One of the concepts of the economics of grass cattle that is typically over-looked is understanding the difference between average daily gain (ADG) and gain per acre (G/A). I know you all understand the definition of each so I won't repeat it here but the practical application of this concept is important to potentially boosting profits.
Average daily gain has been so engrained in our minds as the most important metric of grass cattle production that we contextualize every aspect in terms of ADG. If Steer Group 1 has a higher ADG than Steer Group 2, then clearly Steer Group 1 has outperformed Steer Group 2, right? And if Steer Group 1 has a higher ADG than Steer Group 2, then clearly Steer Group 1 is more profitable than Steer Group 2, right?
I am going to challenge your conventional thinking on this.
Let's take a look:
Let's say for example that I have two, 300 acre pastures that are stocked at 2 acres/steer.
In pasture 1, we will graze 150 steers in a season-long system from May 15 to October 15th.
We buy these cattle weighing 500# for $135/cwt. for a total investment of $101,250.
In pasture 2, we will use a double stocking system that grazes twice the number of animals for half the season. So the stocking rate is still 2 acres/steer.
So we will graze 300 steers for 75 days on pasture 2 from May 15 to August 1.
We also will buy these cattle weighing 500# for 135/cwt. for a total investment of $101,250.
Research has shown that ADG in pasture 1 will be about 15% less than ADG in pasture 2 because later in the summer, pasture quality will decline substantially. So in a season-long system, half the time steers are grazing the forage quality is pretty good and the other half of the season, forage quality is not so good. Whereas, in the double stocked system when forage quality declines, steers are pulled and sold.
So we will estimate that ADG in pasture 1 will be 1.8 lb/day and in pasture 2 ADG will be 2.1 lb/day.
Over the 150 days of grazing in pasture 1, steers will gain 270# for a final weight of 770# and we'll sell those steers at today’s price of $116/cwt for a gross return of $133,980.
Over the 75 days of grazing in pasture 2, steers will gain 157.5# for a final weight of 657# and we'll sell those steers at today’s price of $126/cwt for a gross return of $248,346.
We’ll assume $50/hd for operating costs.
When we look at net return for each pasture, it will look like this:
If you make this comparison by only looking at ADG, it looks like pasture 1 in the season-long system should have outperformed pasture 2 by quite a bit; and it did on production of beef basis.
But in reality, pasture 2 out performed pasture 1 by 18% on a net profit basis, even though pasture 2 gained 41% less weight per head.
How can that be??
It is a function of gain/acre. Even though steers in pasture 2 gained less total weight per head than steers in pasture 1, there were twice as many of them in pasture 2 so the total return on the gain per acre and therefore, net profit is more for pasture 2.
The other thing to consider is the inherent price slide in the cash market which you will capture with more animals that weigh less.
So your Return on the Gain/Acre is:
Pasture 1: $186.88
Pasture 2: 195.84
Sounds too good to be true?? It is simply taking advantage of the principal of return on G/A rather than return on ADG.