Don Hagen, North Dakota Farm Business Management instructor, Glen Ulin, N.D., lists and comments the top five questions he'd ask a custom feeder when retaining ownership of calves:
How much will be charged for feed, yardage, veterinary expenses, and other miscellaneous expenses? With today's volatile markets, it would be advisable to have corn prices "locked in," preferably with the feedyard. If that isn't possible, you can use the futures market to protect the cost of corn.
What's the payment schedule? The feedyard will likely expect expenses to be paid either monthly or every 15 days. A down payment might be required when the calves go into the feedlot. Most feedyards will provide competitive financing. If you need financing, it will likely be the simplest to use feedyard provided financing. Besides funding feeding expenses, it's possible the feedyard will finance a major portion of a calf's value at the time it enters the feedlot. This can serve like an advance payment for a percentage of the calf. You can borrow money from another source to finance the feeding operation.
Will the feedyard protect the selling price of the calves for you on the futures market (or by using facets of the futures market)? If so, you might have to use feedyard provided financing to get this service. You should know how margin calls will be covered. If the feedyard isn't utilizing the futures market, you can obtain risk protection by securing Livestock Gross Margin (LGM) insurance, Livestock Risk Protection (LRP) insurance, or a futures market contract.
How will calves be marketed -- on the grid (grade and yield), in the meat (yield or carcass weight), or on live weight? If you know your calves will grade and yield well, selling on the grid may be the best marketing choice. If you expect the calves to be high yielding but are unlikely to grade well, selling in the meat may be the best alternative. If you do not know how the cattle will grade or yield, selling on live weight may be the best option. A drawback to selling on the grid or in the meat is that you won't know the amount of income from the sale until after the calves are slaughtered. Also, if selling on the grid or in the meat the owner pays the shipping costs from the feedyard to the packing plant, while the packer pays those freight costs for calves sold on a live weight basis. When selling on live weight, a 4% or 5% shrink will be taken from the live weight of the calves at the time they are shipped from the feedyard. The calves' owner will be paid on the resulting weight. Thus, he could know the total income from the sale before the calves get to the packing plant.
When will the calves be sold for slaughter and will all of your calves be sold at the same time, or will they be sorted and sold in groups? Money can be lost if the animals are all sold at the same time and some are not finished and are too light for slaughter. You can improve the odds of the calves finishing together by shipping a uniform bunch of calves to the feedlot.