How are custom feeding cattle rates charged to cattle feeders?
The custom feeding charges vary between cattle feeding operations. Primarily, two methods are used by custom feedlot cattle operations. One method is to charge a yardage fee of so much per head per day. Another method is to charge extra on feed (a feed markup) that will cover the custom feeding costs. Some feedlots do a combination of both methods. A shrink factor on feeds, which is different from a markup, as shrink is simply feed that disappears without going into the cattle, can also be used.
Yardage fees are the easiest to discuss, and most times, feed markup is set based on some estimate of yardage needs anyway. However, it is important to understand the different methods and the advantages/disadvantages of both methods. Yardage is like rent paid for pen or bunk space. Feed markup is a surcharge over the actual cost of the feeds. It can be calculated to include inventory shrinkage, grain processing, mixing, feed delivery, and profit.
Some forage-based systems will charge on a per head, per acre, or a cost of gain basis. The per head and per acre are self explanatory. Cost of gain is a predetermined cost for each pound gained. An advantage for the cattle owner is a known, set cost, but cost of gain does not guarantee animal performance. A disadvantage for the custom feeder is adverse weather, "poor doing" cattle, and other factors that decrease feed efficiency will effect the value of their feedstuffs and management.