Stochastic modelling of economic risk and net return distributions for feedlot steers marketed at alternative endpoints.

Abstract

Feedlot cattle in the U.S. have been progressively fed to heavier, more extreme endpoints (EPs) in recent decades. The primary objective was to evaluate economic risk associated with extending days-on-feed (DOF) by characterizing net return distributions of feedlot steers fed to later EPs, compared to current industry standards. Stochastic simulation modeling was employed to simulate a variety of conditions, including cattle performance, health, carcass characteristics, and economic market variability at the pen-level. The model was parameterized using data from a large commercial feedlot trial and industry reports. The trial involved cattle harvested at four EPs (EP1, EP2, EP3, EP4), each separated by 14 DOF. EP1 represented the industry standard, with live and carcass weights reflective of industry averages from 2021 to mid-2024. The model's final outcome was net return difference - the difference in net returns for EP2, EP3, and EP4 compared to if pens had alternatively been marketed at EP1 under a given set of simulated conditions. Conditional random forest models were used to compute variable importance scores to determine the most influential factors on net return differences. Results indicated that as steers were fed to later EPs, net return distributions widened, reflecting increased economic risk. Steers marketed on a dressed (carcass) basis using a grid for premiums and discounts showed a higher frequency of negative net returns compared to a live marketing basis, primarily due to discounts for Yield Grade and heavyweight carcasses. Across both sale basis, negative net returns became more frequent with increasing EPs. The most influential variable was the difference in fed cattle prices received between later-fed EPs and EP1, accounting for price changes when delaying marketing. Other important economic factors included base fed cattle prices, corn prices, and the Quality Grade grid when grid marketing. Mortality risk was the most important non-economic variable, while other animal performance variables, such as weight and carcass traits, were of marginal to minimal importance. These findings highlight the dominant role of economic factors on net returns when feeding steers to later EPs, emphasizing the need to prioritize market conditions in EP management decisions.