used foralfalfa hay. Alfalfa hay might be grown in the area or shipped in from otherlocalities, or other types of roughage such as corn silage might be substitutedfor hay in the ration. Thirty dollars per ton is the value used to representthe average cost for this input in the Sherman-Wasco area.
The average monthly cost per ton of using the feed ration suggested(barley 55 percent, alfalfa hay 20 percent, beet pulp 15 percent, molasses5 percent, and supplement 5 percent) is tabulated in Appendix Table 3.However, this cost represents only the cost of obtaining the feed and doesnot represent the cost of processing and distributing the feed. 11 Theselatter costs will be considered in detail in the section on nonfeed costs.The monthly cost per ton of feed is a weighted average according to theproportions of the various components of the feed ration and their corres-ponding prices. This average monthly cost per ton of feed can be reducedto the feed cost (without processing) per pound of gain based on an expectedconversion ratio of 8.5 (Appendix Table 4).
A more representative cost of feed per pound of gain may be obtained byaveraging the monthly feed costs over the five month feeding period. Feedmight not be purchased every month depending on storage available, pricechanges, and similar factors, but by averaging the feed cost per pound ofgain over the five month span of the feeding period, the results will tendto reflect the changes in feed prices. This is a simple average,with thefeed cost during each of the five months weighted equally. These data aresummarized in Appendix Table 5.
Appendix Table 6 shows the composite average cost per hundred ofslaughter weight when the cost of slaughter animal that was purchased inthe form of feeder is combined with the cost of weight gained in the feedlot.In the plan under consideration, cost of feed is weighted 412.5/1062.5 andcost of feeder animal is weighted 650/1062.5. By subtracting the costs inAppendix Table 6 from the monthly average price per pound of slaughter steersin Table 1, it is possible to obtain the residual amounts available tocover all other costs (other.than feed and feeder animal) plus a return tomanagement and profit (if any exists). These residual amounts are shownby months in Appendix Table 7.
Processed feed could be obtained in most parts of Oregon, but a feedmill located on the feedlot assures operator of reliable supply, uni-form quality, and makes possible a better use of the labor force neededto operate the feedlot. Furthermore, the cost of processing should beno more than $3.00 per ton whereas commercial feed mills charge $4.00to $5.00 a ton.
Transportation Costs and Shrinkau. Two other factors, transportationcosts and shrinkage, are closely related to the cost per pound of feederand the value per pound of slaughter animal. Prices of good and choice,500 to 700 pound feeder, steers at the Ontario market have been used as thebasis of the cost of feeder animals. However, it is not known if feederanimals will be supplied from within the Sherman-Wasco area, from adjacentareas, or from markets such as Ontario or even from out-of-state markets.Thus, the supply of feeder animals may have an additional transportation(and consequently also shrinkage) costs.
Feeder animals would likely be supplied fromthe transportation cost ranging from near zero inor more per hundredweight from distant areas. Insituation, an average transportation cost of $.50to Ontario feeder cattle prices and the effect onof slaughter weight sold (650/1,062.5 x $.50) was
several sources withthe immediate area to $1.00order to allow for thisper hundredweight was addedcost per hundredweightdetermined to be $.31.
It is assumed in the model feedlot plan that if the feeder animals werepurchased direct, they weighed,an amount above 650 pounds to about equal theshrinkage allowance and if purchased on an organized market, that shrink iscompensated for in the purchase price. Thus, feeder, animal prices are basedon the Ontario market plus $.50 per hundredweight additional for transporta-tion cost.
Shrinkage of slaughter cattle, regardless of method used in marketing,is a direct cost to the feedlot, operator. If the finished animals aresold direct, it is likely that a shrinkage of some type may be granted tothe purchaser. If the animals are sold on an organized market, shrinkagewill be incurred when transporting the animals to the market, and fill-backis likely to be reduced due to change from a high concentrate ration in thefeedlot to the all roughage ration at the market.
In this study a 4 percent shrink allowance is used as a direct reductionin the value of cattle sold and not as a reduction in feedlot gain.
NONFEED COSTS --- THE FEEDLOT
Nonfeed costs of the feedlot operation include investment costs, laborand management costs, clerical and office expense, and miscellaneous itemssuch as veterinary expense, death loss, and taxes. These nonfeed costswill vary for each feedlot, but in general, the greatest proportion of non-feed expense for a mechanized feedlot will be in the investment cost category.It is in this category that most economies of scale are likely to occur.
Feedlot Layout and Design. Factors that must be considered include theplanned feedlot capacity and potential for future expansion, land value, typeof feed processing plant, feeding equipment, and feed rations. In mostcases, it may be possible to supplement planning decisions with research andpast experience, but many decisions will likely depend upon individualpreferences.
The facilities necessary for feedlot operation can be classified intoseveral general categories of necessary components regardless of the specifictype of construction used in each case. A general classification that indi-cates the facilities that should be considered in the feedlot layout anddesign follows:
. Pensa. feed pensb. hospital pensc. sorting and handling pens
B. Alleysa. feed alleysb. drive alleysc. sorting and working alleys.
C. Supplemental Facilitiesa. scaleb. loading dockc squeeze chuted, watering facilitiese. sheds (hospital area and cattle working area)
D. Feed Processinga. millingb. storage (grain and hay or other roughage)
c. equipment to deliver to feed bunks
E. Management and Miscellaneousa. officeb. fence enclosing entire lot (optional)c. windbreaks (in some areas)
equipment housing area
The Feedlot Site. It is generally agreed that a wet, sloppy feedlotdetracts significantly from gains, but it may be necessary only to keep aportion of the pen dry. This can be accomplished by, mounding with manure, woodchips, straw, soil, gravel or similar materials. Thus, while all possibledrainage is promoted away from the pen and away from the entire lot, it islikely to be cheaper to mound in one section of each pen rather than dependingupon drainage entirely. A southern slope with 3% to 5% rise is recommendedfor most feedlots. With small feedlots, or with lots located on steepslopes, it may be adequate to depend upon the slope (surface drainage) toremove much of the excess moisture. On the other hand, it is difficult in
larger feedlots to promote drainage from one pen without channeling thisrun-off into an adjacent pen or alley. In some cases, the drive alleys areutilized to carry the liquid away from the feedlot pens and, as far as possible,away from the entire lot.
12
Under certain types of management, soil type and profile may be such thatdrainage into the subsoil will be adequate to keep the lot dry. With mosttypes of management, however, cattle will probably be confined in such closequarters that the manure will tend to "seal" the soil surface and retard under-ground drainage. Thus, it will usually be necessary to depend on surfacedrainage to a large extent, and usually specific arrangements will benecessary to provide dry lots during wet seasons. This is usually accomplishedby mounding some type of material in one section of the pen.
Pen Arrangement. The pen arrangement will be determined by the feedingmethod used, the loafing space and bunk space per animal, livestock handlingfacilities, and land cost. A suggested feedlot layout for the 2,000 headplan is shown in Figure 2. This particular pen arrangement assumes that abunk space of 15 inches per animal will be used, and a loafing area of 225square feet will be provided. Pens are designed for 50 head, 100 head, and200 head. However, in this particular layout, it is possible to have anynumber of animals up to 500 head in each pen without affecting either thefeed bunk space or the loafing space per animal. The net result of increas-ing the number of animals in each pen will be to change the shape and sizeof the pens. This has been demonstrated by using broken lines between cer-tain pen areas. For example, pens 8-1, B-2, B-3, etc. are designed for 100head, but could be changed to 50-head pens by the construction of fenceswhere the dotted lines are shown. In the same way, pens D-1, C-1, and C-3could be changed from 200-head pens to 100-head pens or to 50-head pens.For the purpose of determining costs, it is assumed pens will be built asshown by the solid lines resulting in 10 pens of 50 head each, 9 pens with100 head, and 3 pens with 200 head each.
Some operators might prefer to arrange their feed alleys closer togetherand their drive alleys at the extremes and the center. This could be doneby using alleys EE, DD, and BB for drive alleys and alleys AA and CC forfeed alleys. However, this latter arrangement would require more fencesince the optional fence around the entire lot has not been used.
Loafing Space Per Head. If a portion of the feedlot is hard-surfaced(i.e., concrete aprons at feed bunks, and water tanks), it is generallyrecommended that each animal be provided 180 to 225 square feet of loafingspace. The usual recommendation for hard-surfaced lots runs from 50 to100 square feet per animal.
There is no one minimum space, recommendation that will be best underall conditions. However, unless land values are high, it may be advisableto provide extra space regardless of the required minimum. The two prin-cipal factors determining the cost of loafing space per animal are the costof land and the cost of pen construction.
There is little intrinsic soil value in feedlot construction (exceptfor drainage) and therefore, little value to locating a feedlot on high-priced land. An exception to this might occur when it is desirable tolocate the feedlot near a city or near existing facilities. When landvalue is relatively low, the most important factor affecting loafing space
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per animal may be the amount of bunk space that is provided. One dimensionof the pen is determined by the bunk space, and this side constitutes by farthe greatest cost of building the pen. This sometimes results in a preferencefor long, narrow, rectangular-shaped pens when this is possible. In otherwords, since the feed bunk constitutes the most expensive portion of the pen,there may be little economy gained by minimizing loafing space unless landvalue is high, although the cost of fencing the three remaining sides of thepen will also influence the decision.
Feed Bunk (Manger) Space Per Head. In this study, it was decided touse a feed bunk space of 15 inches per animal for the 2,C00-head feedlotbeing considered. It will probably be necessary to feed more than onceper day, and in actual practice, the size of feed bunk space per animalmight likely be varied in different sections of the feedlot. Some operatorslike to start animals in the pens in uniform lots and keep them together. Inthis case, it may be decided to have more roughage in the ration and a greaterbunk space in the area where animals are started and a reduction of roughageand bunk space as animals are moved to other areas of the feedlot as theynear marketing weight.
Feedlot Construction Costs. The materials listed in this plan, alongwith their estimated costs, are only suggested examples of constructionthat is compatible with the assumptions of the plan and the conditions exist-ing in the study area.
Fence line, other than the feedbunk side, is commonly built with eitherwood or cable construction and posts may be wood, metal, or concrete. Woodposts are used in most Oregon feedlots, but either wood or cable fenceconstruction is satisfactory with only minor differences in the resultsobtained. Cable construction allows better air flow through the feedlot(which may be a disadvantage in cold weather), and visibility from the alleysis improved when cable fence line is used. Although cable construction mayhave a higher initial cost (depending on the grade of lumber used for com-parison and other factors), it also normally will have a longer life span,lower maintenance cost, and a salvage value. Lumber is relatively inexpen-sive in the Sherman-Wasco area and may cost less initially, but the initialcost is increased if preservation treatment is used. Fence line costs willalso vary with the fence height, space between fence rails and posts, andsize of posts.
If 3/8" cable costs 7e per foot, 100 feet of six cable fence line wouldcost $42 exclusive of posts, labor, and miscellaneous items. While smallerposts might be used for cable construction than for wood, they may also needto be closer together depending upon the type of fence (i.e. how well con-structed). Labor costs of feedlot construction also may vary. However, itis assumed that labor and post costs are approximately equal for either woodor cable construction. If lumber is used at a cost of $70 per thousand,five 2 x 6 boards for 100 feet of fence would cost $35. Of course, cheapergrade lumber could be used or only four rails or both (or some combinationsuch as four 2 x 8's). The average cost for posts is estimated at $2 each(for 8' treated post with 5" top and using larger posts on corners), and withposts spaced eight feet apart, the cost of posts required for 100 feet, of
15
fence would be approximately $25. There would also be some minor costs forbolts, springs, and other hardware, plus additional expense for fence cornersand gate posts. Using these costs as a guide, the estimated cost for laborand material for feedlot fence is $1 per foot.
There is approximately 6,750 feet of this fence without the inclusionof a fence enclosing the entire feedlot. An additional 3,100 feet of fence
would be required to construct a fence surrounding the entire feedlot, butthis latter facility is omitted from the plan. The cost involved is, there-fore, $6,750 at a cost of $1 per foot. Approximately forty gates are alsorequired for the feedlot area, and the cost of these will also depend ontheir construction and the type of material used. It is assumed that metalgates of some type will be used with an estimated cost of $30 each to build(or buy). Thus the total cost of fence used in the feeding area, other thanthe feedbunk is estimated at $7,950. At this cost, it is assumed that con-struction will be either of cable or well-treated and good quality lumber andthe useful life expected (with a reasonable amount of maintenance) is 12 years.
Feedbunks comprise one side of all feeding pens, and in the proposedplan, 2,500 feet of feedbunks will be required. Feedbunks are commonly con-structed of either wood or concrete, with wood generally costing less ini-tially, but usually requiring more maintenance and with a higher rate ofdepreciation (again depending on lumber quality and preservation treatment).Concrete feedbunks are used in this plan plus a 10 foot concrete apron onwhich the feedbunk is placed. The estimated cost of feedbunk and apron is$6 per foot, with 2,500 feet costing a total of 415,000. The expected usefullife of these feedbunks is at least 12 years.
Corrals will be needed in which animals can be worked and sorted. Penarrangements should include one pen large enough to hold the largest lot ofcattle in the feedlot (in this case 200 head), plus at least three sortingpens. Facilities will also be required for loading, unloading, brand checking, and weighing. The working corrals will almost always be built withwood construction,although some components such as the loading chute maybe made of concrete. Corral fences will normally be higher and more sturdilybuilt than other areas of the feedlot, and consequently will cost more toconstruct. More gates will be required plus additional alleys for sortingand handling. The estimated cost of labor and material for the constructionof sorting and working corral (180 feet by 100 feet) is $4,000, with anexpected useful life of 12 years.
In some feedlots the scale is situated so that one scale can be used toweigh both livestock and feed trucks. It is expected that this arrangementwill be used for the 2,000 head plan. The cost of scale is estimated at$4,000.
A hospital area is required and a portion of this should be covered.Pens will be needed in which the animals can be isolated, and larger pensfor exercise. The estimated cost for construction of these facilities is$2,000. The hospital area proposed is 60feet by 100 feet The expected usefullife is 12 years.
16
The above estimates for the working corrals and hospital area alsoinclude the costs of alleys and gates necessary to move animals fromthe main feedlot areas to the auxiliary facilities. In both cases, costestimated include labor and material costs.
The estimated cost of land is $200 per acre, although the required invest-ment in land will vary with feedlot location. Twenty acres of land areincluded which leaves a small allowance for future expansion. It may bedesirable to have more than twenty acres of land since approximately 15 acreswill be required for the facilities. Also, the layout requires a parcelof land approximately 800 feet by 775 feet and it may be necessary to buyadditional land in order to include both of these dimensions. Although$4,000 is the estimated cost of land in the plan, this may be for 20 acresof $200 per acre land or for 40 acres of $100 per acre land or some other com-
bination.
Obviously, if the feedlot site has a high alternative value, the costof using a particular site will be high. Some feedlot sites have a loca-tional value due to proximity to a city, water supply, commercial feedprocessing facilities, or existing buildings. This locational value mayjustify using high-priced land if this reduces other costs or lowers total cap-ital requirements.
The cost of developing a water supply will also vary with location.The estimated cost for this facility is $5,600 (350 foot well at $16 perfoot). The pumping and water distribution system is estimated to cost inthe neighborhood of $8,000 resulting in a total cost for water supply anddistribution of $13,600. This cost includes water tanks and a concreteapron surrounding the water tank. In some cases, this apron is short soanimals must step up with front feet when drinking. This encourages animalsto move away when not drinking.
Miscellaneous facilities and improvements will be needed. Gravel forfeeding alleys, leveling and grading the feedlot into desired slope, duringconstruction, and a small office are included at an estimated cost of
$5000.
NONFEED COSTS --- THE FEED PROCESSING PLANT
Feeds must be processed and combined in order to increase feed effi-
ciency. Usually this is done in a feed processing plant,although insmaller feeding operations mixing may take place in a self-mixing, self-unloading truck or trailer with the feed processed on the premises or bycommercial facilities located elsewhere. The 2,000 head feedlot would almostcertainly require some type of processing plant, but at the same time maynot be of sufficient size to utilize processing facilities to the maximumadvantage. Facilities are necessary for feed processing, and storage forabout two months supply of concentrates. If custom feeding is included in the
feedlot operation, the ability to vary each ingredient in the feed rationindividually may be desirable. Factors such as this must be taken intoaccount to determine what feed processing facilities are needed to achievethe desired results.
The "continuous or percentage" type of feed processing plant combinesingredients in a continuous process according to the proportion each in-gredient constitutes of the total ration. Ingredients are usually processedsimultaneously in the continuous system, although this may be limited toconcentrates only with roughages fed separately or combined with concentratesin self-mixing, self-unloading units during distribution to the feed bunks.In the "batch" system, the ingredients are usually all processed separatelyand then mixed. This system enables each ingredient to be varied individ-ually. Mixing may take place inaself-unloading (or self-mixing, self-unload-ing) unit during distribution or in a mixing unit in the processing plant.The degree of automation and accuracy in mixing determines the cost of thistype of feed processing in most cases since the "batch" system varies fromshovel mixing to fully automated systems using punch card controls. Thesimplest system is the self-mixing truck or trailer that requires handlabor to obtain uniform layering of the ingredients. Some self-unloadingunits are also equipped for mixing which eliminates this hand leveling. Atthe other extreme is the fully automated feed processing plant that processesand mixes completely and delivers the mixed feed into a self-unloading unit.
A sketch of a hypothetical feed processing plant is shown in Figure 3.Concentrates are delivered to the processing plant at the facility labeled"A". These concentrates may be unprocessed or some (i.e. beet pulp) maybe in the desired form for feeding. Feed is mechanically moved to a lift(B) that elevates the feed and distributes it to holding bins (C1C2C3).There may be many of these or only a few holding bins depending on thenumber of ingredients necessary for the feed rations. The feed bins areintended to hold only a working supply for the processing plant in mostcases. Additional storage should also be included and engineered into thesystem in order to utilize the unloading facilities of the processing plant.
The feed is moved from the holding bins by gravity and/or mechanicalaugers (D1D7D3 ) that may be controlled by timing devices to automate thesystem or the proportion of each ingredient used may be controlled manuallyby timing or weighing. In some cases it may be desirable to have rollermills or grinders available to process one particular feed and return it toa holding bin, or feed may be processed (k) as it is moved to the mixingarea (1). The procedures used will vary with the type of processing facili-ties, and feed rations.
Ingredients used in very small quantities (i.e., minerals) may be addedto the ration (E) if mixing takes place in the mill or some other proceduremay be used, such as mixing with one ingredient before adding this sub-mixto the ration. A component may be available in the feed processing plantto process and add roughage to the ration (F), or this may be processedseparately (i.e. silage) and added to the ration during distribution or fedseparately. Some feed processing plants will have facilities for steam roll-ing, or this may be done commercially, or omitted entirely and dry-rolled or
19
ground feed used. Molasses may also be added (H) to the feed ration. Themixed ration is then delivered to a self-unloading unit (J) for addition toother ingredients or distribution. Other feed processing components may alsobe necessary if special feeds are included in the ration, but the facilitiesshown.will handle the ingredients of the ration used in this plan.
The feed processing plant sketch is intended only to indicate the typeof components that may be used. Each individual processing plant must beplanned (or engineered) to work as a unit, and the components used must bein balance with the overall feedlot operation and planning (although somefeed processing facilities are sold as units that may be expanded).
The estimated cost for the feed processing plant, like other- values inthe model, is intended to represent only a "reasonable" and not necessarilyan optimum amount. Feed processing plant cost estimates are based on dataobtained through contacts with feed mill engineering and sales outlets andby a survey of existing feedlot operations in Oregon.
The overall feed processing plant plus storage is estimated to cost$62,000. This includes storage for 30,000 bushels of feed concentratesat an estimated cost of 35 cents per bushel. It is possible to spend agreat deal more than this and very likely may be desirable to do so undersome operating conditions (e.g. custom feeding, feeding other classes oflivestock in addition to cattle, such as hogs or sheep). It is believed, thatthis amount will purchase feed processing facilities capable of an efficientoutput of about five tons per hour of the ration. The expected useful lifeof the feed processing plant is 12 years.
Under conditions assumed in the study, an average of 23.4 pounds (2.75average daily gain x 8.5 feed conversion ratio) of feed per day willbe consumed by each animal. If the feedlot were filled to capacity at alltimes (2,000 head), feed processing facilities would need to be capable ofprocessing and/or combining 23.4 tons of feed per day. This includes 25,712pounds of barley, 9,350 pounds of alfalfa hay, 7,012 pounds of beet pulp,and 2,337.5 pounds each of molasses and supplement.
It is not likely, however, that the feedlot would always be filled tocapacity. It is assumed that on the average 1,800 head will be on feed atall times. Based on this number, the feed processing plant would be requiredto handle approximately 21 tons of feed per day on the average (assuming allingredients were combined at the processing plant). The feed mill wouldneed to be operated from four to five hours a day under these conditions.The excess feed mill capacity allows for considerable expansion at rela-tively little cost if feedlot size is increased.
OWNERSHIP AND OPERATING COSTS
Investment Requirements. The total investment plus annual ownershipand operating costs for the type of feedlot and feed processing facilitiesoutlined in the foregoing discussion are summarized in Appendix Table S.The estimated total investment of $143,150 also includes capital expendituresfor trucks, one tractor, squeeze chute, and related equipment.
20
The total annual cost of using these facilities is $26,170.96 using6% interest cost for capital and a depreciation factor as shown in AppendixTable 8.
Summary of Annual Costs. The first cost listed in Table 2 is annualinvestment (ownership) costs of feedlot facilities plus fuel and electricty.In addition to these expenses, other classes of nonfeed costs of feedlotoperation are labor, office and clerical expenses, veterinary and medicine,investment in cattle, and working capital, and miscellaneous expenses.Cattle ownership costs are a special category of investment costs. Thiscost will not be incurred for custom feeding operations.
Livestock death loss is considered to be a direct reduction in feedlotgain. In other words, the average daily gain of 2.75 pounds per day usedin the plan is the average gain after death loss and reduction in gain fromillness are taken into account. Experience of feedlot operators indicatedeath loss runs from .5 to 1.0 percent.
Cost of management also is omitted from the model plan. Profit willbe considered as the return to management where the owner is also themanager. If hired management is used, this will be a direct reduction ofprofit (or an additional loss if this is the case). For example, in acooperative type feedlot this will be a direct reduction of profit and netreturn.
Table 2. Ownership and Operating Costs for Feedlot and Feed ProcessingPlant
Feedlot ownership costs (Appendix Table 8) 1/ $26,170.96Labor 14,400.00Office and clerical 5,000.00Veterinary and medicine 1,500.00Miscellaneous 1,500.00
Total annual ownership and operatingcosts for feedlot and processing plant $48,570.96
Interest expense of cattle ownership($342,000 at 6%)
Interest expense of working capital($58,000 at 6%)
Allowance for taxes on livestockCost for cattle ownership and working
capital
20,520.00
3,480.001,000.00 2/
25,000.00
Total annual ownership and operating costof 2,000 head feedlot $73,570.96
1/ Includes fuel and electricity.
2/ Assuming all cattle are destined for slaughter when leaving feedlotand 80% of those on hand January 1 will be sold by May 1.
21
Labor costs are estimated at $14,400 per year for other than office andclerical requirements. This cost is for three full-time employees in thefeedlot, althoughit may be possible to use less labor than this with theautomated feedlot presented in the model. An allowance is also made foroffice and clerical expenses of $5,000.
Veterninary and medicine expenses are estimated at $1,500 per yearunder operating conditions assumed in the plan and by utilizing good manage-ment practices in the care and prevention of disease. An allowance of$1,500 is also made for miscellaneous expense items that are not includedin other categories.
Since this feedlot plan is not a custom feeding operation, considerablecapital will be required to purchase livestock. Money invested in cattleis assumed to cost 6 percent interest. An interest charge needs to beincluded as an expense even though the owner has part or all of his owncapital. The average investment required for 1,800 cattle will be about$342,000, the exact amount depending on the age and market prices of live-stock in the feedlot. Working capital in the amount,of about $58,000 willbe required to maintain adequate feed supplies and cover operating expenses.
Annual ownership and operating costs of using the facilities andequipment outlined for the 2,000 head feedlot total $73,570,96.
SUMMARY OF ALL FEEDLOT COSTS
Since an average of 1,800 cattle will be on feed at all times and thefeeding period is 150 days, a total of 4,320 cattle per year can be fattened(1800 x360/150). This results in an average annual turnover of 2.4 basedon 1,300 head.
Since each animal is expected to gain 412.5 pounds while in the feedlot(with shrink considered as a marketing cost), a total of 1,782,000 poundswill be gained in the feedlot annually (412.5 x 4,320). By dividing theannual operating costs by the annual feedlot gain ($73,570.96/1,782,000pounds) an average nonfeed cost per pound of gain is determined. This non-feed cost is $.0413 per pound or $4.13 per hundredweight of feedlot gainunder the conditions assumed in the plan.
By adding the nonfeed cost per hundredweight ($4.13) to the feed costper hundredweight of gain the total cost of gain in the feedlot is deter-mined. These feedlot costs per hundredweight of gain are tabulated bymonths beginning in June, 1956 as shown in Appendix Table 9.
When the nonfeed costs are spread over the average slaughter weight of1,062.5 pounds ($4.13 x 412.5/1,062.5) the cost is $1.60 per hundred pounds.This amount ($1.60) must be added to all other costs incurred in the feedingoperation in order to determine the average monthly costs of producingslaughter animals. Table 3 shows all feedlot costs including transportationand an allowance for marketing shrink.
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25RETURNS TO MANAGEMENT AND PROFIT
By subtracting the values in Table 3 (total costs) from the averagemonthly prices received for slaughter steers as shown in Table 1, the netaverage monthly and annual average returns to management and profit perhundred pounds are determined. These values are shown in Appendix Table 10.By multiplying these values per hundredweight times the volume handled inthe feedlot, the total returns to management and profit can be derived andare shown in Table 4. Every year (except 1963) would have resulted in aprofit 1/ for the feedlot plan outlined in detail in this study. The netreturns per head shown in the model plan resembles those obtained by success-ful feeders in Oregon and Washington.
It should be emphasized that the profit situation shown is based onthe conditions assumed in the model plan 40 as conditions change so willprofit per hundredweight and net income. V Because of these limitations,the effect of varying the costs of some production inputs is considered inthe next section.
Table 4. Returns to Management and Profit per Hundredweight, Per Head, andfor the Year, 2,000-Head Capacity
PerYear Hundredweight Per Head For the Year
1956 $1.50 $15.94 $ 68,861
1957 1.54 16.36 70,675
1958 2.51 26.67 115,214
1959 .79 8.39 36,245
1960 .82 8.71 37,627
1961 .04 .42 1,814
1962 1.34 14.24 61,517
1963 -1.09 -11.58 -50,026
The term "profit" includes returns to management whenever used in thisstudy.
For example, it has been assumed that no net profit of any consequencewill be realized from the sale of manure. An allowance has been madefor machinery to clean feeding pens but no other costs for manure re-moval are included. It is recognized that there may be times when manureremoval from the feedlot site involves some expense.
26
EFFECT OF VARIATION IN SELECTED COSTS
Reliability of the estimated returns to management and profit situationfor the model plan depends on how accurately the prices selected are represen-tative of the conditions existing in the study area. Even if the basic dataselected are reliably representative of the conditions in the study area, allcategories of costs will vary from time to tine. It is not possible toaccurately predict future price changes nor future price relationships.However, it is possible to appraise some of the effects of using differentprices.
Variation in Feed Costs. It is a well known fact that feed grainprices in Oregon are considerably higher than in midwestern states of theCornbelt. If barley prices were reduced $1.00 per ton, the net effect wouldbe a reduction in feed cost of approximately $0.23 per hundredweight offeedlot gain. If barley prices (or an equivalent feed such as wheat) dropped$5.00 per ton, the feed costs would decline about $1.17 per hundredweight.
The results of price changes for other feeds used in the ration can alsobe calculated. For example, $30.00 per ton was used as the price of alfalfahay. A $1.00 per ton drop in the price of alfalfa hay would reduce feedcosts 20C per ton (since alfalfa hay constitutes 20 percent of the ration)and consequently results in a reduction of the cost per hundredweight offeedlot gain of $0.085.
Impact of Changing Feeder Cattle Prices on Profit. It is important tokeep in mind that the relationship between feeder cattle and slaughtercattle prices has much to do with determining profitability during a parti-cular year or feeding period. When feedlot operators find it necessary topay a higher price for feeders they naturally hope slaughter cattle priceswill be higher when the cattle are ready for market. From Figure 4 it ispossible to determine break-even points based on the feedlot cost of gainper hundredweight for 1962 and 1963.
By selecting any expected price paid for feeder animals on the hori-zontal axes, the corresponding price that must be received for slaughteranimals in order to break even can be determined on the vertical axes.The price needed for slaughter animals will be a price five months laterat the end of the feeding period.
It can be seen that Figure 4 is a simplified example using only averageannual values from two years and assumes that market price can be accuratelyestimated. Nonetheless, this chart demonstrates how variations in theprices of feeder and slaughter animals may affect the profit position.
For example, if feeder steers weighing 650 pounds cost $25.20 perhundred pounds in 1962, a feeding operation could break even if slaughter.steers sold for about $0.85 less than the cost of feeder steers or aselling price of $24.35 per hundredweight when no allowance is made for shrink-age and marketing expense. To prove this, 412.5 pounds of feedlot gainat
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From these examples it is apparent that the values used in the modelPlan can vary with little difficulty. The prices of different ingredientsin the feed ration, the price of feeder animals or the selling price ofslaughter animals can change and this will affect the profit position.
Other inputs can and very likely will vary from time to time. Forexample, muddy pens, excessive illness, animal age, inherited characteristicsor severe climatic conditions may change the feed conversion ratio thus makingfeeding more costly.
OTHER FEEDLOT SIZES
The determination of current economies of scale, if any, are limitedin this study to feedlots of three sizes; 500, 2,000, and 5,000 head.
500 and 5,000 Head Feedlots. The suggested pen arrangement for the500-head feedlot (Figure 5) is the same as section MNOP in Figure 2. Eachof the basic 500-head feeding sections of Figure 2 can be expanded toincrease the capacity of the feedlot and only a minimum variation in mat-erials used or construction costs need occur. Therefore, the costs of somefeedlot components will be nearly proportional as size is varied and othersmay exhibit only minor economies.
By expanding this basic 500-head unit to a composite of 10 such units,the pen arrangement for the 5,000-head feedlot is depicted in Figure 6.However, a 5,000-head feedlot that is not a custom feeding operation may havevery few pens designed for only 50 head of livestock. The 5,000-head feedlotwill have 10 basic sections each of which may vary from 10 pens of 50 headeach to one pen holding 500 head or any combination between these extremes.The loafing space, bunk space, and feed and drive alleys will not be changedregardless of the pen arrangement used in the 5,000-head feedlot. Onlythe size of the pens will be changed and possibly the number of water tanks,gates, and similar facilities will be reduced. The pen size and arrangement,however, is extremely flexible.
A small feedlot (500 head or less) may have relatively high feed costsper ton. More feed may need to be purchased that has been at least partiallyprocessed and reduced freshness may result due to storage. Feed processingdone at the feedlot site may not be as thorough when low-cost inadequateprocessing facilities are used. This may result in a lower average dailygain and higher feed conversion ratios that will result in increased feedcosts. The total result of this situation is not evident in a consideration
of only nonfeed economies of scale.
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Comparison of Capital Requirements for Three Feedlot Sizes. Theestimated capital requirements for each feedlot components plus the amountneeded for cattle ownership and working capital for feedlots of the threesizes being considered are shown in Table 5. Capital requirements per headof feedlot capacity are also listed. Based on intended capacity, the500-head feedlot would require $95.28 per head to build the feedlot, supplyat least a partial feed processing system plus some storage, and furnishthe needed equipment. It is likely that feed storage will be proportion-ately greater in this smaller feedlot due to need to purchase some feedspartially processed which may require storage facilities for both processedand unprocessed feeds in some cases. Only $71.58 is required for thesesame facilities for the WOO-head feedlot. It is expected that the feedprocessing plant will be capable of doing a more satisfactory job eventhough the proportionate cost is lower. This means that feed costs for the2000-head feedlot might also be lower, although no estimate of the extentof this will be made. The cost for equivalent facilities is reduced stillfurther for the 5,000-head feedlot to $52.22 per head of capacity. Feedprocessing may be even more efficient and satisfactory in this largerfeedlot as more expensive but more efficient facilities are available.
Some minor economies will exist in other components of the feedlotsuch as in the cattle working and sorting areas, use of scales, feed distri-bution and manure handling equipment.
Unit Costs Per Hundredweight by Size of Feedlot. Comparison of eachfeedlot cost per hundredweight of gain for the three feedlot sizes demon-strates the economies of scale that are likely to occur in each category(see Table 6). For example, using the assumptions made previously (onefirm considering three feedlot sizes), no economy of scale is demonstratedin the cost of cattle ownership, although in reality, large firms may tendto have capacity to obtain capital at lower cost than small firms. Onthe other hand, an economy is anticipated in the amount of working capitaleven though the interest cost of money is the same. It is expected thata greater amount of working capital per head of capacity will be neededas the feedlot size is reduced. Additional capital is likely to be requiredsince capital and profit are likely to be returned in a somewhat "lumpy"stream. For example, if feeder cattle are purchased in groups averaging50 head each, a new lot would enter the 5,000-head feedlot on the averageof once every day and one-half. If the same conditions hold for the500-head feedlot, a new lot of cattle would go on feed only every 15 days,and it is possible that the majority of the animals in the entire feedlotmight be in one stage of finishing at certain times of the year. It canbe seen that nonfeed costs per hundred pounds of gain are about $2.00 lessin the 5,000-head feedlot than in the 500-head size.
It is important to note that this analysis is based on feedlotoperations where the livestock are owned by management. If the feedlot oper-ator is interested primarilyjn custom feeding, a different arrangement of cam-ponents may be , likely and capital requirements would be greatly reduced(see Table 7).
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34
Table 7. Proportion That Each Component Constitutes of Total CapitalRequired, by Size of Feedlot
Component Total Capital Processing Equip- Working Cattle
Feedlot Size Required 1/ . Feedlot Plant ment Capital Ownership
Percent OW
500 Head 158,137.50 14.9 9.5 5.7 15.8 54.12,000 Head 543,150.00 10.2 11.4 4.7 10.7 63.05,000 Head 1,255,075.00 9.6 8.0 3.2 9.6 69.6
1/ Table 5.
Need for Full Use of Feedlot Capacity. Although nonfeed costs arereduced as feedlot size increases, it is also important to construct afeedlot of a size that can be operated at or near capacity most of the time.Annual nonfeed costs are held constant for two feedlot sizes while thenumbers of animals fed per year are varied, (see Table 8). The table showsthat if 5,000 head are fed annually in the 2,000-head feedlot (104.2% ofcapacity) the nonfeed cost per hundredweight of feedlot gain is $3,57.
However, if only 5,000 head are fed per year using the feedlot with intendedcapacity of 5,000 head (41.6% of annual capacity), the cost per hundredweightof gain is $7.33. These comparisons demonstrate the effect of unused feedlotcapacity and the extent it is offset by efficiency due to economy of scalefor the 2,000-head and 5,000-head feedlots.
Of course, it is not likely that decreasing per unit costs would con-tinue if extensive overstocking was practiced and may not occur at allbeyond the intended capacity. However, only part of the physical facili-ties would be used excessively, Loafing space per animal would diminishwith overstocking, but at certain seasons of the year this might not bea problem. Feed bunk space would be less, but feeding more often or inlarger amounts might offset this or the feed ration might be changed.
The feedlot sizes selected for study do not fully solve the problem ofdetermining optimum feedlot size. Individuals considering the constructionof a 2,000-head feedlot would be likely to concern themselves with theadvantages of successive sizes such as 2,500, 3,000, 4,000 and 5,000 asalternatives rather than comparing only the two alternatives of 2,000 headand 5,000 head.
This study has aimed at emphasizing feasibility of any size feedlot,rather than attempting to appraise the most profitable size for the studyarea. Feedlot size depends to a large measure on the ability, desires,and available capital of management,although under some conditions it maybe desirable to alter the type of feeding operation to take advantage ofeconomies of scale due to increased size, (i.e., custom feeding to increasefeedlot capacity).
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Table . Grain and Hay Acreage and Production, Wasco and ShermanCounties
WASCO COUNTY1.9541/ 19591/
Total cropland (in acres) 117,997 110,587Total irrigated acres 15,190 16,840Average size of farms (in acres) 1,314.8 2,048.6Proportion of farms with irrigation 41.1% 45.4%
Crops Harvested/2–
1955-59average
1960
BarleyAcres in barley 24,460 21,000Barley production(thousand bushels) 736 766
WheatAcres in wheat 59,720 59,600Wheat production
(thousand bushels)
1,869.6
All hay cropsAcres in hay 19,692
1961 1962g/
21,000 17,000
738 684
60,000 52,000
1,989 1,606 2,043
16,390 16,250 17,650
1940 1950 1961
LivestockBeef cows on farms, 2 yrs.old or older Jan. 1 4,400 6,700 14,000
Brood sows on farms, over6 months old Jan. 1 1,800 1,000 800
SHERMAN COUNTY
1962E/
14,500
650
19541/ 1959.1/Total cropland (in acres) 140,634 141,165Total irrigated acres 602 1,505Average size farms (in acres) 1,868.8 2,112.1Proportion of. farms with irrigation 7.9% 13.4%
37
Table 1. Grain and Hay Acreage and Production, Wasco and Sherman Counties(continued)
SHERMAN COUNTY (continued)
Crops harvested-V1955-59 1960 1961 1962!'
average
BarleyAcres in barley 43,040 40,400 42,000 36,000Barley production(thousand bushels) 1,144 1,515 1,327 1,273
WheatAcres in wheat 89,800 95,400 96,000 87,500
Wheat production(thousand bushels) 3,067.4 3,233 2,347 3,266
All hay cropsAcres in hay 6 002 5 870 5 320 5 800
1940 1950 1961 1962E/
LivestockBeef cows on farm, 2 yrs.old or older, Jan. 1 2,400 6,000 5,500 6,000
Brood sows on farm, over6 months old, Jan. 1 600 300 200 200
1/ United States Census of Agriculture, Vol. 1, Part 47, 1959, U.S. Dept. ofCommerce, Bureau of the Census.
k Cooperative Extension Service, Oregon State University, Corvallis, andthe Oregon Crop and Livestock Reporting Service, USDA, Portland,cooperating.Preliminary.
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