AGRICULTURAL
23 | Financial aspects of feedlots
impact on profitability. The productivity
of a feedlot can be manipulated by good
and consistent management skills.
EXTERNAL RISKS
The external risks are determined by the
impact of market forces of supply and
demand on the both input costs and end
product income. Over the longer term,
market and price trends in the industry
impact on profitability, which has to be
taken into account when making manage-
ment decisions. The external forces which
mainly determine the profitability and risk
of a feedlot is the following:
Cost of animals: A calf is necessary to
produce a carcass, the end product of
a feedlot. External market forces deter-
mine the general local price of calves.
However, there are differences in the
quality and value of an animal which will
determine the productivity and profitability
of carcass production. Such differences
are the genetic growth ability in terms of
type or race, health, physiological age
and gender. Animals with the best poten-
tial for productivity or carcass production
must be selected.
Cost of feed: The cost of feed is deter-
mined mainly by the cost of energy sourc-
es. In South Africa maize and associated
milling products, like Hominy Chop are
the main, sometimes only energy feeds
available. Other feed sources are nec-
essary to balance the feed for maximum
digestibility and feed intake to ensure
maximum production. Energy sources
contribute between 70% and 80% of the
cost of feed and the feed price between
50 and 60% of the total production costs
of a feedlot.
Meat price: The income of a feedlot is
determined by the meat price, which is
fluctuating according to market forces.
The only responsibility for the feedlot is to
ensure that the animals are marketed at
the correct age, condition and class of car-
cass to ensure the highest price. The best
quality carcasses are classes A1 to A3,
which realize the same price in the market.
The value of the fifth quarter of the animal
can also make a significant contribution to
the income, but is usually used as payment
for slaughtering costs by the abattoir.
RISK MANAGEMENT
It is important for the feedlot management
to be familiar with the risks of a feedlot
as discussed above. A management
strategy should be applied to according-
ly. Although stability, or in other words,
minimum risk, seems to be financially
attractive, it does not create competition
and does not distinguish between good
and poor management skills and therefore
business opportunities. The challenge
therefore remains to be prepared for
unavoidable risks by applying increasing-
ly better management skills.
In order to manage risk effectively, the
financial implications of typical variation
that can be expected due to market forces
should be quantified. Simulation models
are appropriate tools in supporting risk
management, but it can never replace the
management skills which emanate from
knowledge, experience, personal initiative,
good judgement and wisdom.
Om die produktiwiteit van produksiestelsels
vir beeste te verbeter.
Adviesdiens vir herkouervoeding
Voerprosessering, voedingsbestuur en formulering
van voere vir volhoubare produksieprestasie
Formuleer en verskaf konsentrate om formulasies te
komplimenteer
Dr. Kobus Swart 083 262 0946 • [email protected]
SENWES SCENARIO | SUMMER 2018
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