PRODUCTION CONTRACTS â Feedlot Example
PRODUCTION CONTRACTS – Feedlot Example David decides to have steers finished at JH Feeders Inc. JH Feeders Inc. has two components in its pricing. The first component, yardage expense, includes items associated with running the feedlot. The yardage component is made up facilities, labor, utilities, insurance, etc. The yardage expense to run the feedlot is where the profit is built into the pricing mechanism. The second component includes items for which it gets reimbursed, for example feed and veterinary services. Here are a couple methods that JH Feeders could charge David to feed steers.
Yardage Component $.40 per head per day ------------$.08 per head per day plus $40/ton feed markup
& OR &
Reimbursement Component Cost of Feed & Veterinary --------Cost of Feed & Veterinary
JH Feeders Inc. could determine that a yardage cost of 40 cents per head per day would be enough to cover the overhead expenses and build in some profit. 40 cents per head per day X 150 days in the lot = $60 a head to feed out the steers
----------OR----------JH Feeders Inc. could determine that a lower yardage cost of 8 cents per head per day plus a $40 ton mark up on the cost of feed could cover all the over head costs and build in some profit. 8 cents per head per day x 150 days in the lot = $12 Plus 1.65 tons of feed fed to steer over life in lot X $40/ton markup on feed = $66 For a total of $12 + $66= $78 a head to feed out steers When it comes to recording values in the questionnaire, Yardage and any mark ups are recorded in Column 5 of the Production Contract Table.
Fat Cattle Fat Cattle
818 818
60
00
30,000
----------------------OR------------------- 500 11 78
00
30,000
500
11
JH Feeders Inc. buys feed from different sources on behalf of David to feed out his steers. The cost to buy that feed has to be automatically built into the final pricing mechanism. The cost of the feed ($6/bushel corn, $100/ton alfalfa) is passed on to David. JH Feeders Inc. is reimbursed by David for the cost of that feed. $468 feed cost per head per time in lot X 500 head = $234,000 Costs associated with medicines and services provided by veterinarians are passed on to David. JH Feeders Inc. is reimbursed for this cost as well. $10 head X 500 head = $5,000 If David has his own steers, the value of those steers at the time of placement would be recorded in the Contractor Column under Other livestock purchases. $985 head X 500 = $492,500 Likewise, JH Feeders Inc. could buy steers on behalf of David if he doesn’t have any feeders to begin with. The cost of these steers would also be passed on to David. JH Feeders Inc. would be reimbursed for the cost of these steers. The value of these steers would be recorded in the Contractor Column under Other livestock purchases. $985 head X 500 = $492,500. Items for which JH Feeders Inc. get’s reimbursed (Feed, Veterinary, Livestock Purchases) are recorded in the contractor column in section F.
492500
Yardage Component $.40 per head per day ------------$.08 per head per day plus $40/ton feed markup
& OR &
Reimbursement Component Cost of Feed & Veterinary --------Cost of Feed & Veterinary
JH Feeders Inc. could determine that a yardage cost of 40 cents per head per day would be enough to cover the overhead expenses and build in some profit. 40 cents per head per day X 150 days in the lot = $60 a head to feed out the steers
----------OR----------JH Feeders Inc. could determine that a lower yardage cost of 8 cents per head per day plus a $40 ton mark up on the cost of feed could cover all the over head costs and build in some profit. 8 cents per head per day x 150 days in the lot = $12 Plus 1.65 tons of feed fed to steer over life in lot X $40/ton markup on feed = $66 For a total of $12 + $66= $78 a head to feed out steers When it comes to recording values in the questionnaire, Yardage and any mark ups are recorded in Column 5 of the Production Contract Table.
Fat Cattle Fat Cattle
818 818
60
00
30,000
----------------------OR------------------- 500 11 78
00
30,000
500
11
JH Feeders Inc. buys feed from different sources on behalf of David to feed out his steers. The cost to buy that feed has to be automatically built into the final pricing mechanism. The cost of the feed ($6/bushel corn, $100/ton alfalfa) is passed on to David. JH Feeders Inc. is reimbursed by David for the cost of that feed. $468 feed cost per head per time in lot X 500 head = $234,000 Costs associated with medicines and services provided by veterinarians are passed on to David. JH Feeders Inc. is reimbursed for this cost as well. $10 head X 500 head = $5,000 If David has his own steers, the value of those steers at the time of placement would be recorded in the Contractor Column under Other livestock purchases. $985 head X 500 = $492,500 Likewise, JH Feeders Inc. could buy steers on behalf of David if he doesn’t have any feeders to begin with. The cost of these steers would also be passed on to David. JH Feeders Inc. would be reimbursed for the cost of these steers. The value of these steers would be recorded in the Contractor Column under Other livestock purchases. $985 head X 500 = $492,500. Items for which JH Feeders Inc. get’s reimbursed (Feed, Veterinary, Livestock Purchases) are recorded in the contractor column in section F.
492500
