As a cattle feeder or feedlot operation, how do you measure your operations performance?
In considering your cattle’s performance many producers may naturally say they track average daily gain of the individual animal, feed/gain conversion, death loss, and the actual cost of gain. These factors consider the performance of the cattle and are very common metrics in measuring cattle performance across the board. Often these performance metrics are measured through a performance summary called a close out, which is generally completed after the group of cattle is sold and the number are calculated.
Some producers may argue that the cattle performance is direct factor on why the cattle are profitable or not. According to the Lee Schulz, Iowa State Ag Economist, cattle performance is actually a very small factor on profitability. His recent research showed that over 80% of your income variation is subject to the changes in the commodity market, such as corn, feeder cattle futures, and live cattle futures. For example in 2015, Sterling Profit Tracker reports that the 2015 unhedged loss in cattle feedlot was 4.7 billion. Was this because we had poor cattle performance? Most certainly not, regardless of the cattle performance the unhedged cattle were a major loss.
In addition to cattle performance, it is important to take into consideration your performance as the owner or operator. The reality of cattle feeding is that it is not a reflection of cattle performance it’s a reflection of your own performance. It is comparable to how a banker would consider the success of his risk management strategy and how much money was made.
If you’re ultimate goal is to obtain a profit then why are you not measuring feedlot performance based on profits? As discussed above cattle performance is dependent on the producer and how profitable the operation is can be dependent on many different variables in the market. The obvious answer of how to obtain a profit is directly look at the bottom line and evaluate if a profit was obtained, and if so how large was the profit. Profit is simply a result on how well an operation was run and what decisions that were made.
Common questions you should be asking yourself when measuring performance based on profits are:
These are all questions that you should be asking yourself. They help you think about the metrics that help you better improve operational profitability. In order to help improve their operation, cattle producers have tools available that help utilize business management tools to better manage and improve profits with in their operations. These tools are some of the most valuable assets cattle producers should be using right now to keep their operations turning a profit for years to come.