F B4083 May I969 iand Economies of Size in Oklahoma Cattle Feecllot Operations f’ ' ~ A ti’ ‘flay % if“ ti?‘ y; M c» v % TEXAS Al-M UNIVERSITY Texas Agricultural Experiment Station a H. O. Kunkel, Acting Director, College Etation, Texas In Cooperation with the U. S. Department of Agriculture Contents Highlights .......................................................... Q Acknowledgment .............................................. .. i: Introduction .................................................. .. i Degree of Feedlot Utilization.“ ................... Investment in Equipment and Facilities.-..-.i Annual Fixed Costs .......................................... .. Variable Costs ................................................... .. Total Feeding Cos-t .................................... .. A Breakeven Analysis ..................................... .. Effect of Grain Sorghum Price Changes A on Feed Costs ............................................ Effect of Daily Rate of Gain on Feed Costsgjv Custom Feeding Charges per Pound of“ Economies of Size ............................................ .. Relationship Between Total Fixed u and Size of Feedlot ........................... Relationship Between Individual Fixi Cost Components and Size of F J; Relationship Between Total Feeding Cost and Size of Feedlot ................ .. *_g Relationship Between Size of Feedlot, Feedlot Utilization Rates and s‘ Total Fixed Costs ........................... .. Summary and Selected Implications ............. Appendix A: Supplementary Tables ...... Appendix B: Procedure for Estimating j Depreciation Costs and Classification of Feedlot Labor ...................................... .. Appendix C: Derivation of Cost Curves"..- i Plains (Texas and Oklahoma) feedlot jtwhich are characterized by large com- are expected to increase in size during de. Feedlots with 10,000-head-or-more ‘rally enjoyed a cost advantage over the especially those with less than 1,000-head J lots with IODOO-head-or-more capacity about 55 percent of the fed cattle mar- guthem Plains feedlots during 1966-67, s are that they will account for an larger proportion of the total fed-cattle Qnts in fixed facilities varied by size of jifeeding area. Total capital investments and facilities by Southern Plains feedlots ut $35 per head of capacity. The two p, of capital investments, which accounted A one-half of the total fixed investments, nd associated equipment and milling f Other important items of equipment rage facilities, water system, feed distri- ‘D vpment, transportation equipment and i l-fixed costs— depreciation, interest, taxes, f; pairs and fixed labor— accounted for l‘ nt of the total feeding costs. Depreci- L‘. labor represented about 60 percent i" 5~ annual fixed costs. Interest on fixed iand repairs made up almost another i the fixed costs. costs accounted for 95 percent of the costs in the Southern Plains during 1966- ich accounted for more than 80 percent variable costs, was the most important f item. Variable labor costs and interest ittle accounted for about one-half of the iriable costs. Death losses made up an- i d one-half percent. Qwith less than 5,000-head capacity were i. a disadvantage when competing with with respect to annual fixed costs per i in. Feedlots with a one-time feeding D00 head experienced total annual fixed Lent to about 2.4 cents per pound of gain T; 1.4 cents per pound of gain for feedlots cad capacity. Highlights One of the major contributors of lower annual fixed costs per pound of gain in the larger feedlots was the level of feedlot utilization. Feedlots with 10,000-head-and-over capacity generally exhibited utili- zation rates above ~75 percent compared to utilization rates of 50 percent and lower for feedlots with less than LOGO-head capacity. The competitive advantage due to size declined when feedlot utilization rates were held constant at consecutively higher levels. For example, when feed- lot utilization rates were held constant at the 25-per- cent level, total annual fixed costs were approximately 2 cents per pound of gain higher for feedlots with 1,000-head capacity than for feedlots with 35,000-head capacity. However, differences in fixed cost between these two size groups declined to 1.2 cents per pound of gain when utilization rates were held constant at the 75-percent level. Based on 1966-67 grain sorghum production and various assumptions regarding feed use, grain sorghum available for feeding in Texas during 1966-67 was estimated to be sufficient for finishing approximately 5 milion head of cattle or about triple the number of fed cattle marketed during that period. In addi- tion, feeding cost differentials between feeding areas and available sources of nearby feed supplies suggest that cattle feeding will continue to be concentrated most heavily in the Texas and Oklahoma Panhandle areas. Increased emphasis will be placed on a high degree of feedlot utilization as feedlots increase in size and are faced with increasingly larger capital investments in fixed facilities. The proportion of cattle fed on a custom basis will probably increase above 1966-67 levels when almost 60 percent in the Southern Plains were fed on a custom basis. Numerous changes are expected to occur within the Southern Plains cattle feeding industry. These include continuing structural changes with increased emphasis on size of operation, feeding efficiency and locational advantages with regard to feed supplies. The advent of computer sciences has brought a new dimension into the feedlot industry which will broaden the horizon of management and yet provide a tool for making more detailed, timely and exacting decisions regarding feedlot operations. Acknowledgment This research was conducted by the Texas Agri- cultural Experiment Station of Texas A8cM University under a cooperative agreement with Marketing Eco- nomics Division, ERS, USDA and under Texas Agri- cultural Experiment Station Project HM-2489, Live- stock Marketing Efficiency and Pricing in the West, which is a contributing project to the Western Regional Livestock Marketing Project WM-48. 4 ncl Economies of Size . - O ‘t: I n ..,. Texas A&M University L-feeding in Texas and Oklahoma is char- large and highly mechanized commercial i tions. These feedlots represent one form ess in a dynamic agricultural sector with "ients in capital equipment and resource nng both special management and labor competitive position and continued suc- large specialized firms are contingent i; t management decisions regarding such pital expenditures, location, size of opera- _d amount of resource inputs, buying and ftices employed, as well as many other y: nt upsurge of cattle feeding within the lains has raised numerous questions con- omies of size in feedlot operations, the tion on feeding costs within the Southern ffthe effect of the various cost components I ing operations. This study, designed to questions, represents the second phase 'hensive economic analysis of the cattle ustry within the Southern Plains. The Qwas a detailed analysis of management U cattle feeding systems in the Southern ., t. g re obtained through personal interviews rators in Texas and Oklahoma. Com- ¥A., The Texas-Oklahoma Cattle Feeding Industry— f‘ Operational Characteristics, B-l079, Texas Agr. s A8cM University, College Station, Texas, De- l R. A., The Texas-Oklahoma Cattle Feeding In- detailed description of the sampling procedure a . and R. C. Kramer, Cattle Feeding in California, i, 'ca NT 8: SA, "Economic Research Department, _< Hunter, E. C. and j. P. Madden, Economies of 'alized Beef Feedlots in Colorado, Agricultural 91, ERS, USDA, May 1966; Malone, j. w. and V, Economies of Size of Warmup Cattle Feedlot Nevada, B-6, Max C. Fleischmann College of University of Nevada, November 1965. ' klahoma Cattle Feedlot Operations Raymond A. Dietrich, assistant professor Department of Agricultural Economics and Sociology, pleted questionnaires relative to feeding costs repre- sented 70 percent of the cattle on feed in Texas and 6O percent of the cattle on feed in Oklahoma from July 1966 through June 1967.2 DEGREE OF FEEDLOT UTILIZATION The recent emergence of large commercial feed- lots has given rise to relatively large capital invest- ments in fixed facilities which in turn tend to result in high levels of annual fixed costs. Rising levels of annual fixed costs have encouraged feedlot operators to maintain high levels of feedlot utilization rates ’ which are an important index for analyzing variations in annual fixed costs among the various size feedlots in the Southern Plains. Annual fixed costs which include such items as depreciation costs, interest, taxes, insurance, repairs and fixed labor costs are directly affected by the level of capital investment, but they are not affected by the volume or number of cattle placed on feed. Since non- feed costs remain the same regardless of the number of cattle placed on feed, increased feedlot utilization rates result in spreading such costs over greater units of output. Output can be measured by annual number of fed cattle marketed or annual pounds of gain. Utilization of feedlot facilities has been measured primarily by the “turnover ratio” or the annual num- ber of cattle fed divided by the one-time feedlot capacity? However, when annual feedlot operations are analyzed, the turnover ratio does not appear to be an accurate indicator of utilization rate since it does not directly consider length of feeding period. The degree of feedlot utilization rate developed for this study was as follows: Degree of feedlot utilization I (Turnover Ratio) (Average Days on Feed) 365 This measurement of annual utilization rate allows for variations in feeding programs among the various 5 Table l. ‘Degree of feedlot utilization, by size of feedlot, Texas and Oklahoma, 1966-6 _ Less than : 1,000 to : 2,000 to : 5,000 to : 10,000 head : State : 1,000 head : 1,999 head : 4,999 head : 9,999 head : and over z z capacity capacity : capacity : capacity : capacity : : - — — — — - - — - - — - — - — - - - — — -Percent - - - - - - - - — — — - - - - -i Texasnn"; 41.4 51.8 66.5 68.2 1177.6 Oklahoman"; 24.3 36.2 61.1 64.3 76.6 i if Based on 100-percent utilization of available capacity for 365 days. sizes and types of feedlot operations and provides for a uniform measure of feedlot utilization rate. The degree of feedlot utilization varied more by size of feedlot than by feeding areas in the Southern Plains during 1966-67, Tables l, 2 and 3. The utiliza- tion rate varied from a high of almost 80 percent for feedlots with 10,000-head-and-over capacity to about 25 percent for the small farmer-feeder type of opera- tion. There was less variation in utilization rate among feeding areas than among size groups since each feeding area also contained some of the larger type feeding operations. Delineations of Texas and Table 2. Degree of feedlot utilization, by feeding area, Texas feedlots, 1966-67 A it: . , Oklahoma feeding areas are indicated inl and 2. . INVESTMENT IN EQUIPMENT FACILITIES Total capital investments in equi: facilities by Texas and Oklahoma feedli about $35 per head of capacity during '~ i’ 4 and 5.4 Per head of capacity in this st ‘Capital investments represent the original cost and facilities. These costs were not adjusted for; age of equipment since two-thirds or more of the; established during or after 1960. ‘"1 Feeding area Item : . . Gulf Coast : g : Panhandle- : Plateau- : East and Rio : I5 : Plains Pecos : Texas Grande Plains : “ - - - - - - - - - — - — - - - - -Percent- - - - - — - - - -f; . 78.5 54.2 72.9 65.4 Degree of utilization..........: if Based on l00—percent utilization of available capacity for 365 days. Table 3. Degree of feedlot utilization, by feeding area, Oklahoma feedlots, 1966f l.) p Feeding area Item : : Southeastern : Panhandle : Northern : and Central Southweste : : Oklahoma : Oklahoma Oklahoma ' - — - - - - — — — — - - — - - -Percent- - - — - - - - — Degree 0f utiliZati0n-........¢2 l/ Based on lO0_percent utilization of available capacity for 365 days. PANHANDLE NORTHERN OKLAHOMA SOUTHNESTERN OKLAHOMA SOUTHEASTERN- PANHANDLE- PIAINS CENTRAL oKl-“wm PLATEAU-PECOS Figure 2. Oklahoma cattle feeding areas. GULF COAST- RIO GRANDE PIAINS for milling equipment. Feed storage facilities and equipment represented the third largest item of capital investment in both Texas and Oklahoma. The patterns of total fixed investments among various size groups of feedlots in both Texas and Oklahoma were fairly similar. Total fixed invest- ments were lowest for feedlots in the 5,000 - 9,999-head capacity size ranges in both Texas and Oklahoma, k gure 1. Texas cattle feeding areas. feeding capacity. The two largest items followed by feedlots with 10,000-head-and-over capac- lvestments, which accounted for more than ity in Texas. Fixed investments were highest for i e total fixed investments, were pens plus feedlots in the 1,000 - 1,999 size group. Farmer-feeders uipment and milling equipment. Invest- —- feedlots with less than 1,000-head capacity — ranked s and equipment averaged about $11 per third in total investments on a per-head capacity basis city compared to more than $8 per head in Texas. Farmer-feeders in the Southern Plains often Table 1.. Fixed investments per head of capacity, by major items of equipment and size of feedlots, Texas feedlots, 1966-67 : Less than : 1,000 to : 2,000 to : 5,000 to :10,000 head: Item 21,000 head 11,999 head :4,999 head :9,999 head : and over : Total : capacity : capacity : capacity : capacity : capacity : = - - - - - - - - - - - - - - - D_<>I.l_l_ar_§ - - - - - - - - - - - - - - - - - 7.31 10.81. 15.37 10.05 9.86 10.72 i 2.1.0 2.65 2.12 1.58 2.35 2.20 ' 3.95 7.62 8.71. 8.11. 8.60 8.1.5 facilities s. equipment 16.60 12.26 8.78 2.77 5:37 5.81 1611 equipment 5.25 3.81 3.25 2.02 1.71 2.10 .52 1.81. 1.22 .1.7 .38 .56 n equipment......................: 3.1.3 1..92 1.99 1.36 1.01. 1.36 2.81 3.13 3.11 3.01. 2.15 2.1.7 ce equipment.....................: .19 .61 .77 1.02 .68 .74 .87 2.01. _ 1.1.6 1.20 e62 .88 1.3.33 1.9.72 1.6.81 31.65 32.76 35.29 j--; pens, work pens and chute, hospital pens, feed trough and bunks and self feeders. _, ~ 1, roller, crimper, steam generator, feed mixer, molasses mixer, scales etc. j, elevator, silage loader, tractor-power scoop and loader etc. “y- cal (auger-tube) , auger-unloading bulk feed trucks, front end loader, auger-mixer grain wagon, V“, r, utility wagon, hand scoops etc. _se footnotes are applicable for all tables containing the above listed major items of equipment. Table 5, Fixed investment per head of capacity, by major item of equipment and size of f~i Oklahoma feedlots, 1966-67 1 : Less than : 1,000 to : 2,000 to : 5,000 to :10,000 head: Item :1,000 head :1,999 head :4,999 head :9,999 head : and over : : capacity : capacity : capacity : capacity : capacity : i - - - - - - - - - - - - - - - - -Dollars - - - - - - - - - - - -2 Pens & equipment.......................; 6.02 13~86 9.26 11.71 11.50 Water system...........................: 1.63 2.49 1.53 1.83 2.57 Milling equipment......................i 1.31 3.66 8.07 3.02 11.25 Feed storage facilities & equipment....i 7.84 10.56 6.31 2.64 4.76 Feed distribution equipment............i 4.05 3.59 4.22 2.91 3.33 Manure equipment.......................i .94 .75 .18 1.55 .92 Transportation equipment...............i 5.42 2.34 2.88 1.78 .78 5.17 3.73 1.12 .92 1.0a Office & office equipment..............i .06 .16 1.07 .80 .75 Scale & scale house....................i .06 1.51 1.35 1.87 .95 32.50 42.65 35.99 29.03 37.89 use vacant pen space or build their own pens and facilities from less costly materials than those used by the larger feedlots. Many farmer-feeders are also able to use their own hammermill and grinder or acquire such equipment at less cost per head of capac- ity than are larger feedlot owners with the more sophisticated milling equipment. Investment in milling equipment on a per-head- of-capacity basis generally increased as feedlots in- creased in size. The larger, highly commercialized feedlots generally used more refined and more precise milling equipment which was relatively more ex- pensive than that employed by the smaller feedlots. These larger feedlots, however, offset such higher investment costs by using existing facilities at higher levels of intensity than did the smaller feedlots. Investments in feed storage facilities and equipment, feed distribution equipment and transportation equip- ment were generally lower in the larger feedlots on a per-head-of-capacity basis. The smaller feedlots often produce much of their own feed which is stored for feeding at a later date. Consequently, feedlots with 2,000-head-or-less capacity often exhibited rela- tively higherinvestments in feed storage facilities than did lots with more than 2,000-head capacity. In con- trast, many of the feedlots with 5,000-head-and-over capacity maintained grain storage facilities necessary for holding feed supplies for approximately 2 weeks or less for feeding at full capacity. Although many of the farmer-feeders did not maintain an office or own scales, such equipment was considered essential by the larger feedlots. The level of capital investments v ' among feeding areas in the Southern Plai size of feedlot, Appendix A, Tables 1 and capital investments among feeding areas in '_ ranged from $26 to $44 per head of H from $28 to $40 per head of capacity in ail. lots in Northern Oklahoma and the Plateau of Texas, which exhibited lower fixed 1»- of capacity, were relatively small and gen‘ than in most other areas of the South Highest levels of investments occurred in I; Gulf Coast-Rio Grande Plains and in the 1:; Central Oklahoma feeding areas. Both of i are subject to higher levels of rainfall A feeding areas and generally incurred relati levels of investments in feed storage facilitij ANNUAL FIXED COSTS Annual fixed costs in this study inclu tion, interest, taxes, insurance, repairs and’ The most important items of fixed costs w, ation costs and fixed labor which account 60 percent of the total fixed costs, Table on fixed investment and repairs, which 1- percent of the fixed costs, ranked second ance. Taxes and insurance accounted for ing annual fixed costs. It should be n costs in this study which are quoted on i‘ pound of gain are net market weights wise indicated? ‘Net market weight assumes a 4-percent shrink ail Table 6, Armual fixed costs per pound of gain, by size of feedlot, Texas and Oklahoma, 1966-67 " : Less than : 1,000 to : 2,000 to : 5,000 to :10,000 head: State and item :1,000 head :1,999 head :4,999 head $9,999 head : and over : Total : capacity : capacity : capacity : capacity : capacity 2 - - - - - - - - - - - - - - - Dollars - - - — - - - - - - - - - - - - - - -- tionoeoeoooc000000000000; a IOIOOIOOOIOOIIIOIOOIIOOO‘ ITIIIUOOOIOIOOIIIIOIIIOODill: OOOIOOOOOOIIOIOIIOOOIOO: , IIIQIQIOIIOOIIIIOIIOIIOQI: AIOOOIIOIIOIOOIIIO000000000: vIIOOIIOIIQOIOIOOOIOOOOOOO: tionooaceeooouo000000000: - IOIIIIIOIIIOIOIOIIOOIIOI: _IIUIQIIOIOIOIOOIOIOOOIIOO: _ OIIOOIOOOIIOOOOIOOOIUOO: '_\.........................: .0029 .0018 .0031 .0028 .0026 .0027 TIIIIIIOIIIOIOQIIOOOIOIIOOI: I‘ 0000006000000000000000000? the depreciable major items of equipment 5- an expected life and salvage value (per- loriginal cost) and amortized over this use- own in Appendix B. Depreciation costs m .3 cent per pound of gain for feedlots head-and-over capacity to more than I cent 30f gain for farmer-feeders, Table 6. Much depreciation costs per pound of gain for . §feedlots is the result of higher levels of ation rates compared to those of the fl- lots. The major items of depreciation accounted for more than 70 percent of ipreciation costs, were milling equipment, fwuipment, and feed distribution equipment, A, Tables 3 and 4. Depreciation costs also "derably among feeding areas, Appendix A, if"? d 6. Depreciation costs, per pound of nerally lowest in those areas where large, _ feedlots predominate. increasingly larger feedlot operations in Plains, it was assumed in this study that “rtions of the available labor force become ff feedlots increase in size. That is, a certain 10f the labor force is essential for adminis- gses regardless of the number of cattle feed. Labor was, therefore, classified as iable, by size of feedlot, as indicated in 5B. The labor force in Southern Plains i luded some or all of the following per- rator or manager, yard foreman, assistant n, mill foreman, mill men, feeders, cow- 6' manager, secretary or clerk and miscel- in Ailabor costs, per pound of gain, were lowest =hern Plains for feedlots with l0,000-head- pacity, Table 6. They were highest for feedlots with less than 1,000-head capacity and gen- erally declined as feedlots increased in size. When fixed costs were based on per head of capacity, labor costs were highest for feedlots in the 2,000- 4,999-size group, Table 7. Differences in fixed labor costs among feedlots can be partially offset with higher degrees of feedlot utilization rates. Annual interest on capital investment on a per- head-of-capacity basis was generally as high or higher for feedlots with 10,000-head-or-more capacity as for any other size group, Table 7.6 However, when in- terest on fixed investments is analyzed on the basis of pound of gain, feedlots with l0,000-head-and-over capacity, as well as those with more than 5,000-head feeding capacity, exhibited lower interest costs than did other size groups, Table 6. These lower costs by the larger feedlots, again, were partially due to higher feedlot utilization rates. Annual interest costs for major items of equipment are indicated in Appendix A, Tables 7 and 8. Annual repair and maintenance costs, which were estimated by feedlot operators, contain some elements of variable costs since most respondents were generally unable to allocate repair costs between fixed or vari- able costs. Feedlots with 10,000-head-and-over capacity were generally faced with higher repair costs than other size groups when analyzed on the basis of per head of capacity, Table 7. Although repair costs and intensity of feedlot use are highly correlated, differ- ences in repair costs among size groups appear to be “Annual interest cost on fixed investment was computed, by major items of equipment, as follows: (Original Cost + Salvage Value) (.06) Long Term Interest = 2 where .06 : the long term interest rate. Interest cost on land was defined as original land cost >< .06. Table 7.‘ Annual fixed costs per head of capacity, by size of feedlot, Texas and Oklahoma, : Less than : 1,000 to : State and item :1,000 head :1,999 head :lt,999 head :9,999 head : and over : capacity : capacity : 2,000 to = 5,000 to 10,000 head: ; : Total; capacity : capacity capacity - - — - — - - - - - - - - - - - --Dollars---- -—--------, Texas: : _ Depreciation....................: 3.0003 3.5663 3.1873 2.1609 2.1861 2.3"~: Interest........................: 1.5863 1.8071 1.7027 1.1709 1.1894: 1.2 .3684 .4228 .4005 .2690 .2795 . Insurance.......................: .3545 .3807 .3048 .1951 .2130 . Repairs.........................: .9291 .6883 1.2658 1.4001 1.1988 1. Labor...........................: 3.7610 2.2527 4.0398 2.9292 1.9340 2. T°tal-------------------------= 9.9996 9.1179 10.9009 8.1252 7.0008 7. Oklahoma: : j Depreciation....................: 2.3597 2.7582 2.7759 2.2172 2.8440 2.67-5 Interest........................: 1.2587 1.5776 1.2776 1.0231 1.3365 1.27“ .3237 .4266 .3598 .2902 .3789 .31 Insurance.......................: .2550 .2932 .3130 .1893 .2956 i, Repairs........................;: .6169 .5485 1.6022 1.6946 1.8025 1. '7 Labor...........................: 2.53j_5 2.1107 4.2098 3.1938 2.0444 2. 'l Total".......................§ 73465 737143 195383 81,082 337019 8. associated to a smaller extent with the degree of feed- lot utilization rates than were most other fixed-costs items, Table 6. The practice of replacing with rapidly changing technological innovations the feeding and milling equipment impaired by obsolescence and exposure to elements may be as important as degree of feedlot utilization with respect to repair costs. Taxes on total fixed investments generally vary by state and among regions within a state? Taxes on fixed investments accounted for about 4 percent of the total annual fixed costs in the Southern Plains during 1966-67. Taxes were considerably lower for feedlots with 5,000-head-and-over capacity than for smaller feedlots when analyzed on the basis of pounds of gain, Table 6. Taxes by size of feedlot, however, vary to a smaller degree when analyzed on the basis of capacity, Table 7. Although much of the equipment in numerous feedlots was not insured, the owner assumes an im- plicit risk associated with owning and operating various items of equipmentfi Insurance costs on fixed investments averaged about 25 cents per head of capacity within the Southern Plains, Table 7. In terms of total fixed costs, insurance costs are relatively minor since they account for about 3 percent of the annual fixed costs. Insurancecosts averaged about .04 cent per pound of gain in Texas and Oklahoma during 1966-67. Since the feedlot utilization rates were ‘Annual taxes on fixed investments were computed at the rate of .85 percent for the total feedlot fixed assets in Texas and 1.0 percent in Oklahoma. “On the basis of informtion from insurance agents, Texas feed- lots were assessed an insurance charge equal to l.l5 percent of the total value of milling equipment, feed storage facilities and equipment, feed distribution equipment, manure equip- ment, transportation equipment, office and office equipment and scales. Oklahoma feedlots were assessed an insurance charge of 1.30 percent for these same items. l0 approximately three times higher in the l than in the small lots, insurance costs gain were also about three times higher 1;’ feedlots. Y VARIABLE COSTS Variable costs are those which vary or the volume of cattle placed on feed. h items of variable costs for Southern Plains ' feed, interest on feeder cattle, labor, de_ veterinarian costs. Fuel, power and c0 expenses accounted for smaller proporti total variable costs. Total variable costs in Oklahoma we __ feedlots with 5,000-head-and-over capacit Although total variable costs did not diff‘ among size groups in Texas during w, with 10,000-head-and-over capacity exhii variable feeding costs than did other Table 9. Feed costs per pound of gain, whic for more than 80 percent of the total varia costs, varied by size of feedlot, Tables 8 by feeding area, Appendix A, Tables 9 anp ever, the relative importance of feed as a vii, item is affected by the annual price level feed ingredients. Feed costs per pound also affected by such factors as location, t ' placed on feed and feeding practices em“ example, Texas feedlots generally placed c at lower weights than did feeders in Okla practice generally contributed to slightly '7. costs in Texas feedlots. Numerous feed] stated that placements at lighter weights V, in higher feed conversion rates as a result i growth as well as weight gains through process. Feed conversion rates, by size of i, type of feed, are shown in Table l0. y ifudes assessments for Social tle and labor . ;;ous expenditures. p. Table 9 . Table 8. Variable costs per pound of gain, by size of feedlot, Oklahoma, 1966-67 : Less than : 1,000 to 2,000 to : 5,000 to :10,000 head : Item :1,000 head :1,999 head :4,999 head :9,999 head : and over : Total : capacity : capacity : capacity capacity : capgcity : : - - - - - - - - - - - - - - - -Dollars - — — - - - - - - — - - - - - - - '7',’IIIOOIIICIOOIOOOIIIIIIIIIOOI: l10000000000000000000000000no: ‘IQIQOIIIOIIOOOOIIIOIIIIOOOOI; ‘ficattl-BIOIIOOOIIOIOIOIOIIIO II: TOO-Oooololooccloono0000000000: f ...........................: .0003 .0003 .0003 .0002 .0002 .0002 BOOOIIIOIIOOOOOOOIIOOIIIQOIQ: inn o c o n o o o a o: t‘ IIOOOOOOUOOOIIOO0000000000z _KtyCICOOUDIOIIIOOOOOOOOOOOOIO: j and communications.........: .0006 .0005 .0013 .0007 .0003 .0005 YCOIOOIOIIIOIOIIOIIOIIOOIIIOO: ‘gooooooooaooooo00000000000000: Security and Workman's Compensation. idaily volume of feed consumed in Southern lots, on a dry weight basis, averaged more ‘funds per head during 1966-67, Tables ll, . Grain sorghum was the predominant type concentrate fed. Daily feed consumption generally highest for those feedlots feeding flrest charges for operating capital for five months. This does not include interest charges for iéudes charges for office supplies, consultant fees, liability insurance, taxes on cattle and the highest proportion of roughage items. Daily feeding rates are also affected by the size of feeder cattle. For example, placements in the Texas Gulf Coast and Rio Grande Plains feedlots averaged under 400 pounds during 1966-67. The daily feed consump- tion in these areas averaged less than 18 pounds per Variable costs per pound of gain, by size of feedlot, Texas 1966-67 Item e and labor. - a expenditures. ‘QQVIIOIOOIIIOIIOOOOOOOOIOOOIOOOOOI: ‘iiiiéiiiiiiii:IIIIIIIIIIIIIIIM' lfltillééiééiiéfiiiiii:IIIIIIIII; gvy....‘......'................‘.': COmIInIlniC8.tiOI1S..-.."n"...2 : Less than : . :1,000 head :1,999 head :4,999 head :9,999 head : and over : capacity 1,000 to 2,000 to 5,000 to =10,000 head Total capacity : capacity : capacity : capacity : : - - - - - - - - - - - - - - - - Dollars - - - - - - — - - - - - - - - - .1689 .1755 .1791 .1818 .1764 .1775 .0149 .0130 .0096 .0084 .0074 .0080 .0050 .0051 .0053 .0053 .0052 .0052 ...: .0114 .0109 .0119 .0119 .0121 .0120 .0004 .0004 .0003 .0003 .0002 .0002 .0003 .0005 .0003 .0003 .0002 .0002 .0059 .0063 .0068 .0051 .0049 .0052 .0044 .0035 .0057 .0044 .0044 .0046 .0022 .0017 .0015 .0015 .0009 .0011 .0014 .0012 .0014 .0010 .0009 .0010 .0009 .0004 .0007 .0004 .0003 .0004 .0004 .0003 .0017 .0014 .0008 .0010 .2161 .2188 .2243 .2218 .2137 .2164 itest charges for operating capital for five months. This does not include interest l -es assessments for Social Security and Workman's Compensation. charges for 4 -ea charges for office supplies, consultant fees, liability insurance, taxes on cattle and ll Table 10'. Volume of feed per pound of gain, by type of feed and size of feedlot, Texas and Oklahoma feedlots, 1966-67 y Less than capacity : 2,000 to : 5,000 to :10,000 head State and type of feed :1,000 head :1,999 head 84,999 head :9,999 head = and Over : : capacity : capacity : capacity 1,000 to capacity Tot‘ : - - - - - - - - - - - - - - - - Pounds - - - — — - - - - — - - - - - - Texas: : , 1 Concentrates: : ‘ " F Grain sorghum..............: 5.62 5.91 5.89 6.01 5.30 5.50., Barley& corn..............: .29 .08 .08 .07 a .14 , Pr6—IIlIl.X....................2 039 n59 '59 I46 .46 Molasses...................: .08 g/ .17 .23 .32 FatIIOOQIOOIQOOIIIIOIUOOOII: y 3/ Q05 I10 O19 Other concentrates.........: .26 .19 .14 .23 .14 -. Tota1....................: (L64 6,77 5,92 7,10 6,55 Roughage: : T‘. Silage§/..................: .95 1.03 .46 .48 .31. Cottonseed hulls...........: .20 .34 .50 .35 .59 Other roughage ............ .69 .20 .53 .73 .87 . Total....................: 1,34 1,57 1,49 1,55 1,30 1,7 Totaloloncuoooocuccoooon Oklahoma: : _ Concentrates : : - Grain sorghum..............: 5.01 3.28 6.39 4.85 6.11 5-7 Barley& corn..............: 1.18 2.66 1.24 1.41 .02 .73 .73 .61 .50 .54 Molasses...................: .03 .19 .13 .24 .50 FatflOOIOOIOOIOOIIIOOIIIIOOO: g/ O05 I04 I05 Other concentrates.........: .03 .04 .13 .10 .08 t TO'b&l....................2 70 > Roughage: : Silagey..................: .40 .82 .22 .58 .93 Cottonseed hulls...........: .13 .64 .39 .32 .17 Other roughage .95 1.33 .63 1.02 .44 J . Total....................: 1,43 2,79 1,24 1,92 1,54 1,_ TOtalIOOOCIOIOIOOOIOQOOQ y Assuming net market weights for fed cattle. g/ Less than .005 pounds. j/ None reported by respondents interviewed. head or more than 3 pounds under the average con- sumption rates in Texas, Table 12. Total short-term interest costs made up from 8 to 9 percent of the total variable feeding costs in Southern Plains feedlots. Interest on feeder cattle alone accounted for about 70 percent of the total short-term interest costs or about 6 percent of the total variable costs.” Interest on feed accounted for most ' of the remaining short-term interest cost.1° Interest ‘Interest charges on feeder cattle = (Feeder Cattle Cost) (.4l6667) (.07) where: 416667 represents interest charges for a 5-m0nth period and .07 represents the short-tenn interest charge. Feeder cattle costs were computed as (l) Average Price Per Pound : [($.2640) (Percent Steers)+($.2343) (Percent Heifers)] (2) Price Per Head : (Average Price Per Pound) (Average Placement Weight) (3) Feeder Cattle Cost = (Average Price Per Head) (Numbers Placed on Feed) "Short-term interest charges for feed, labor or operating capital for other variable cost items -_—. (Total Cost) (#116667) (.07). 12 g/Silage and green chop weights were adjusted to dry weight basis by dividing by 3. on operating capital for labor and other va i‘ items was relatively minor. Labor, which was the third most im able cost item, represented about 4 percent variable feeding costs. Variable labor costs Texas and Oklahoma were generally lowest '1 lots with 5,000-head-and-over capacity. r; co¢ts in the larger lots are partially attrib higher degrees of labor specialization and sive use of mechanized equipment. Small _. generally use less specialized power equip do large feedlots, and individual assignments“ lots often include a variety of jobs in cont =9 more specialized labor structure in the Death losses, which averaged about 1.1 in Texas and Oklahoma, accounted for and one-half percent of the total variable ~< losses generally vary among feedlots depen v size of feedlot, location, weather conditions? of feeder animal placed on feed. Many feed A tors stated that inclement and especially rain 11. Volume of feed per head per day, by type of feed and size of feedlot, Texas and Oklahoma feedlots, 1966-67 : Less than : 1,000 to = 2,000 to = 5,000 to =10,000 head: , t, and type of feed =1,000 head =1,999 head =z,,999 head =9,999 head = and over = Total : capacity : capacity : capacity : capacity : capacity - — - - - - - - — - - - - - - --Pounds - - - - - - - - - - - - - - -- itee: Arwrghumoeonolcluccecle000000: &cornoenoeeooeoeoooeoooeeo: 07 e2 e2 e2 .4 .3 M’ lbteeeneoooeoeoouoeoeooeouez 1.0 1.4 1.; 1.2 1.2 _500000000000000000000000000: 02 .4 . .8 .7 0000000000000000000000000000: g/ g/ .1 .2 .5 .4 ;iconcentrates................: .6 .5 .3 ,6 ,4 ,4 “ lelooeueceeuleoneoe00000000: 1 _>yiceeelcinoeeololeeooooone: 204- 205 101 102 g9 1.0 i: hullsoooueeeeooonoonnoo: n5 g8 1.2 .8 1.5 1.3 youghage 1.7 .5 1,2 1,8 2,2 3,9 Oleleeleouoeone000000000000z 4g6 3g8 3.5 3.8 4.6 4'3 g aloueoeoeeoaoooooooeeaeeeeo:i_21.1 — plates: d: sorghumeneoooeoeuo0000000000: &com.....l....l..........: 2.9 6.3 2Q8 3I7 .1 1.5 ‘ leeecoeeceeooouo00000000000: 108 1.7 1,4 1.3 1.3 1.3 rQoeeoeooooooeeeo00000000000: 01 n5 o3 o6 102 .9 fllllenlooeee0000000000000000000: g/ e1 e1 01 e1 g1 ’ concentrates................: .1 .1 .3 .3 .2 .2 .' 900000000000000000000000000: .y.I....l..l...............: 1.0 1.9 .5 1. ‘ I if" hullsoeeeeooeeoeeeoeoec: 03 105 e9 0g 202 yeoeoeeeeeeuoeoeeo: 203 3.1 1.5 2.7 1.1 1.5 tgolleeeeooeeuoeooeeeoaoueoo: 3.6 6.5 2.9 5'1 i 3.7 3.9-i- aleoeeaooeooooeueeoeeoooeoe: '- i than .05 peuhd. ' "1 reported by feedlots interviewed. .t_ tend to increase death losses. In the South- 20 death losses were generally lower in feedlots J head-and-over capacity compared to feed- jss than 5,000-head capacity. Several factors “a tribute to this pattern. The large feedlots _~ primarily in the Texas and Oklahoma areas where climatic conditons are con- latively favorable for cattle feeding. Also, E ots often retain personnel such as trained s or practical veterinarians who are cap- - iding immediate medication and other aid. In addition, feedlots with l0,000-head- pacity generally placed cattle on feed at ’;heavier weights than did smaller feedlots. R- more mature feeder cattle are often less to disease and sickness than are lighter er cattle. ' " arian and medication costs represented ~35» rcent of the total variable costs during i. lt is interesting to note that veterinarian expenses were not necessarily higher size groups which also had relatively higher = and green chop weights were adjusted to a dry weight basis by dividing by 3. Gas and oil, as well as electricity, accounted for less than l percent of the total variable feeding costs in the Southern Plains. Gas and oil expenditures were relatively lower for the large feedlots in both Texas and Oklahoma during 1966-67. Other items of variable costs included telephone and communica- tions as well as office supplies, consultant fees and other miscellaneous expenditures. TOTAL FEEDING COST Variable costs— those costs directly affected by daily management decisions and volume- accounted for 95 percent of the total feeding costs in the Southern Plains during 1966-67, Table l4. The proportion of total costs accounted for by variable costs in Texas ranged from 96 percent for feedlots with l0,000-head- and-over capacity to 89 percent for feedlots with less than 1,000-head capacity. In Oklahoma, the propor- tion of total costs represented by variable costs ranged from 95 percent for the larger feedlots to 87 percent for the farmer-feeder operations. The proportion of total feeding costs represented by variable costs also varied by feeding areas, Appendix A, Tables ll and l3 Table 12. Volume of feed per head per day, by type of feed, and feeding area, Texas feedlots, 1966-67 2 Feeding area Type of feed : : : : : Gulf Coast : § : Panhandle- : Plateau- : East : and Rio : To j : Plains : Pecos : Texas : Grande Plains . “ 2 - - - - - - - - - - - - - - - -Pounds - - - - - - 4 2 - - - - - - €€ Concentrates: 2 Grain sorghum..............: 14.6 11.5 12.3 12.2 13. Barley and corn............: .2 1.0 1.0 1/ 1 Pre-mixaooooooooloooooooooo: 102 ‘o9 o9 105 1| Mola-ssesOOlOlOllOOOOOOOOOOI: O7 102 O7 .4 ‘I FatOOOOOIOOOIOOOOOOOOOOOOOOg O4 O3 O5 O2 _ Other concentrates.........: .4 .7 .5 .3 _ Total....................: 17_5 15_6 15_9 14_6 16; Roughage: ; 1 JOOOOOOOOOOOOOOOOOO: O9 103 O4 106 1' hullsoocollooooo: 106 104 102 05 1| Other roughage _/..........: 2.2 1.8 2.5 1.0 2Q Totalaooooooooooooooooooo: 4.7 4'5 3.1 Tota-lOOOOOOOOOOOOOOOOOO: 1/ Less than .05 pound. 2/ Silage and green chop weights were adjusted to a dry weight basis by dividing by 3. Table 13. Volume of feed per head per day, by type of feed and feeding area, 0klah0ma,1‘§ ; Feeding area Type of feed 2 - :Southeastern : : . : Panhandle : Northern : and Central :Southwestern : Tot-Q : : Oklahoma : Oklahoga : Oklahqgg : V“ § - - - - - - - - - - - - - - - - - - Pounds - - - - - - - - - - - Concentrates: 2 »§ Sorghmouoololooloolo00000: cornooooolnlonoocoooooo: o4 903 102 20o 1d Pre_mixooounuo000000000000Iooool: 104 2.0 o6 106 10" MOIaSSSSOOIIIIOOOOIOIIOIOI000000: 1.3 .1 .8 .1 ‘a Fat....u.......................2 o1 l/ a2 o3 Other concentrates..............: .1 .1 .9 .2 .Q TOtBl...-.........-....-..}...f Roughage: : 1 .....“.............I..: 2.7 1.5 .6 .2 COttOnS66d-hulls......¢..-......2 a2 106 104 n7 f‘ Other roughage 2/...............: 1.4 2.8 2.0 _ 1.2 1._ T0;8.:;i....u.....-...........2 4.3 5.9 4'0 2.1 O ooooooooooocooooooocaoo: 24.0 : 20.7 21 .0 21'.‘ 1/ Less than .05 pound. 2/ Silage and green chop weights were adjusted to a dry weight basis by dividing by 3. 14 : fetal finding costs per pound of gain, by type 0f cost and size oi’ feedlot, Texas and Oklahoma, 1 7 llnl than : 1,000 to : 2,000 to z 5,000 to :10,000 head: " 11,000 head :1,999 head :L,999 head =9,999 head : and over = Total x capacity : capacity : capacity : capacity z capacity : g - - - - - - - - - - - - - Dollgg - - - - - - - - — - - - - - - - - - - .0269 .0198 .0194 .0136 .0098 .0118 JM1 .mw 2&3 .nm .mw .mM .2430 .2386 .2437 .2354 .2235 .2282 .0347 .0251 .0204 .0141 .0128 .0147 2421 2592 2485 .2277 2295 2328 .2768 .2843 .2689 .2418 .2423 .2475 feedlots generally exhibited higher pro- fixed costs than did the larger feedlots gwer feedlot utilization rates. ing costs were slightly higher and more feedlots during 1966-67 in Oklahoma erally true for Texas feedlots. Feedlots generally placed a heavier type of feeder p. w than did Texas feedlots. Heavier i’ s often represent higher investment costs, it costs, lower feed conversion rates and consumption rates. However, heavier 1 cattle often finish out at relatively higher iten also command a higher price in the Q do lighter weight feeder cattle. ‘A costs, as shown in Table l4, are gen- than those acknowledged by many of interviewed- primarily the smaller feed- ller feedlots, especially farmer-feeders, assessing charges for such items as de- gtcrest on fixed investments and variable g9 urance and labor costs. Such cost items, source, represent inputs to the feeding contribute to total feeding costs. In ‘i ssments for such items as interest on {and death losses were generally not borne "j,- feeder. Hence, charges for such items f1 ed in feeding costs assessed by the custom s Panhandle-Plains area and the Okla- ndle are the two most important custom _ within the Southern Plains. Elimination ts for interest on feeder cattle and death Ttxample, decreased feeding costs to the ' tor in the Texas Panhandle-Plains area "per pound of gain, as compared to $00174 m operator in the Oklahoma Panhandle f 7, Table l5. BREAKEVEN ANALYSIS gen and feedlot operators often express iut breakeven prices and especially nega- Elle price margins. Various authorities in industry and especially in the feeding i; l“ Table 15. Feeding costs, per pound of gain, of custom feedlot operators in selected feeding areas, Texas and Oklahoma, 1966-67 1/ Texas : Oklahoma Item : . : Panhandle-Plains: Panhandle Dollar. Total variable cost . . . . . . . . . . . . . .2 .2167 .2227 Less: I Interest on feeder cattle..: .0120 .0125 Death loss . . . . . . . . . . . . . . . . .: .0049 ,0049 Total non-custom . . . . . . . . .: .0169 .0174 Adjusted variable cost . . . . . . . . . ..; .1998 .2053 i Total fixed cost . . . . . . . . . . . . . . . ..: .0105 .0130 Total custom feeding cost........; .2103 _.2183 1/ See Appendix A, Tables 9, 10, 11 and 12. Custom feeding costs in the above table do not reflect a mark-up for profit. industry often lament the economic plight of cattle feeding when negative price margins prevail. How- ever, profit margins can be and often are favorable when fat cattle prices are below feeder cattle prices, depending upon feeding costs per pound of gain. Tables 16, l7 and 18 show breakeven prices at various combinations of feeder cattle prices and feed- ing costs per pound of gain for a 500-pound feeder animal under assumptions of a 250, 300 and 350-pound net gain, respectively." The data in Table 16 indicate that it is profitable to feed a BOO-pound feeder animal costing $28 per hundredweight and selling for $26 per hundredweight when feeding costs do not exceed 22 cents per pound of gain. On the other hand, if this same feeder animal had cost $30 per hundredweight and total feeding costs for a 250-pound net gain were 22 cents per pound, then the breakeven price would be $27 .33. The data in Table 16 also show that the breakeven price increase-s about 33 cents per hundred- weight for each l-cent increase in total feeding cost for a BOO-pound feeder animal with a 250-pound net gain. In contrast, the breakeven price for a 500-pound feeder animal with a 350-pound net gain increases 41 cents per hundredweight for each l-cent increase in total feeding costs, Table 18. These tables also show that increased net pounds of gain at the same feeding costs result in lower break- even prices provided costs per pound of gain do not exceed the purchase price of the feeder animal. For example, assume a 500-pound feeder animal was laid- in at the feedlot at $28 per hundredweight. According to Tables 16 and l7, the breakeven price for this animal would have been 25 cents per hundredweight lower for a 300-pound net gain than for a 250-pound net gain, assuming a total feeding cost of 22 cents per pound of gain. A 350-pound net gain for this same animal would have resulted in a breakeven price (Purchase Price) (Weight of Feeder Animal) + (Net Pounds of Gain) (Feeding Cost/Pound) Net Sale Weight bles were also developed for 400, 600, 700 and 800-pound feeder animals. 15 .uoAw00u ozu an umou zflulvwna: HO 10u0>nAOG H\M nUHMW UN Jdwufim UQUUHUH Q N QUgQOU QHQU UUZ H@.@~ mm.wm co.om H@.mm mm.mm oo.mm H@.¢@ nm.¢~ oo.¢m H@.@@ mm.mm oo.mm ~@.~m mm.~m oo.~m H@.Hn H..............oo.¢< oo.@m H@.mm mm.mm oo.mm H@.¢m mm.¢n oo.@.m~ mm.@~ oo.m~ H@.@~ mm.@~ oo.w~ ~w.»~ H..............o¢.¢~ oo.~m ~@.Hm @~.Hm co.Hm H@.¢m mm.om oo.om H¢.¢~ m@.@~ oo.m~ H@.w~ m~.w~ oo.w~ ~o.- -.H~ ¢o.H~ H..............¢¢.~m @m.H~ o¢.Hm H@.¢~ mm.om oo.om H@.@~ m~.@~ oo.m~ ~@.w~ mm.w~ oo.w~ ~w.- ~m.H~ oo.- H@.@~ -.@~ H..............o¢.~m H@.¢~ mm.om oo.om H@.¢~ m~.@~ oo.m~ ~@.w~ mm.w~ oo.w~ ~o.- m@.H~ ¢¢.H~ ~@.o~ mm.@~ oo.w~ H@.m~ H..............o¢.H@ oo.om H@.@~ mm.¢~ oo.m~ H@.@~ mm.w~ oo.m~ ~o.- @n.- ¢¢.H~ ~o.@~ mm.@~ oo.@~ >@.m~ 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umou mauumu H umwomw Hmuoa Amucmuv cwmm mo venom awn umoo wcwwuow Hmuoe H \m.=H~w mo vcsoa uwa mumou wcawmmm was mooflum mfiuumu uoumuu wouumfiuw um cwmw um: wcnom onu m saw; amawam uwummw ucsoa com m wow moowna nm>oxmmun mo wflswonuw .oH manna l6 .uoHwmmw unu um umou ::H|wwmH= no UUHO>HHOQ \m. .mHmm um xuwunm ucmuumm Q m mussmwm cwmw umz \fl mN.@m ww.mm om.mm mH.mm m~..mm wm.mm oo.mm ~@.- m~.~m @@.H~ om.Hm @~.Hm m~.om wm.om oo.om @@.@~ m~.m~ ww.w~ om.w~ @H.w~ "...........oo.@n mH.nm m~.~m wm.~m ¢¢.- m@.- m~.Hm mw.om om.om mH.om m~.¢~ @@.@~ oo.m~ m@.w~ m~.@~ ww.- ¢@.- “...........¢¢.m@ om.~m mH.~m m~.Hm @m.H~ oo.Hm mo.om m~.om ww.@~ om.m~ mH.m~ m~.w~ wm.@~ oo.w~ @@.- m~.- w@.@~ "...........¢¢.¢m wm.Hm om.Hm mH.~m m~.on wm.om oo.om m@.¢~ m~.mN ww.w~ om.w~ @H.w~ m~.- w@.- oo.~N ~@.@~ m~.@~ "...........o¢.~m m~.Hm ww.om om.om m~.om m~.@~ wm.¢~ co.m~ @@.w~L m~.w~ @w.- om.- mH.- mN.@~ w~.@~ oo.o~ m@.m~ "...........oo.- mo.om m~.om ww.¢~ om.m~ mH.@~ m~.w~ wm.w~ oo.w~ m@.- m~.- w@.@~ om.o~ mH.@~ m~.m~ @m.m~ oo.m~ "...........¢¢.H@ oo.om m@.@~ m~.m~ ww.m~ om.w~ mH.w~ m~.- wm.- oo.~N m@.@~ m~.@~ w@.m~ om.m~ @H.m~ m~.<~ @~.¢~ “...........o¢.o@ wm.@~ oo.m~ m@.@~ m~.w~ w@.- ¢m.- mH.- m~.@~ @@.@~ oo.o~ @@.m~ m~.m~ w@.¢~ ¢m.¢~ m~.¢~ m~.- "...........¢¢.¢~ m~.w~ wm.@~ oo.w~ m@.- m~.- w@.@~ om.o~ nH.@~ m~.m~ wm.m~ oo.m~ ~@.¢~ mN.<~ ww.- om.m~ m~.m~ "...........Q¢.@~ @H.w~ m~.- w@.- oo.- m@.@~ m~.@~ ww.m~ om.m~ mH.m~ m~.¢~ w@.¢~ oo.¢~ m@.m~ m~.m~ @@.- ¢m.- "...........¢¢.>~ Qm.- mH.- m~.@~ @~.@~ oo.@~ m@.m~ m~.m~ @w.¢~ om.¢~ mH.¢~ m~.m~ wm.m~ oo.m~ ~@.- m~.- @@.H~ "...........¢o.@~ @w.@~ om.o~ mH.@~ m~.m~ mm.m~ oo.m~ m@.<~ m~.¢~ w@.@~ om.m~ @H.- m>.- w~.- oo.- @@.H~ m~.H~ "...........o¢.m~ mN.@~ ww.mN om.m~ mH.m~ m~.¢~ wm.<~ oo.¢~ m@.@~ m~.m~ ww.- om.- mH.- m~.H~ wm.H~ oo.H~ m@.o~ "...........o°.¢~ ~@.m~ m~.m~ @w.<~ ¢n.¢~ mH.¢~ m~.m~ wm.m~ oo.m~ @@.- m~.- w@.H~ om.H~ mH.HN m~.o~ wm.o~ oo.oN "...........o¢.m~ oo.m~ m@.¢~ m~.¢~ ww.m~ om.m~ mH.n~ m~.- wm.- oo.- m@.H~ m~.H~ ww.oN om.o~ mH.o~ m~.¢H @@.¢H "...........o¢.- wm.¢~ oo.¢~ m@.m~ m~.m~ @w.- ¢m.- mH.- m>.H~ wm.H~ oo.H~ mo.o~ m~.o~ mw.mH om.mH mH.mH m~.@H “...........oo.H~ m~.n~ wm.m~ oc.m~ @@.- m~.- @w.H~ om.H~ mH.HN m~.¢~ wm.o~ oo.o~ m@.@H m~.@H ww.wH om.wH mH.w~ “...........oQ.Q~ mH.m~ m~.- @~.- oo.- ~@.H~ mN.H~ ww.o~ om.o~ mH.o~ m~.¢H @m.@H oo.mH m@.wH m~.wH w».~H om.~H ”...........o¢.¢H om.- mH.~N m~.H~ wm.- oo.HN ~@.o~ m~.o~ ww.¢H om.mH mH.mH m~.wH w~.@H oo.wH ~@.~H n~.- @m.@H "...........Q¢.@H @w.H~ om.H~ mH.H~ m~.o~ mm.o~ oo.o~ m@.@H m~.¢H @@.wH om.mH mH.w~ m~.~H @~.~H ¢o.~H m@.@H m~.@~ “...........o¢.~H mN.H~ wm.o~ om.o~ mH.¢~ m~.@H wm.mH oo.mH @@.wH m~.wH @w.~H ¢m.~H mH.~H m~.@H wm.@H ¢¢.@H @@.mH "...........¢o.@H mo.oN m~.o~ ww.mH om.mH mH.mH m~.wH w~.wH oo.wH m@.~H m~.~H @w.@H ¢m.@H mH.oH m~.mH @m.mH ¢¢.mH "...........Q¢.mH a H umwczo n oofi non muwaaon ||..||..||||||||||||||||||unfisfimumfiowv3H52J3ao>wxwwumu|nlulna|uu|l|..||||..||W 8 m 0N M 2 M R M 8 M 2 M 2 2 M Nu m S M 8 M 2 M 2 m S M S m 2 M N 38 338 ” wfimoummu Hmuoa Amucoov swam mo wcnoa mum uwoo mcwwmwm Hmuoa ",». \m.=H~w mo wcsom uwm mumoo wcwwoom wum mouwum mfiuumo uowumw wuuumaom um uflmw uuc wcnoa osm w suH3 Hmawcm uouuwm ucsoa com m now muuflua cw>uxmmun mo oaavmsum .>H manna 17 .uoHwoou usu um umoo :cw|vHwH: no @UHU>HHUD \@ .mHmm um xawunm ucuouom Q m moadmmm cwmw uoz \H <~.<.mm oo.mm m@.<~ ~w.mm H<.@m oo.mm @m.~m @H.~m @~.Hm mm.~m ¢m.om mm.om ~H.om H~.m~ ".........¢¢.¢< m~.mm w@.¢n ~<..w~ ¢~.w~ ww.- ~¢.- @¢.- m@.@~ ¢~.@~ ~@.m~ H¢.m~ oo.m~ ".... ...oo.~m mm.om wH.om @~.¢~ mm.¢~ ¢@.w~ mm.w~ ~H.w~ -.~N ¢~.- w@.@~ ~<.@~ @¢.@~ m@.m~ ¢~.m~ ~@.¢~ H¢.¢~ ".... ...¢¢.Hm oo.om ¢m.¢~ wH.m~ @~.w~ mm.w~ ¢@.- mm.- ~H.- H~.w~ m~.@~ ww.m~ ~¢.m~ oo.mN m@.<~ ¢~.¢~ ~@.m~ ".... ...oo.om H¢.m~ oo.m~ mm.w~ @H.w~ @~.- mm.- ¢@.@~ mm.@~ NH.m~ H~.m~ @~.m~ @w.¢~ ~¢.¢N @o.<~ mo.m~ <~.- ".... ...oo.m~ ~w.w~ H<.w~ oo.m~ ¢m.- wH.- @~.@~ mm.@~ ¢@.m~ mm.m~ ~H.m~ H~.¢~ ¢~.¢~ ww.m~ ~<.@~ @¢.m~ m@.- ".... ...oo.w~ ¢~.w~ Nw.- H¢.- oo.>~ @m.@~ wH.@~ @~.m~ mm.m~ <¢.¢~ mm.¢~ ~H.¢~ H~.mN ¢~.m~ @@.- ~¢.~N @¢.- “.........Qo.- m@.- ¢~.- ~w.@~ H¢.o~ oo.o~ @m.m~ wH.m~ @~.¢~ mm.¢~ <@.m~ mm.m~ NH.m~ H~.- @~.- @w.H~ >¢.H~ ".........oo.@~ @o.- m@.@~ ¢~.@~ ~w.m~ H<.m~ oo.mN ¢m.¢~ wH.¢~ @~.m~ mm.- ¢¢.- mm.- ~H.- H~.H~ m~.H~ ww.o~ ".... ...oo.m~ ~¢.@~ @Q.@~ m@.m~ ¢~.m~ ~w.<~ H<.<~ ¢¢.<~ ¢m.m~ @~.m~ @~.- mm.- ¢m.H~ mm.H~ ~H.H~ H~.o~ @~.Q~ ".........¢¢.¢~ w@.m~ ~<.m~ oo.m~ m@.¢~ ¢~.<~ ~w.m~ H¢.m~ oo.m~ ¢m.- mH.- o~.H~ mm.H~ ¢¢.¢~ mm.o~ NH.o~ H~.mH ".........¢Q.- @~.m~ @w.¢~ ~¢.¢~ @o.<~ m@.m~ ¢~.m~ ~@.- H¢.~N oo.N~ @m.H~ wH.HN @>.¢~ mm.o~ ¢¢.¢H mm.mH ~H.mH ".........oo.- H~.¢~ ¢~.¢~ @w.m~ ~¢.- oo.m~ m@.- ¢~.- ~w.H~ H¢.H~ oo.H~ mm.o~ wH.¢~ @~.¢H m@.¢H <¢.wH mm.wH “.........¢¢.H~ ~H.¢~ H~.m~ ¢~.m~ @w.- ~<.N~ @¢.- m@.H~ <~.H~ ~w.o~ H<.o~ oo.o~ ¢m.@~ wH.¢~ @~.wH mm.wH ¢m.>H ".........¢o.¢~ mm.m~ ~H.m~ ~>.- ¢~.- @w.H~ ~¢.H~ @¢.H~ mo.o~ ¢~.¢~ ~w.@H ~¢.mH oo.mH mm.@H wH.wH m~.~H m@.~H “.........oo.@~ <¢.- mm.- ~H.- H~.H~ m~.H~ ww.o~ ~<.¢~ oo.o~ m@.@H ¢~.mH ~w.wH H¢.wH oo.wH mm.- wH.~H @~.@H ".........¢¢.wH m~.- ¢m.H~ @m.H~ ~H.H~ H~.o~ m~.o~ ww.¢H ~<.mH @o.¢H m@.wH ¢~.wfi ~m.~H H<.~H oo.~H ¢m.@H @~.@H “.........¢¢.~H o~.H~ mm.H~ ¢@.o~ mm.o~ ~H.o~ H~.mH ¢~.¢H @w.wH ~¢.wH oo.wH m@.~H <~.~H ~@.@H H¢.oH oo.oH ¢m.mH ".........¢¢.@H mH.- @~.o~ mm.o~ ¢@.@H mm.¢H ~H.mH H~.wH ¢~.wH w@.~H ~¢.~a @o.~H m@.@H ¢~.oH ~w.nH H¢.mH oo.mH “.........¢¢.mH u umwssoa H ooa non mumafion ||||a|......||||||||||..| | | | | ||Qau>3mHHowvmufiawmfiwmam>wxwuumnuau | | | | ||||||||||||||L on n mm N mu n - u ow H mu u QN n mm " NN n Hm u ¢~ u ma H wfi H ~H u QH n ma H I n u H n H u u H H H u “ H 0 u “\~ uwou ofiuumu H umwmow Hmuoa Amucmuv cwmm we wanom won umou wcwvmuu Hmuoa H \m.=@~w mo wcnoa pom mumou mcwwwmw new mooflum mauumu uowuow wouumaom um cwmw nun wcaoa omm m nuwa Hmflwcm uwoumw wnsom oom m now mouwua ¢w>wxmmun we masumsum .wH wfinwa 18 I cents per hundredweight lower than a i‘ tgain, Tables l7 and 18. zcattle costs in Table 18 can also be used te the effect of area differences in feeder breakeven prices. For example, if laid- “ feeder animal in feeding area A is $24.00 eight compared to $27.00 for a similar __ a B, with total feeding cost equal to {pound of gain in both areas, the break- ‘1. area A is $23.18 compared to $24.94 in $3 differential, per hundredweight, in ’ costs results in a breakeven price differ- ~76 r hundredweight or a total feeding i al of $14.96 per head. OF GRAIN SORGHUM PRICE ANGES ON FEED COSTS in the feedlot industry, as in other ‘ dependent upon such things as up-to-the- ledge of the price of resource inputs and i such price changes on production costs. grain sorghum, one of the major feed the Southern Plains, may vary both ithin feeding areas. ct of grain sorghum price changes or 0n feed costs per pound of gain can be L» l9 and 20. For example, for each in the price per ton of grain sorghum, ase e0 cents per head [(1520 — .1500) feeder animal fed a daily ration of l2 in sorghum for 110 days when other e held constant at $0.0600 per pound of trast, feed costs rise about $1.08 per head ar increase per ton in the price of grain i an animal fed 16 pounds of grain sor- i- o! grain sorghum price changes or differentials on feed costs 110-day feeding period at selected rates of gain 1/ Marketable gain ( pounds) 2/ 22o Z 27s Z 330 Z 385 3 3 3 2--- ---- "Feed cost/ggund of gain §do1lars)-----—--—- S I 2 2 1500 .1320 .1200 1114 2 1530 .1344 .1220 1131 2 1560 .1368 .1240 1149 2 1590 .1392 .1260 1166 2 1620 .1416 .1280 1183 ..2 .1650 .1440 .1300 .1200 ...2 .1680 .1464 .1320 .1217 2 1710 .1488 .1340 1234 2 1740 .1512 .1360 1251 2 1770 .1536 .1380 1269 2 1800 1560 .1400 1286 2 1830 1534 .1420 1303 2 1860 1608 .1440 1320 2 1890 .1632 .1460 1337 2 1920 .1656 .1430 1354 1 1950 .1680 .1500 1371 »cuooe ii ibeding period of 110 days and a daily grain sorghum consumption 1 . Pied costs include a constant charge of 8 .0600 for other 3 2.0, 2.5, 3.0, and 3.5 marketable rate of gain per head per day Table 20. Effect of grain sorghum price changes or differentials on feed costs for a 135-day feeding period at selected rates of gain 1/ Marketable gain (pounds)g/ Grain sorghum price : : 270 : 337.5 : 405 472.5 : ---------- --Feed costlgound of gain jdol1ara[----------- Dollars per ton: 2 30.00 ........... .= .1900 .1660 .1500 .1386 31.00 . . . . . . . . . . . .. 1940 .1692 1527 1409 32 00 . . . . . . . . . . . .. .1724 1553 1431 33 00 . . . . . . . . . . . .. 2020 .1756 1580 1454 34 00 . . . . . . . . . . . .. 2060 .1788 1607 1477 35 00 . . . . . . . . . . . .. 2100 .1820 1633 1500 00 . . . . . . . . . . . .. 2140 .1852 1660 1523 37 00 . . . . . . . . . . . .. 2180 .1884 1687 1546 38 O0 . . . . . . . . . . . .. 2220 .1916 1713 1569 39 00 . . . . . . . . . . . .. 2260 .1948 1740 1591 40 00 . . . . . . . . . . . .. 2300 .1980 1767 1614 41 00 . . . . . . . . . . . .. 2340 .2012 1793 1637 42.00 . . . . . . . . . . . .. .2380 .2044 1820 .1660 43.00 . . . . . . . . . . . .: .2420 .2076 .1846 .1683 1.4.00 . . . . . . . . . . . .: .2460 .2108 .1873 ,17o6 45 00 . . . . . . . . . . . .. 2500 .2140 1900 .1729 1/ Assuming a feeding period of 135 days and a daily grain sorghum consumption Feed costs include a constant charge of 8.0700 for other feed rate of 16 pounds. ingredients. 2/ Assuming a 2.0, 2.5, 3.0, and 3.5 marketable rate of gain per head per day, respectively. ghum per day for 135 days when other feed costs are held constant at $0.0700 per pound of gain. The latter example demonstrates that when the price of grain sorghum declines from $38 to $34 per ton, as occurred in the Southern Plains between 1966-67 and 1968, feeding costs may decline as much as $4.35 per head when other feed costs are held constant. Tables 19 and 20 also demonstrate the effect of grain sorghum price differentials among various feed- ing areas. During 1966-67, grain sorghum prices were approximately $3 per ton higher in the Texas Gulf Coast-Rio Grande Plains feeding area than in the Texas Panhandle-Plains area. Given such a grain sorghum price differential and provided the same type of feeder cattle were placed on feed under similar feeding conditons in each area, feed costs would have been $1.98 per head higher in the Gulf Coast-Rio Grande Plains than in the Texas Panhandle-Plains area for a ll0-day feeding period, Table 19. Simi- larly, feed costs would have been $3.24 per head higher in the Gulf Coast-Rio Grande Plains area for a l35-day feeding period, Table 20. These data suggest that feeding areas as the Gulf Coast-Rio Grande Plains, which are faced with a competitive disadvantage with respect to grain sorghum prices, can more nearly compete by feeding light weight feeder cattle for rela- tively short feeding periods. EFFECT OF DAILY RATE OF GAIN ON FEED COSTS AND CUSTOM FEEDING CHARGES PER POUND OF GAIN Daily rates of gain are of prime importance when feed costs and total feeding costs are analyzed on a per-pound-of-gain basis. Fluctuations in daily rates of gain, therefore, have important implications for the feedlot operator and clients of the custom feeder. 19 Table 21. Effect of daily rate of gain on feed cost, per pound of marketable gain, for selected feeding periods 1/ Feeding period (days) 2/ Daily rate of gain . : : : : (pounds) = 100 = 11o = 120 = 130 = 11.0 :-------------------Feed costlpound of gain §dollars)--------- 2.0 . . . . . . . . .: .1733 " .1829 .1925 .2021 .2118 2.1 . . . . . . . ..: .1650 .1742 .1833 .1925 .2017 2.2 . . . . . . . . .: .1575 .1663 .1750 .1838 .1925 2.3 . . . . . . . . .: .1506 .1590 .1674 .1758 .1841 2.4 . . . . . . . . .: .1444 .1524 .1604 .1684 .1765 2.5 . . . . . . . . .: .1386 .1463 .1540 .1617 .1694 2.6 . . . . . . . . .: .1333 .1407 .1481 .1555 .1629 2.7 . . . . . . . . .: .1283 .1355 .1426 .1497 .1569 2.8 . . . . . . . . .: .1238 .1306 .1375 .1444 .1512 2.9 . . . . . . . . .: .1195 .1261 .1328 .1394 .1460 3.0 . . . . . . . . .: .1155 .1219 .1283 .1348 .1412 3.1 . . . . . . . ..: .1118 .1180 .1242 .1304 .1366 3.2 . . . . . . . . .: .1083 .1143 .1203 .1263 .1323 1/ Assuming feed costs of $38.50 per ton. g/ Assumes a daily feed consumption rate of 18, 19, 20, 21, and 22 pounds, respectively. Tables 21 and 22 show changes in feed cost per pound of gain as daily rates of gain increase for selected feeding periods with associated daily feed consumption rates." For example, if we assume a feeding period of 100 days, a daily feed consumption rate of 18 pounds per head and feed costs of $38.50 per ton, changes in daily rates of gain from 2.0 to 2.1 pounds result in decreased feeding costs equal to $0.008?» ($0.l733 — $01650) per pound of gain, Table 21. This decline in feeding cost is equivalent to $00174 per day ($00083 >< 2.1) or $1.74 per head , ($0.0l74 X 100). Similarly, if the daily rates of gain had increased from 3.1 to 3.2 pounds for a 100-day feed period, feed costs would have declined $1.12 per head. If the feeding period had been extended to 140 days with a daily feed consumption rate of 22 pounds per head and feed costs at $38.50 per ton, feed costs would have declined $2.97 per head with in- creases in daily rates of gain from 2.0 to 2.1 pounds. However, if the daily rate of gain for a 140-day feeding period had increased from 3.1 to 3.2 pounds, feed costs would have declined $1.93 per head. These results indicate that substantial savings in feed costs are possible as daily rates of gain increase one-tenth pound per head. In addition, differences in feed costs per pound of gain tend to increase as feeding periods are extended along with associated increases in daily feed consumption rates. Also, differences in feed cost per pound of gain, for similar feeding periods, tend to decrease as daily rates of gain increase in accordance with the assumptions made in Table 21. When feed costs are assumed to increase from $38.50 to $42.50. per ton, feeding costs increase $00179 per pound of gain for a 100-day period with a 2-pound daily rate of gain, Tables 21 and 22. However, if the daily rate of gain had been 3.2 pounds for a 100-day "Feed cost per pound of gain = [(Daily C0nsumption)(Feeding Period)] 2,000 (Daily Rate of Gain) (Feeding Period) [Feed Cost/ Ton] 20 Table 22, Effect of daily rate of gain on feed cost, per pound of m: gain, for selected feeding periods 1/ x Feeding period (days) 2/ Daily rate of gain : : : : : f (pounds) z 100 : 110 : 120 : 130 : 140' :-------------------Feed costlgound of gain 11191155!) ' 2. .2019 .2125 .2231 2. .1923 .2024 .2125 2. .1835 2.1932 .2028 2. .1755 ~. 1,1848 .1940 2. .1682 ‘ 31771 .1859 2. .1615 .1700 .1785 2- .1553 .1635 .1716 2- .1495 .1574 .1653 2. - . .1442 .1518 .1594 2.9 . . . . . . . . ..: .1319 .1392 .1466 .1539 3.0 ......... .= .1275 .1346 p417 .1488 3.1 . . . . . . . . . .: .1234 .1302 .1371 .1440 3.2 . . . . . . . . . .: .1195 .1262 .1328 .1395 1/ Assuming feed costs of $42.50 per ton. 2/ Assumes a daily feed consumption rate of 18, 19, 20, 21, and 22 respectively. _;‘ feeding period, the increase in feed cost been $0.01l2 per pound of gain. Tables 23 and 24 demonstrate the n changes in daily rates of gain on custom charges. Total custom feeding costs decrea per pound of gain when the daily rate of gai ' from 2.0 to 2.1 pounds for a 100-day feedi with basic feed costs held constant at $38.50 Table 23. This decline is equivalent to $2.25 l“ compared to $2.42 per head when basic feed} $42.50 per ton, Table 24. These results indicate the extreme sen changes in daily rates of gain to both feed Y? custom feeding costs per pound of gain. Th also suggest that feedlot operators who an of gain on a frequent basis are in a relativ able position to realize possible savings or 1' in feed costs. ECONOMIES OF SIZE Analyses of cost curves are useful for de‘ the efficiency of feedlots relative to the level or production. Short-run average cost cu ' SAC2, SAC3), as shown in Figure 3, rep - Table 23. Effect of daily rate of gain on custom feeding costs, per -~ marketable gain, for selected feeding periods 1/ Feeding period (days) g/ Daily rate of gain z : : (pounds) : 100 : 110 : 120 ' - - - - - Tot feed - co t l 2.0 . . . . . . . . . . . . .. 2245 .2344 21.46 2.1 . . . . . . . . . . . . . . 2138 .2232 2329 2.2 . . . . . . . . . . . . . . 2041 .2131 2223 2.3. . 1952 2038 2127 2.4.. 1871 .1953 2038 2.5.. 1796 .1875 1957 2.6.. 1727 .1803 1881 2.7 . . . . . . . . . . . ..: 1663 .1736 1812 2.8 . . . . . . . . . . . ..: .1604 .1674 .1747 2.9 . . . . . . . . . . . . .: 1548 .1617 1687 3 0 . . . . . . . . . . . . .. 1497 .1563 1631 3.1 . . . . . . . . . . . . .: .1448 .1512 1578 . 3.2 . . . . . . . . . . . . .: .1403 .1465 _ .1529 .1594 1/ Assuming custo feeding charges o!‘ 838.50 per ton, plus e flk-Q‘ l per ton for handling and other charges and 83.50 per heed for mdieat - '-‘ tion, branding, etc. _2/ Assumes a daily feed consumption rate of 18, 19, 20, 21, and 22 respectively. 1p! daily rate of gain on custom feeding costs, per pound of l, -‘ 31in, for selected feeding periods 1/ Feeding period (days) g/ z : : , : x 110 z ‘I20 : 130 : 140 ‘ggg, feeding cogtlgouxid of gain {dollars} ----- ---- .25% .2646 .2760 .2875 .2413 .2520 .2628 .2738 .2304 .2405 .2509 .2611. .2204 .2301 .2400 .2500 .2112 .2205 .2300 .2396 .2027 .2117 .2208 .2300 .1949 .2035 .2123 .2212 .1877 .1960 .2044 .2130 .1810 .1890 .1971 .2054 .1748 .1825 .1903 .1983 .1689 .1764 .1840 .1917 .1635 .1707 .1780 .1855 .1584 .1654 .1725 .1797 -1 feeding charges of $42.50 per ton, plus a mark-up of Jlndliilg and other charges and $3.50 per head for medication, etc. 1Q’ n hi]; feed consumption rate of 18, 19, 20, 21 and 22 pounds, ccessively larger feed mills for three dif- feedlots. Production costs may vary in output increases or decreases in relation lization rate. The long-run average cost represents an envelope curve which is ch of the short-run average cost curves _ retical expansion path of minimum per- f 'on costs as feedlots increase in size. i production as indicated in Figure 3 at iSACl, point B on SAC2 and point C on t least cost long-run feeding levels for ' s. Each of the short-run average cost v nts an infinitestimal number of costs f». are determined by varying feedlot utili- for the specified feed mill capacity. When I‘ ities as represented by SAC, are under- per pound of gain tend to move to the f from point A. In contrast, when feeding if over-utilized, costs tend to rise and move ~.on the short-run curve from the minimum intersection of SAC, and SAC2 represents t which a feedlot would be expected to sxcz A c SAC: Output (pounds of gain) i- 3. Theoretical cost curves for a feedlot. log Y1 - - $321490 - 1312110 log X Total annual fixed can per pound of gain (cenu) Al l j I l l J_ 5 l0 l5 20 25 J0 3S Size of feodlot (zhouund hud) 2 Figure 4. Relationship between size of feedlot and total annual fixed costs, per pound of gain, for all size feedlots, Texas and Oklahoma, 1966-67. expand its feeding facilities and install a larger feed mill. If the long-run average cost curve declines as output increases, then successively larger sizes of feed- lots are more efficient than the smaller feedlots as a result of existing economies of size. As a general rule, economies of size are available in those industries in which division and specialization of labor are present and in which advanced technological developments in machinery and equipment can readily be applied.“ However, increases in the long-run average costs be- yond the minimum point on the long-run average cost curve indicate that successively larger scales or sizes of feedlots become less and less efficient. That is, average costs per unit of output for successively larger feedlots tend to increase. With new technology and capital restrictions, it is possible that no feedlots have been constructed in the Southern Plains that exceed the minimum point on the cost curve. The regression model adopted for use in this study was a non-linear model in which the variables are expressed in logarithms.“ Cost functions were de- veloped for measuring the relationship between (1) feedlot size and various items of fixed cost, total fixed cost and total feeding cost and (2) feedlot size and total fixed cost under varying assumptions regarding degree-of-feedlot-utilization rates. Relationship Between Total Fixed Costs and Size of Feedlot Figures 4 and 5, which depict the relationship of feedlot size and total fixed costs, reveal that sub- stantial economies of size existed in Texas and Okla- homa feedlot operations during 1966-67. These economies are apparent when total feedlots are analyzed as in Figure 4 or when feedlots with 1,000- head-and-over capacity are considered as in Figure 5. The degree of feedlot utilization rates in cost curves “Leftwich, R. H., The Price System and Resource Allocation, Holt, Rinehart and Winston, New York, Revised Edition, 1960. “Four regression models consisting of one linear model and three nonlinear models were postulated for analyzing economies of size. Regression models employed for deriving cost curves are discussed in Appendix C. 21 log Y1 I - 1.036589 - 118175 log X Total lnnull fixed colt per pound of gain (cents) > 7 n n n n 1 l n l 5 l0 l5 20 2S J0 J5 Size of feedlot (thousand head) Figure 5. Relationship between size of feedlot and total annual fixed costs, per pound of gain, for feedlots with l,000-head-and- over capacity, Texas and Oklahoma, 1966-67. representing feedlots with 1,000-head-or-more capacity was held constant at the average 1966-67 rate (72.84 percent). Figure 4 suggests that feedlots with less than 5,000 to 10,000-head capacity are at a competitive disadvantage with respect to annual fixed costs per pound of gain compared to larger size feedlot opera- tions. For example, Figure 4 shows that feedlots with a one-time feeding capacity of 400 head experi- enced total annual fixed costs equivalent to about 3 cents per pound of gain as compared to 1.4 cents per pound of gain for feedlots with 10,000-head capac- ity. This differential is even greater when feedlots with more than 10,000-head capacity are considered. Figure 5 shows a substantial difference in total annual fixed costs per pound of gain between feedlots with 1,000-head capacity and feedlots with 30,000-head-and- over capacity. These results suggest that size or capac- ity of feedlots has not been expanded within the limits of present feedlot technology. Several factors apparently contribute to lower fixed costs per pound of gain as feedlots increase in size. These include higher degrees of utilization rates, more specialized labor and management and higher degrees of mecha- nization.“ Relationship Between Individual Fixed Cost Components and Size of Feedlot The individual fixed-cost components which in- cluded depreciation, interest, insurance, taxes, fixed labor and repairs revealed the same general relation- ship to size, Figures 6 and 7. Feedlots with less than 5,000-10,000-head feeding capacity were generally at a competitive feeding disadvantage relative to feedlots with more than 10,000-head feeding capacity. The relationship of feedlot size to annual depreci- ation and fixed labor costs was almost identical in both Figures 6 and 7. Each of these fixed cost items “The effect of utilization rates are shown in Figures 9 and l0 and in Appendix C. 22 also accounted for about one-third of the t fixed costs. However, the various statistical ‘I cate that depreciation cost, per pound of more strongly influenced by feedlot size _ fixed labor cost, Appendix C. The cost Figure 7 are at slightly lower levels than f Figure 6, since data in Figure 7 include onl“ with 1,000-head-and-over capacity. I Although annual interest and repair ~F accounted for about 15 percent of the to fixed costs, the various statistical tests ind _ annual repairs were not significantly infl feedlot size as were annual interest costs, A“ Annual interest cost declined as feedlots -'_ size and had higher feedlot utilization rates. repair costs apparently are influenced mo factors as exposure to weather and elemen utilization and obsolescence than by size Annual taxes and insurance on fixed accounted for only 3 -4 percent of the to fixed costs, but they are strongly influenci lot size. Insurance costs and taxes in Fi creased by about one-third as feedlots inc from less than 1,000-head to more than capacity. This decline reflects both econo L“ and degree-of-feedlot-utilization rates. i’ Relationship Between Total Feeding Cost and Size of Feedlot Figure 8 shows that total feeding costs?- cents higher per pound of gain for fey, 1,000-head capacity than for lots with capacity. In contrast, total feeding costs " 4 cents per pound of gain higher for ‘~51; 200-head capacity compared to those with capacity. Lower total feeding costs as feedl i in size are generally attributable to size and feedlot-utilization rate. Additional fac affect total feeding costs, but which were in the total feeding cost function, includf ment, level of technology, location, type? placed on feed, type of ration, length of nip feed cost, in-weight, out-weight, sex a {- Analysis of the relationship between such_ and total feeding costs can generally be u? effectively by a detailed case study of a f"? feedlots. This study also attempted to measure l-g ship between total variable costs and However, these measurements were gene ~-_f_ cessful. This suggests that existing econ M result primarily from the level of techn ployed and the feedlot utilization rates. Relationship Between Size of Feedlot, c, F eedlot Utilization Rates and Total Fix The combined effect of feedlot size w. feedlot utilization rates on total annual lo] Y1 I - l.b9B066 - 125565 log l pl! pound of [ll-II (ants) i: iq y, - - 1.640302 - 402911 u; x Auuull laurel: col: an find twain-a: l I l l l I 5 l0 l5 20 , 2S 3O 35 Stu of (ladle: (thoullnd haul) l l l0 1S 10 15 30 35 ‘he of feedlot (thoullnd hold) vr l 2 log Y4 v - 2.286326 - 154187 log X log Y5 = - 2.586028 - .207l56 log X Annual lnlurance can on fixed inveltment per pound of gain (cents) m S 5 l0 l5 20 25 30 35 2 15 2g 15 3o 35 Size of feedlot (rhouland head) Size of feedlot (thousand head) 1 Y = - 2.41os‘1e - mnaso 1 x log Y5 - - 1.as1329 - .22a1a2 log x "5 7 °s v Annual repair colts per pound of gain (cents) n‘ G _% I I I I I I i; o I I I I I I I I I S l0 l5 Z0 25 30 35 2 S l0 l5 20 25 30 35 Size of feedlot (thuullnd held) Size of feedlot (thousand head) Relationship between size of feedlot and specified fixed cost items, per pound of gain, for all size feedlots, Texas and i, 1966-67. . 23 F l l I l I l L O l L I l l l l | Annnll tlxel on fixed invatnent per pound of gain (eentl) Annull fixed llhor colt per pound oi glin (centl) 24 Annual depreciltion colt! per pound of gain (cent!) .09 n .08 v 1o; Y2 I - 1.515165 - 132509 10g X 0 A I l l l l 4 L l S 10 15 Z0 ZS 30 35 Size of feedlot (thousand head) 10g Y‘ - - 1.3514270 - 1116936 log X .04 I 03 .01 4 l l l l l l l 1 5 10 l5 Z0 15 3O 35 Size of feedlot (thousand head) .50 r 1o - ' 60 ' 50 I ‘o i 1o; Y6 I - 1.701310 - .177299 14‘ X .30 n .20 - ‘ 1O P o l l l l l l l 4% 1 5 1O l5 1O Z5 3U 35 Size of feedlot (thousand held) Annual intexelt colt on fixed investment Annull inlurlnce con on fixed investment per pound of glin (cents) per pound of glln (centl) .08 .05 .01 x . i l l l5 Z0 10g Y3 I — 1.767k30 - .16l27$ 1c; X 25 Size o! feedlot (thousand bud) log Y5 I - 2.643831 - 1067891‘ X Figure 7. Relationship between size of feedloQ fied fixed cost items, per pound of gain, for LOOO-head-and-over capacity, Texas and 0 ' i 67. 15 20 2S Size oi feedlot (thousand held) log Y8 I — .l<99l9k - .0303”: log X l l z | 4‘ l5 20 25 30 3S Size of feedlot (thousand head) __ - - ship between size of feedlot and total feeding A‘ of gain, for all size feedlots, Texas and Okla- Figure 9. The higher cost curve for i‘ l,000-4,999-head capacity compared to ball -9,999-head capacity is the result of size and differences in feedlot utilization effect of a relatively lower utilization ~ iceable for feedlots with 25,000 - 29,999- petitive advantage due to size, however, e when feedlot utilization rates are held i:- secutively higher levels over all size Q; l0. For example, when feedlot utiliza- H held constant at 25 percent over all size _ annual fixed costs are approximately pound of gain higher for feedlots with pacity compared to feedlots approach- ‘ad capacity. This difference, however, .2 cents per pound of gain when utiliza- . held constant at the 75-percent level. "iqq- that as Southern Plains feedlots it percent utilization rates, feedlots with i-head capacity are generally at a sub- vantage with respect to fixed costs per “in when competing with feedlots with ,000-head feeding capacity. These results total annual fixed costs decrease sub- ,» - 62-percent utilization - 67-percent utilization - 7l-percent utilization - 7l-percent utilization - BS-percent utilization - 79-pexcent utilization - Biz-percent utilization QOW§AAM~ log Y1- - 1.118793 - .2lBl75 log X1 - .597284 log X2 a S 6 mini 7 q-n-niii ‘ l l l j l L l0 l5 20 Z5 30 35 Sin of feedlot (thousand head) tionship between size of feedlot and total annual u pound of gain, as affected by actual degrees of on,.Texas and Oklahoma, 1966-67. log Y1‘ - 1.11379] - .ZlBl75 log X1 - .5972B~’~ log X2 ZS-percent utilization ual fixed Lost pi-r pound of gain (cents) IOU-percent u: iiization 0 L a l n l 1 1 4% l S i0 l5 Z0 2S JO 35 Size of feedlot (thousand head) Figure l0. Relationship between size of feedlot and total annual fixed costs, per pound of gain, with varying degrees of feedlot utilization, Texas and Oklahoma, 1966-67. stantially as feedlot utilization rates increase from 25 to 50 percent. Figure l0 reveals that total annual fixed costs for feedlots with 1,000-head capacity de- clined l.3 cents per pound of gain as feedlot utiliza- tion rates increased from 25 to 50 percent. This compares to a decline of about .6 cent per pound of gain for feedlots with 35,000-head capacity. SUMMARY AND SELECTED IMPLICATIONS Summary Substantial changes have occurred in the struc- tural and operational characteristics of the Southern Plains cattle feeding industry. Future changes, how- ever, may be even more dramatic as feedlots attempt to realize competitive advantages through economies of size, location, use of computer sciences and intro- duction of new technology. Results from this study suggest that large com- mercial feedlots will increase in size and number within the Southern Plains during the next decade. Feedlots with less than 1,000-head capacity are ac- counting for a relatively small proportion of the total cattle fed in Texas and Oklahoma. The importance of feedlots with less than 5,000-head capacity is also expected to decline substantially during the next decade. Results from this study revealed that feed- lots with 10,000-head-and-over capacity generally possessed a competitive advantage over smaller feed- lots. Such feeding advantages resulted primarily from existing economies of size, higher feedlot utilization rates and lower labor costs as a result of higher levels of mechanization. Results further indicated that costs decreased at a declining rate as feedlots approached 30,000-head-and-over capacity. This suggests that feed- lots have not expanded beyond the limits of present technology and that further increases in size are eco- nomically feasible. It is also probable that as feedlot size limitations are reached with respect to production costs for given levels of technology, continuing innova- tions and further improvements in milling equipment, feed handling devices and computer management tech- niques will extend feedlot size limitations beyond existing levels. The adaptation of such technology 25 is, of course, dependent on the availability of capital and other necessary resources such as feed and feeder cattle. While feedlots attempt to achieve economies of size, they also seek to maximize total net income. Therefore, it is probable that some feedlots may ex- pand beyond the levels of minimum costs for a given size range and accept a lower per-unit net return. Expanding feedlot operations within the Southern Plains, along with relatively high levels of annual fixed costs, have encouraged large commercial feed- lots to maintain high levels of feedlot utilization rates in order to spread annual fixed costs over larger units of output. When annual fixed costs were analyzed on the basis of pound of gain, feedlots with 10,000- head-and-over capacity experienced annual fixed costs which were 5O percent or more below those of feedlots with less than 5,000-head capacity. Consequently, most feedlots with less than 5,000-head capacity are faced with a substantial competitive disadvantage unless they are able to increase feedlot utilization rates or adopt other cost saving practices. Attempts to find economies of size in total vari- able costs as a result of bulk buying of feed and other inputs by Southern Plains feedlots were generally not successful. Findings did reveal that as feedlots in- creased in size, larger feedlots were generally able to utilize variable labor more efficiently than smaller feedlots. In addition, results showed that feedlot operators who are well informed relative to the effects of price changes in feed ingredients as well as the effects of changes in daily rates of gain on feeding costs are generally in a relatively favorable position to realize potential cost savings. For example, for each l-dollar increase in the price per ton of grain sorghum, feed costs increased from 66 cents per head for a 110-day feeding period to $1.09 per head for a l35-day feeding period. These results have important implications for locating feedlots as well as for adopt- ing feeding programs most suitable for areas facing relatively higher feed costs. An increase in the price per ton of grain sorghum or a price differential be- tween feeding areas of $3.00 per ton translates into increased feeding costs of $198-$324 per head de- pending upon length of time on feed. Feeding areas which are faced with a competitive disadvantage with respect to grain sorghum prices may therefore find it advantageous to feed light weight feeder cattle for relatively short feeding periods. Selected Implications The Southern Plains cattle feeding industry, which derived much of its impetus for growth and development from nearby sources of feed supplies and feeder cattle, has mushroomed into a major cattle feeding center with highly mechanized and large com- mercial, factory-type feedlots. Results from this study suggest that large commercial feedlots may increase even more in size and number within the Southern 26 Plains during the next decade. This is especi for the Rolling Plains and Panhandle areas -¢ and Oklahoma. f‘ Additional increases in number and size i‘ commercial feedlots in the Southern Plai questions concerning the adequacy of future sources and feeder cattle supplies as well as; outlets for fed beef. Current and potential T, of grain sorghum are of‘ prime importan current feeding programs employed by the ‘Y Plains feedlots. One of the major factors q governing the supply and production of grain ._ is the amount of irrigation water availabl, future in the Texas and Oklahoma Panh p! Plains areas. Current research measuring nomic life of irrigation water in a specified ‘ of the Canadian River in Texas indicates; substantial decline can be anticipated in during the next decade)“ However, this d expected to be partially offset by irrigation ments north of the Canadian River during period. In the absence of the development.‘ grain sorghum varieties especially adapted toi growing conditions or other technological i, ments, grain sorghum production may decl current levels in the Panhandle and Plains _j 1980. However, the implementation of V, massive 50-year Water Plan, proposed by Water Development Board, would make it to greatly expand grain and forage producti: future." Other possibilities include expang“ sorghum production in the Texas Coastal Pl which is well suited for such production. " The Southern Plains, nevertheless, n dant resources for substantial increases in j ing above current levels. During 1966-6, produced about 45 percent of the total U. ‘Iv sorghum production. Oklahoma production for another 3 percent. Beef cows 2 years and Texas and Oklahoma annually account for I 20 percent of the U. S. January l inventory. provides estimates of the maximum number.‘ that could have been fed in Texas durin] from Texas produced grain under various - regarding exports and consumption. if ances are made for carryover, poultry and stock and domestic non-feed use with no i? for exports, the maximum number of cattle i have been fed was 7.6 million head. The Q tions, however, are not too realistic since '9 major exporter of surplus grain sorghum. ‘ not available on the proportion of Texas f” exported, but total U. S. exports represented? mately 28 percent of the U. S. producti “Hughes, W. F. and W. L. Harmon, Projected --_ of Water Resources, Subdivision N0. l, High P i ground Water Reservoir, Texas Agr. Exp. Sta. and USDA (in process). , "Texas Water Plan Summary, Texas Water Devel ~ Austin, Texas, November I968. '6 -~ ~ ion and exports -- - nunber of cattle that could be fed in Texas, given - aorglvim production and specified assumptions regarding (1966-61)=:_ 2 a s a Percent of Texas Production 1 a : i%ortg 5 § 266-61) : O 15 25 : O 35 ------------------1,oao bushells-—----------~---- 2 o 2 2 ......... .. o 49,136 61,696 114,656 5,962 5,962 5,962 5,962 ......... .- 55,513 55,513 55,513 55,513 ......... .. 16,330 16,380 16,330 16,380 \ g I v _ ----------- --1__11,§55_ 126.993 159.153 192.511 “fading .... u9.135 201.591 161.631 135.019 V‘ given =-----------------1 ,o0o heed-------- ---- ------_---- 7,770 6,2161 5,222 4,202 ......... ., 6,941 5,575 4,65,; 3,751, 6,263 5,015 4,196 3,311 5,651 4,539 3.19s 3,056 a. university. ‘$5 ' , 165-22, ERS, USDA, November 1968 and Texas Crop and -- 1x13 Service, Statistical Reporting Sex-vice, USDA, Austin, equal to 5 percent of annual production. gm equal t6 27.95 1161-66116 6r n16 1966-61 u.s. 111-6611661611. f non-feud use was equal to 1.82 percent of the 1966-67 production. ~ sion Specialist in the Poultry Science and Animal Science the assumption that 15 percent of sorghum production is exported, and uses are held constant at the 1966-67 grain sorghum available from Texas i/uld have been sufficient for feeding ad. If 25 percent of the Texas produc- exported and other feed uses held ifmillion head of cattle could have been i: available supplies of surplus grain sor- rghum production in Oklahoma during “ut balanced with the number of fed (f1 from feedlots in that state. 1. Panhandle and Western Oklahoma, generally in a favorable position to hum since they are located adjacent or grain sorghum production areas in le Texas is the leading grain sorghum lite, Kansas, the second ranking state, Feedlots 1 nts for about one-fifth of the U. S. production. In addition, Oklahoma so able to draw upon the relatively of barley and wheat produced annually udies have indicated that Texas and i‘ ss a locational advantage over other g- producing areas for shipping fed beef ,1, ttle to the deficit Southeastern states.“ 1F. and R. A. Dietrich, An lnterregional Analysis ', 1 Economy, AER ss, USDA, April 196s. The primary competitors of the Southern Plains for these markets are Kansas, Missouri and Colorado. Other large potential markets include the West Coast and the Northeast. The future development and growth of the cattle feeding industry in the Southern Plains, however, is affected not only by the volume of locally produced feed and feeder cattle, the local population and in- come situation, but also by competition for markets and resource inputs from feedlot producers through- out the United States. Potential developments for the Southern Plains cattle feeding industry as sug- gested by this study include: (1) The number and size of large feedlots, those with 10,000-head-and-over capacity, will continue to increase within the Southern Plains. Smaller feedlots will probably decrease in number and size and account for an increasingly smaller proportion of the cattle marketed from Southern Plains feedlots. Since this study indicates the existence of economies of size beyond the range of the available data, additional research may be desirable for determining optimum sizes of feedlots relative to given levels of technology for such discrete or indivisible items as milling equip- ment. (2) Increased emphasis will be placed on a high degree of feedlot utilization rates as feedlots increase in size and are faced with increasingly larger capital investments in fixed facilities. Consequently, the proportion of cattle fed on a custom basis will prob- ably increase above current levels. An economic analysis regarding the various types and kinds of custom feeding arrangements may become necessary as custo-m feeding continues to increase within the Southern Plains. (3) The use of more refined management tech- niques and the adaptation of high speed computer programs may become essential for large commercial feedlots as an aid to management in making decisions r: garding feeding practices as well as decisions relative to sources of feed and feeder cattle and market outlets. (4) Contractual arrangements with feeder cattle producers may become necessary to insure adequate quantities and desired types of feeder cattle on a con- tinuous basis as feeding facilities expand. Numbers of feeder cattle annually produced in Texas and Oklahoma greatly exceed the local feedlot require- ments, but substantial numbers of feeder cattle are shipped into the Southern Plains from other states primarily to offset the seasonal nature of feeder cattle production in Texas and Oklahoma. (5) To insure orderly growth and expansion within the cattle feeding industry, and also to expe- dite decision making, it may become necessary to project supplies of future feeder cattle, on a regional basis, given realistic assumptions relative to existing resource bases available for producing feeder cattle. 27 In addition, projection of feed grain and forage sup- plies under alternative assumptions regarding water use and government programs and projected demand levels for fed beef on a national and regional basis may also be desirable for determining optimum feed- ing levels. (6) Based on feeding cost differentials between feeding areas and available sources of nearby feed supplies, cattle feeding will continue to be concen- trated most heavily in the Texas and Oklahoma Pan- handle areas of the Southern Plains. Optimum loca- tion of cattle feeding facilities and slaughtering firms will continue to be important considerations for firms seeking entry into the feeding and slaughtering industry. (7) Contractual arrangement between the feed- lots and packers may also be desirable to expedite decision making and the flow patterns of cattle into and out of feedlots. (8) Additional areas requiring consideration in- clude feeder cattle buying practices, selling arrange- ments for finished cattle, source and type of financing 28 and the economic feasibility of conduc conditioning and warmup feeding operati were discussed in a previous publication." Results from this study suggest that c r potential exists for continued growth and j of the cattle feeding industry within the Plains. However, the future growth will be ~ upon the availability of the hecessary resou f the ability to compete for markets with 0th! and industries and the availability of ad, formation for intelligent decision making. ' of goals and opportunities in the cattle f well as in other segments of the livestock industry, is dependent upon management-o ingenuity among the various types of fi the livestock and meat economy and the institutions and public agencies to assist in realizing maximum advantages from fut ~ tunities. § “Dietrich, R. A., The Texas-Oklahoma Cattle Feedii Structure and Operational Characteristics, Texai Sta. Bull. 1079, December 1968. APPENDIX A Supplementary Tables Fixed investment per head of capacity, by major item of equipment and feeding area, A--Table 1. 1’ Texas feedlots, 1966-67 2 Feeding area Item : a : : Gulf Coast : : Panhandle- : Plateau- East : and Rio : Total : Plains Pecos : Texas : Grande Plains - - — - - - - - - - - - - - - - --Dolla.rs - - - - - - - - - - - - - - -- 1- pment.............................; 10.78 7.91 11.83 11.14 10.72 p-t..................................= 2.42 2.23 1.84' 1.65 . 2.20 9.02 6.84 7.94 7.55 8.46 fe facilities and equipment..........: 4.93 3.68 4.31 10.20 5.81 ffbution equipment....................: 2.12 2.19 1.64 2.21 2.10 .47 .76 .14 .98 .56 tion equipment".....................: 1.28 1.50 .73 1.88 1.36 2.61 .85 1.83 3.01 2.47 ioffice equipment....................; .84 .56 .39 .66 .74 Tecale house.........................: .8_4 1.06 .55 1.07 .88 35.31 27.58 31.20 40.35 35.29 reported by respondents interviewed. A-Table 2. Fixed investments perhead of capacity, by major item of equipment and feeding area, Oklahoma feedlots, 1966-67 . Feeding area Item : z : z Southeastern : : : Panhandle : Northern : and Central : Southwestern : Total : : 0R1 ahoga : Oklahoma : Oklahoga : - - - - - - - - - - - - - - - - -Dollars - - - - - - - - - - - - - - - - - ‘quipmentnnccoeoloeuoccoooceoo; JIOOIIOOIIIIIIIOIIIIQIIOIIOI; ipmntoenooucnococcelocacnoo; e facilities and equipment“; 5.31 2.63 6.76 3.78 4.98 Jibution equipment............; 3.78 3.32 2.72 3.16 3.41 a’pmentIOIOOOOOOIOIlIOOIIOIOII; I77 y Q92 intion equipment...............; 1.59 1.35 1.61 1.47‘ 1.54 fIOOIIOOIIOOIIIOIIOQQOIOOUIIIO; 5; office equipmen§.Z..........§ 1.01 .10 .68 .59 .77 Y‘ hOuSeIOIOIIOIIOOIIOUII; V£OOOIIOOOOOIIOOIOOIOOOOOIODill; 29 Appendix AP-Table 3. Annual depreciation costs per head of capacity, by major items of equipment and size of feedlot, Texas feedlots, 1966—67 : Less than : 1,000 to : 2,000 to : 5,000 to :10,000 head : Item :1,000 head :1,999 head :4,999 head :9,999 head : and over : : capacity : capacity : capacity : capacity : capacity : - - - - - - - - - - - - - - - Dollars- - - -'-":l- - - - - - - - t? Pens and equipment.......................: .4143 .6145 .8712 .5694 .5585 Water system.............................: .1406 .1553 .1245 .0927 .1376 Milling equipment........................: .3356 .6476 .7432 .6922 .7314 Feed storage facilities and equipment....: .6642 .4904 .3512 .1107 .2149 Feed distribution equipment..............; .9025 .6551 .5595 .3469 .2935 Manure equipment.........................: .0804 .2817 .1871 .0719 .0586 Transportation equipment.................: .4111 .5906 .2386 .1628 .1243 Office and office equipment..............: .0107 .0347 .0434 .0578 .0383 Scales and scale house...................: .0409 .Q9§4_g__ .0691 .0565 .0290 Total..................................: 3.0003 3.5663 3.1878 2.1609 2.1861 Appendix A--Table 4. Annual depreciation costs per head of capacity, by major item of equipment and size of feedlot, Oklahoma feedlots, 1966-67 : Less than : 1,000 to : 2,000 to : 5,000 to :10,000 head@} Item :1,000 head :1,999 head :4,999 head :9,999 head : and over;Q : capacity : capacity : capacity : capacity : ca~acit' 0 : — - — - — - - — - — - - - - — Qgllggg - - - - - - - - - - Pens and equipment...........................: .3412 .7854 .5246‘ .6633 .6517 Water system.................................: .0956 .1459 .0896 .1072 .1507 Milling equipment............................: .1106 .3112 .6860 .2566 .9562 Feed storage facilities and equipment........: .3137 .4225 .2525 .1057 .1903 iv Feed distribution equipment..................: .6969 .6170 .7263 .4998 .5733» 55 Manure equipment.............................: .1437 .1150 .0271 I .2372 .1405 Transportation equipment.....................: .6512 .2805 .3455 .2137 .0940 Office and office equipment..................: .0037 .0092 .0607 .0455 .0425 Scales and scale house.......................: .0031 .0715 .0636 .0882 0 _8 Total......................................3 2.3597 2.7582 2.7759 2.2172 2.3440 30 .\ . < l ‘. 0.010 5. Armual fixed costs per pound of gain, by feeding area, Texas feedlots, 1966-67 Feeding area ' : : : Gulf Coast : : Panhandle- : Plateau- : East : and Rio : Total 5 Plains : Pecos : Texas :Gr ins: : - - - - - - - - - - - - - - - - -Dollgs - - - — - — — - - - - - - - - - - - - _ 0 0 0 o o a 0 o 0 0 o o o o; ipoooooooooooooo; .............§ .0004 .0005 .0004 .0006 .0005 .............§ .0003 .0004 .0003 .0005 .0003 >_ .............; .0016 .0025 .0013 .0029 .0018 1§..............§ .0031 .0045 .0029 .0063 .0037 .......... . .0105 .0139 .0100 .0178 .0118 ‘Dle 6. Annual fixed costs per pound of gain, by feeding area, Oklahoma feedlots, 1966-67 1,: Feeding area Item : :Southeastern : : ” : Panhandle : Northern : and Central :Southwestern : Total : : 01:1 61mg : Oklahoma : Oklagog : - - - - - - - - - - - - - - - - llars - - - - - - - — - - - - - — - j.............................: .0037 .0045 .0064 .0050 .0044 6 .0017 .0022 .0024 .0023 .0021 .0005 .0006 .0009 .0007 .0006 ¥;............................i .0004 .0003 .0008 .0005 .0005 1§............................: .0030 .0011 .0026 .0027 .0027 if..........§.................: .0037 .0069 .0042 .0059 .0044 .0130 .0156 .0173 .0171 .0147 31 Appendix A~—Table 7. Annual long term interest,per head of capacity, by major item of equipment and size of feedlot, Texas feedlots, 1966-67 = Less than = 1,000 to = 2,000 to = 5,000 to =10,000 head: Item :1,000 head :1,999 head :4,999 head :9,999 head : and over : : capacity : capacity : capacity : capacity : capacity : - - - - - - - - - - - - - --ne11e1-e----:§ - - - - - ---I Pens & equipment......................: .2522 .3739 .5304 .3467 .3400 .1 Water system..........................: .0804 .0890 .0713 .0531 .0788 .f Milling equipment.....................: .1363 .2628 .3016 .2809 .2969 .9, Feed storage facilities 8 equipment...: .5978 .4414 .3161 .0996 .1934 .3 Feed distribution equipment...........: .1792 .1302 .1112 .0690 .0584 .7 Manure equipment......................; .0169 .0594 .0395 .0152 .0124 -ii Transportation eqe1pmeht..............: .1191 .1712 .0692 .0472 .0361 .35 Lahdoooonoo000000oo0oooooooo0oooo0nooo8 .1682 .1878 .1865 .1827 .1289 .§ Office & office equipment.............; .0064 .0210 .0264 .0352 .0233 .8 Scales & scale house..................: .0298 .0704 .0505 .0413 .0212 .1? 1.5863 1.8071 1.7027 1.1709 1.1894 1. Appendix A»-Table 8. Annual long term interest cos size of feedlot, Oklahoma feedlots, 1966-67 t,per head of capacity, by major item of equipment am§5 : Less than :1,000 head :1,999 head =4,999 head :9,999 head = and over Item = 1,000 to : 2,000 to : 5,000 to :10,000 head: : capacity : capacity : capacity : capacity : capacity _ - - - - - - - - - - - - - aaige - - - - - - - - - - - - - - Pens & equipment........................: .2062 .4779 .3193 .4038 .3967 Water system............................: .0550 .0836 .0513 .0614 .0863 Milling .0456 .1262 .2784 .1041 .3881 Feed storage facilities & equipment.....: .2825 .3802 .2273 .0951 .1713 Feed distribution equipment.............: .1381 .1226 .1449 .0994 .1140 Manure equipment........................: .0300 .0242 .0058 .0502 .0297 Transportation equipment.......’.........: .1881 .0812 .1002 .0620 .0272 Lena....................................: .3094 .2242 .0670 .0550 .0645 Office & office equipment...............: .0019 .0055 .0369 .0277 .0259 Scales & scale house....................: .0019 .0520 .0465 .0644 .0328 Total.................................: 1.2587 1.5776 1.2776 1.0231 1.3365 32 a k-Table 9. Variable costs per pound of gain, by feeding area, Texas feedlots, 1966-67 g Feeding area Item : : : : : Gulf Coast : Panhandle- : Plateau- : East : and Rio : Total : Plains : Pecos : Texas : Grands Plains : - - - - - - - - - - - - - - - -Dollars - - - - — - - - - - - - - - - - .1781 .1687 .1958 .1680 .1775 ‘700000000000000000000000000: Tloeoeooounanooooooooono00o: y‘ .0120 .0105 .0151 .0110 .0120 1; .......................= .0002 .0002 .0002 . .0002 .0002 i .0002 .0003 .0002 .0002 1.0002 Q ........................= .0049 .0081 .0028 .0063 .0052 and medication...........: .0045 .0042 .0041 .0053 .0046 _Oicllbclcclcclooceu000000: E.........................= .0010 .0012 .0008 .0009 .0010 f comnnmications..........: .0004 .0003 .0002 .0004 .0004 .0011 .0024 .0007 .0005 .0010 g.........................= .2167 .2091 .2331 .2073 .2164 assessments for Social Security and Norman's Compensation. labor . charges for office supplies, consultant fees, liability insurance, taxes on cattle, and expenditures. w ék-Table 10. Variable costs per pound of gain, by feeding area, Oklahoma feedlots, 1966-67 charges for operating capital for five months. This does not include interest charges for : Feeding area Item ' ' : Southeastern : : Panhandle : Northern : and Central :Southwestern : : Oklahoma : Oklahoma : Oklahoma : Total : - - - - - - - - - - - - - - - -Dollars - - - - - - - - - - - - - - - -- .1833 .2006 .1944 .1891 .1873 .0092 .0113 .0141 .0121 .0106 Icoooocoooooeoooe00000000: 3* .0125 .0154 .0182 .0164 .0151 F .......................= .0003 .0003 .0004 .0004 .0003 .0002 .0002 .0002 .0003 .0002 f}........................= .0049 .0102 .0114 .0064 .0066 Ind medication. .: .0036 .0035 .0036 .0046 .0038 ?.........................= .0011 .0016 .0020 .0015 .0013 .0011 .0005 .0015 .0012 .0011 _i communications. . . . . . . . . .: .0006 .0006 .0005 .0005 .0005 .0005 .0004 .0003 .0010 .0005 _:'nu............n-HHHE .2227 .2505 .2523 ‘Z390 .2328 6 assessments for Social Security and Norman's Compensation. p‘ charges for operating capital for five months. This does not include interest charges for 1 -- labor. charges for office supplies, consultant fees, liability insurance, taxes on cattle, and expenditures. Appendix A-Table 11. Total feeding coate per pound of gain, by type of coat and feeding area, Texas feedlots, 1966-67 8 O Appendix A--Teble 12. Total feeding costs per pound of gain, by type k feeding area, Oklahoma feedlotl, Feeding area Feeding area Type of coat Type of 00st = = = = 9411' 9°!“ = : : z Southeastern: > i Plnhmdlb‘ i Plluau‘ = h“ i 1nd 34° i TM-Bl : Panhandle : Northern : and Central : Sou ~ i z Plains : Peoos : 2G : ; : mnfihnm, ; Oklahoma . | ' 3 1 > = - - - - - - - - - - - - - - - - -EUJH- - - - - - - - - - - - - - - - = - — - - - - - - - - - - - - D<>_11=r=_ - - - - - - -_ Fixed ............ .§ .0105 .0139 .0100 .0178 .0118 Fixed ............... .§ .0130 .0156 .0173 .0 Variable ........ . .§ .2167 .2091 .2231 .2073 .2161. Variable ............ .§ .2227 .2505 .2523 x ' Total .......... .2272 .2230 .2431 .2251 .2202 Total ............ .2357 .2661 1 .2696 xi I .; APPENDIX B 1,999-head-and-under Capac i; Procedure for Estimating Depreciation Costs and Classification of Feedlot Labor Depreciation Costs The expected life and salvage value, by major items of equipment, were established after consulta- tion with feedlot operators as: Expected Salvage value life (percent of Item (years) original cost) Pens and equipment 15 l5 Water system 15 l2 Milling equipment l0 15 Feed storage 20 20 Feed distribution 5 14 Manure equipment 6 8 Transportaion equipment 7 l5 Office and equipment 15 l5 Scale and scale house 18 15 Depreciation cost was estimated as: Original Cost — Salvage Value . . t I . Depreclation cos Expected Llfe Classification of Feedlot Labor Labor was classified as fixed or variable, by size of feedlot, as: 10,000-head-and-over Capacity Fixed: Operator; yard foreman; office manager Variable: All other labor 5,000 - 9,999-head Capacity Operator; one half of yard foreman or total yard foreman where an operator is not employed; office manager or one clerk where an office manager is not employed Fixed: Variable: All other labor 2,000 - 4,999-head Capacity Operator or yard foreman where an operator is not employed; office manager or one clerk where an office manager is not employed Fixed: Variable: All other labor 34 Fixed: One half of operator or onei foreman where an operator; ployed - Variable: All other labor In additon, Social Security and Wo pensation were also computed according; fication as: *1 Social Security I .034 >< Annual ‘i’: (no assessments in excess of $6,600 - f; Workmen’s Compensation I "if .0593 >< Annual (no assessments in excess of $10,400 APPENDIX C Derivation of Cost Curves’ Four statistical models were postulal ing average cost curves. These models Y, I A + blXl Y, I A + blXl + b2(X1)2 eYiIA + b1(l/X,) log Y, I A + b1 log X1 r where Y, is cost per pound of gain in d. ith or specified cost item and X1 is 1 capacity of individual feedlots. Model l—assumes a constant or linea between cost per unit of output and Model 2—assumes that costs decreai" of feedlots increase but that diseconomi the range of the available data and that! of output increase. Model 3—assumes that costs per decrease rather sharply and then tend i, as the size of feedlots is increased. ' Model 4—assumes that costs per _ decrease at a slower rate than those of i that costs per unit of output tend to _' size of feedlots is increased. This 1Q essentially, that average costs have not 3f result of successively larger feedlots in; industry. . in this study. i -.932490 - .231240 10g x (10.32)** .47 F = 103.40% .201730 s15 = .449199 j-1.493003 - .224405 10g x (9-02)“ ‘~41 F = 31.44** .223941 SE = .473224 *-1.e40332 — .252971 10g x ,5 <10.52)** _ .43 F = 110.54“ ‘225097 s12 = .474444 ' —2.230323 - .254137 10g x p, (10.11)** .,.45 F : 102.21** 4220373 SE = .475737 —2.535023 — 207153 log x <5.30)** , y. 25 F = 39.70** .290034 SE = .544090 "-1.457329 - .223332 10g x (0.32)** .25 F = 39.92** .313312 SE = .504191 -2.470570 - .074390 10g x > (1.57) ' .02 F = 2.30 SE —_- 321057 i 335712 'in in dollars, in in dollars, dollars, i I 1131's, v dollars, Qlto statistical tests, the coefficient of F’), the F-test and the t-test, Model 4 “lion tended to fit the data better in than did the other models employed However, Models 1, 2 and 3 were also 3' ally significant for most of the func- "31 showing the relationship of feed- fv fixed cost and various items of fixed ‘ * feeding industry in Texas and Okla- (1) (2) (3) (4) (5) (6) (7) ital annual fixed costs per pound of nual depreciation cost per pound of i nual interest cost per pound of gain > nual taxes per pound of gain in nual insurance cost per pound of gain Y6 I annual fixed labor cost per pound of gain in dollars, Y, I annual repair cost per pound of gain in dollars. X I feedlot size or one-time capacity. R2 I Coefficient of determination. F I F-test. MSD I mean squared deviation. SE I standard error of estimate. ** and * I statistical significance at the l-percent and 5-percent level, respectively. The t-value of the estimated parameter is directly below each coefficient. The analysis of variance associated with the re- gression of feedlot size and fixed cost is shown in Table l. Cost functions depicting the relationship of feed- lot size and utilization rate to various items of fixed costs and total costs for feedlots with l,000-head-and- over capacity in Texas and Oklahoma are: Log Y, = —1.113793 — .213175 log x, —- .597234 10g x, (3) (4.85)** (6.46)** R2 I .61 F I 63.80** MSD I 147404 SE I 383932 Log Y2 I —l.58673l — 232509 log X1 ——- 520131 log X2 (9) (4.4l)** (4.80)** R2 I .51 F I 42.07** MSD I 172694 SE I .4l5565 Appendix C-Jrable 1. Analysis of variance associated with the regression of feed- lot size on total fixed costs and individual fixed cost items for total feedlots, Texas and Oklahoma, 1966-67 . . Sum of Mean Item and Source : df : squares : square : F Total Fixed Costs: : Total . . . . . . . . . . . . . . . . . . . .: 120 9.179733 Due to regression . . . . . . . .: 1 4.334646 4.334646 106.46" Error . . . . . . . . . . . . . . . . . . . .: 119 4.845087 .040715 Annual Depreciation Costs: : Total . . . . . . . . . . . . . . . . . . ..: 120 10.052193 Due to regression . . . . . . . .: 1 4.084379 4.081.379 81 .44" Error . . . . . . . . . . . . . . . . . . . .: 119 5.967814 .O50150 Annual Interest Costs : . Total . . . . . . . . . . . . . . . . . . . .: 120 11 .635462 Due to regression ...... . .: 1 5.605878 5.605878 110.64" Error .................. . .= 119 6. 029584 050669 Annual Insurance Costs : Total . . . . . . . . . . . . . . . . . . . .: 120 13 $907439 Due to regression ...... . .: 1 3.478765 3.478765 39.70" Error . . . . . . . . . . . . . . . . . . . .: 1 19 10 .428674 .O87636 Annual Tame: : Total . . . . . . . . . . . . . . . . . . . .: 120 11 . 335743 Due to regression . . . . . . . .: 1 5 . 237612 5 . 237612 102 .21 ** Error . . . . . . . . . . . . . . . . . . . .: 119 6.098131 £51245 Annual Fixed Labor Costs: : Total . . . . . . . . . . . . . . . . . . . .: 1 20 16. 1021.1 6 Due to regression . . . . . . . .: 1 4.045050 4.01.5050 39.92" Error . . . . . . . . . . . . . . . . . . . .: 119 12.057366 .101322 Annual Repairs: = Total . . . . . . . . . . . . . . . . . . . .: 114 17 . 228730 Due to regression . . . . . . . .= 1 $17303 .417300 2.80 Error . . . . . . . . . . . . . . . . . . . .= 113 16.811430 .1487'74 *1‘ and * denotes significance at the 1 percent and 5 percent levels, respectively. 35 Log Y2 = 41.824709 — .241275 log x, - .400101 log x2 (4.44)** (4.17)** R2 —_- .48 F = 86.74“ MSD = .178117 s18 = 422089 Log Y2 = —2.421412 - .24s984 IogXI — 487848 log x2 (4.s8)** (4.40)** R2 = .50 F = 40.00“ MSD = 176472 SE = 420080 Log Y2 = -2.71882s — .200789 log x2 — 1108804 log x2 (2.09)** (8.22)** R2 = .30 F = l7.37** MSD I 251726 SE I 501728 Log Y, = - 1.804095 -- .177299 log x2 - .740747 log x2 (2.19)* (4.49)** R2 I .37 F = 23.01" MSD ‘:- 265030 SE =- .5l48ll where: X1 = feedlot size or one-time capacity. X2 = feedlot utilization rate and other variables u were previously identified. <19) (11) (l?) <18) The analysis of variance associated with the regression of these models is shown in Table 2. 36 . Appendix C-Table 2. Analysis or variance associated with the regression of and feedlot utilization rate on total fixed colts III 2 ed costs items for feedlots with 1,000 head and over , and Oklahoma, 1966-67 1/ '" 1 s : _ $ Sun of 1 Mean l I Item and Source a d! squares = square : s Total Find Costs: : Total ............................ ..= 82 4.510541 ‘ ‘ Due to feedlot sise (b1/bo), _ _ _ _ _ _ ,2 1 1.174133 1.12M” ma to utilization rate (b2lbo| 111),: 1 1.648159 1.648159 .1 m»: ............................ ..= w 1-728244 Mm Annual Depreciation Costs: x o ............................. .. 82 $395433 ms to feedlot size (81/00). ....... .= 1 -_ 31.183823 1.183823 v. ma to utiiiuatiou rate (bz/ln, 151).: 1 ' ‘*1 325763 1.325763 Error ............................. .1 60 2.385847 .029&3 Annual Interest Coats: 1 Total ............................. . = 82 4.869419 l me to feedlot sise (b1 ). ...... ..: 1 1.213834 1.213831. _‘_ me to utilisation rate ( , b1).: 1 1.117533 1.117533 '1, mo: ............................. .= 80 2.538052 .0317!» '1 , . Insurance Costs: z Total ............................ . . z 82 7.270076 me to feedlot sise (b1/bQ). . . . . . . . .= 1 369055 ms to utilization rate (hz/ho, 81).: 1 1.231751 1 231751 Error ............................ ..: 8O 5.069270 3 Annual Tana: Total ............................ ..: 82 4.986536 Due to feedlot size (hq/bo). . , , , , , _,: 1 1 280551 1 2N551 his to utilisation rate (ha/ho, 111).: 1 1 211693 1 21/0593 Error ............................ . . s 80 2.1491392 O31 112 s Annual Fixed Labor Costs: . Total ............................ ..= 82 8.852236 . ._ ma to feedlot aiaa (131/110). ...... ..= 1 .9o1417 .901417 Due to utilisation rate (bz/bo, 111).: 1 2.331541 2.331541 . Error ............................ ..= 80 5 619278 . 1 0702‘ i: i ~ 1/ The regression nodal for annual repairs was not significant and elm -_ wrong sign. Annual repairs are included in the model for total annual f1fi_ 11 '"' Denotes significance at the 1-percent level. 1. The equation measuring the relation feedlot size and total feeding cost is: Log Y8 = — A9919‘! — 030374 10g “f - (3.72)** f; F =1s.87** SE: .271050 i I R2 = .10 MSD = 073468 where: Y8 = total feeding costs; the other previously identified.