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THE UNIVERSITY OF ALBERTA

RELEASE FORM

NAME OF AUTHOR

Frank S. Novak

TITLE OF THESIS An Economic Analysis of Preconditioning

Beef Calves

DEGREE FOR WHICH THESIS WAS PRESENTED Master of Science
YEAR THIS DEGREE GRANTED Fall 1984

Permission is hereby granted to THE UNIVERSITY OF
ALBERTA LIBRARY to reproduce single copies of this
thesis and to lend or sell such copies for private,
scholarly or scientific research purposes only.

The author reserves other publication rights, and
neither the thesis nor extensive extracts from it may
be printed or otherwise reproduced without the author's
written permission.

DATED

THE UNIVERSITY OF ALBERTA

An Economic Analysis of Preconditioning Beef Calves

Novak

A THESIS

SUBMITTED TO THE FACULTY OF GRADUATE STUDIES AND RESEARCH
IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE

OF Master of Science
IN

Agricultural Economics

Department of Rural Economy

EDMONTON, ALBERTA

Fall 1984

;

THE UNIVERSITY OF ALBERTA

FACULTY OF GRADUATE STUDIES AND RESEARCH

The undersigned certify that they have read, and

recommend to the Faculty of Graduate Studies and Research,
for acceptance, a thesis entitled An Economic Analysis of
Preconditioning Beef Calves submitted by Frank S. Novak in
partial fulfilment of the requirements for the degree of
Master of Science in Agricultural Eco

Date

f V

DEDICATION

Dedicated to my parents, Lovro and Olga Novak.

. '

ABSTRACT

The concept of preconditioning has long been advertised
as a method of reducing the economic losses inherent in
present methods of weaning and marketing beef calves. The
diversity in the types of operations where beef calves are
raised makes it difficult to determine the gains or losses
which may accrue to any one producer who adopts
preconditioning as a management strategy. The problem for
producers is a lack of knowledge about preconditioning and
decision making tools which do not consider both
profitability and risk in analyzing management alternatives.

The objectives of the thesis are twofold. First to
develop a problem solving framework suitable for
investigating the economic impacts of preconditioning for a
variety of different types of operations. Second, to collect
physical data to define the physical relationships between
resources and products required for application of the
budgeting procedure.

Production data were collected from two research
trials. Trial 1 was conducted at the University of Alberta
Beef Cattle Research Ranch in order to determine the effects
of early weaning on the performance of beef cows and calves.
The second trial was conducted under the Alberta Certified
Preconditioned Feeder Program to investigate the performance
of regular and preconditioned calves under commercial
conditions .

Economic analysis revealed a possible misallocat ion of
resources by feeders who have purchased preconditioned
calves in the past and established new priorities for
further research into preconditioning. It appears that
preconditioned calves are worth considerably less to feeders
than they may have been led to believe and premiums for
these calves may fall in the future. Premiums constitute an
important part of returns to cow - calf producers. If
premiums drop significantly fewer producers will find
preconditioning to be a viable alternative.

Several recommendations for future research and
extension arise from the thesis. First, that future research
efforts into preconditioning should emphasize the most
economically important variables. This will require closer
cooperation between physical scientists and economists in
the planning stages of research as well as in the evaluation
and application of results. Second, that the variability of
returns from preconditioning must be recognized more
explicitly by research and extension workers. Economic
analyses will provide the most information to producers when
they include measurements of both risk and profit.

ACKNOWLEDGEMENTS

The completion of this thesis was made possible through
the guidance and support of countless individuals. To the
cast of dozens who helped make it happen, some who are named
below and others who aren't, my deepest thanks.

The collection of data for this thesis required the
cooperation of the Department of Animal Science and Alberta
Agriculture. Partial funding was provided through the
Farming For The Future Graduate Student Research Support
Program. The Department of Animal Science served as a
valuable source of research data and expertise. The work of
the staff of the University Ranch at Kinsella is gratefully
acknowledged as is the guidance provided by the professors
of the Animal Science Department. Alberta Agriculture staff
proved to be very important to the success of this project.
Among them are Dwight Karren and Dr. Terry Church who made
available information collected under the Alberta Certified
Preconditioned Feeder Program. The assistance of Dr. John
Basarab of the Beef Cattle and Sheep Branch deserves special
mention. John is responsible for the analysis of information
provided by Alberta Agriculture and a major part of the
Kinsella data.

The entire Department of Rural Economy has helped me in
one way or another to complete this thesis. The computing
staff, Judy Warren, Clare Shier and Jim Copeland had a hand
in the project from beginning to end. The front office
staff, Wendy and Holly, provided a regular supply of quality

vi 1

figures upon request and Barb and Hildegard, were very
helpful in the search for literature. Thanks also to Vic for
help with computing and everything else, and to John, Mike
and Dale, the occupants of "The Home", for helping me think
about starting chapter one.

My supervisor, Dr. Len Bauer has been both a teacher
and a friend during my stay in the department. The
enthusiasm and humor he has displayed while teaching me how
to figure out "where I was on the production function and
whether or not I wanted to be there" will remain with me
forever. Dr. Mick Price of the Department of Animal Science
and Dr. Bill Phillips of Rural Economy served on my
committee and deserve special recognition for their work in
the short amount of time they were given. Their comments and
criticisms helped to improve the quality of the thesis. Any
errors or omissions remain my responsibility..

vi 1 1

<’

. ■

Table of Contents

Chapter Page

I. INTRODUCTION . 1

A. Problem Statement . 3

II. ECONOMIC ANALYSIS . 5

A. The Partial Budget . 6

B. The Partial Budget and Economic Theory . 8

C. The Partial Budget and Financial Statements ...16

D. A Problem Solving Framework . 19

III. LIVESTOCK PRODUCTION PRINCIPLES . 29

A. Calf Performance . 29

Preweaning Growth . 29

Postweaning Growth . 35

Factors Influencing Receipts to Producers ..37

B. Cow Production . 42

IV. RESEARCH METHODS AND DATA ANALYSIS . 46

A. Livestock Production Data . 46

Trial 1 - Effects of Early Weaning on
Performance of Cows and Calves . 46

Alberta Certified Preconditioned Feeder
Program - Producer Trials . 49

B. Economic Data . 53

C. Data Analysis . 53

V. RESULTS AND DISCUSSION . 55

A. Trial 1 . 55

Conclusions . 62

B. ACPF Producer Trials . 63

C. Veterinarian Survey . 68

■ ■ .

u ■ <

J ■ L . ' 65 r ... ■ Ufj ■ • •

D. Conclusions . 69

VI. APPLICATION OF THE BUDGETING PROCEDURE . 72

Feeder Budget . 72

Preconditioning Budget . 80

Discussion . 87

VII. SUMMARY AND CONCLUSIONS . 89

BIBLIOGRAPHY . 93

VIII. Appendix A . 102

IX. Appendix B . 104

X . Appendix C . 107

-J I

List of Tables

Table Page

111.1 ADG of Hereford Calves in Northwestern

United States by Season . 33

111. 2 Average Yearly Price Premiums for

Preconditioned Calves ( 1980- 1 983) . 40

V. 1 Least Squares Mean Age and Initial

Weights of Early and Late Weaned Calves

(Trial 1 ) . 56

V.2 Least Squares Mean Early Weaning Weights

and ADG of cows (Trial 1) . 58

V.3 Least Squares Mean 1983 Calving Weights
and ADG of Cows by 1982 Treatment (Trial
1) . 59

V.4 Least Squares Mean ADG of Calves from

Early Weaning to Late Weaning in 1982 and
1 983 (Tr ial 1) . 60

V . 5 Least Squares Mean ADG of Male Calves

During Feedlot Phase (Trial 1) . 61

V.6 Least Squares Mean Initial Weights and

ADG of Regular and Preconditioned Calves
During Weaning Phase (ACPF Producer

Trial) . 64

V.7 Least Squares Mean Initial Weights and

ADG of Regular and Preconditioned Calves
During Feedlot Phase (ACPF Producer

Trial) . 65

V.8 Average Feed Consumption and Feed
Conversions for Regular and
Preconditioned Calves During Feedlot

Phase (ACPF Producer Trial) . 66

V. 9 Summary of Preconditioning Veterinary

Costs from Veterinarian Survey . 69

VI . 1 Feeder Partial Budget . 74

VI . 2 Cumulative Probability of Net Benefits . 75

VI . 3 Feeder Sensitivity Analysis . 78

VI. 4 Preconditioning Partial Budget . 82

■ ■ fif

Table Page

VI . 5 Cumulative Probability of Net Benefits . 83

VI . 6 Preconditioning Sensitivity Analysis . 86

XI 1

List of Figures

Figure Page

11. 1 The Partial Budget and Decision Rules . 15

11. 2 The Accounting Statements and Decision

Rules . 18

11. 3 The Preconditioning Partial Budget . 21

11. 4 The Triangular Probability Density

Function . 24

11. 5 The Cumulative Distribution Function . 24

III. 1 The relat ionshipbetween calf age and ADG

for three breeds . 32

IV. 1 Chronological sequence of weaning

activites for ACPF Producer Trial . 52

VI . 1 Probability of positive net benefit -

Feeder . 76

VI. 2 Probability of positive net benefit-

Producer . 84

xi i i

I . INTRODUCTION

The majority of cow-calf producers in Alberta sell
calves directly off the cow, usually at an age of 6 - 9
months. Weaning causes considerable stress to the calf. The
sickness and death loss which occurs among calves during the
weaning and marketing process represents an economic loss.
The buyer protects himself by reflecting his potential loss
in the price he pays for feeder calves. The major loss in
income is therefore passed back to the producer.

Recent studies have suggested that net income may be
improved by weaning calves early and preconditioning them.
Preconditioning is a way of preparing the calf to withstand
the rigors of leaving its mother, learning to eat new kinds
of feed, and shipping from the farm or ranch to the
f eedlot . 1 _ The concept of preconditioning has been
interpreted by producers to mean anything from special
feeding and treatment programs to weaning calves, giving
them all their shots and immediately selling them as
preconditioned. As a result, the acceptance of
preconditioning has been as variable as the differing
concepts. A certified preconditioning program in Alberta
provides a vehicle for the control and identification of
calves which are preconditioned. 2 The existence of such a

1 It is assumed for the purposes of this study that a
producer who early weans his calves will enlist them in a
preconditioning program to extract the benefits associated
with this program. For this reason the terms early weaning
and preconditioning are used interchangeably.

2The requirements for participation in this program are
explained in Appendix A.

* •

program helps to reduce the problem of uncertainty regarding
a calf's history and thus should enable producers to capture
the full market benefits from preconditioned calves.

At the present time, the information available to
producers regarding the profitability of early weaning is
both scarce and contradictory. The experience of producers
and the results of scientific studies suggest that calves
will perform poorly during the period immediately following
weaning.3 Other sources of information, including recent
publications in Alberta4 indicate that the performance of
early weaned and preconditioned calves and cows makes early
weaning a profitable alternative to traditional methods.

Potential gains to the producer may be three-fold. As a

result of early weaning and adaptation to feedlot

conditions, the calf becomes a more saleable product which

should demand a premium price. The calf may in fact be

heavier by sale day than would a comparable calf which

remained on the cow which means more product for sale, and

the extra time allowed for the cow to improve its condition

before winter may mean lower maintenance costs and

subsequent improvements in rebreeding performance. The

combined effects of improved returns and decreased costs may

contribute to increased producer income. To date, however,

there have been no large split-herd comparisons conducted in

3 Dyer, L . A . and C.C. O' Mary Eds. Commercial Beef Cattle
Production . 2nd Edition. Lea and Febiger, Philadelphia.

1978 .

4Kar ren D. and T.C. Church Preconditioning Will It Pay The
Producer As Well As The Feeder? Alberta Agriculture Agdex
420/662. 1982.

order to accurately quantify costs and benefits associated
with early weaning and preconditioning.

Commercial cow-calf producers in Alberta are either
ranchers who receive the majority of their farm cash income
from the sale of cattle and calves, or mixed farmers who
receive part of their income from the sale of livestock and
part from the sale of grain. Producers who derive the
majority of their income from cropping enterprises often
diversify their operations, using beef cattle as a
supplementary enterprise. Beef production is generally in an
economic squeeze due to lower apparent efficiency of
production as compared to other types of operations. The
existence of the industry is in part justified on the basis
of utilization of marginal areas and surplus produce and
labor. The fact that a large proportion of the total cow
herd in Alberta is found on operations where livestock is
not the major enterprise suggests that changes in management
practices will not affect all operations in the same manner.
The possibility of conflicts between enterprise requirements
must be considered as should the varying levels of risk for
each operation.

A. Problem Statement

Producers have recognized the economic loss inherent in
present management and marketing methods. A state of
confusion exists regarding the economic implications of
early weaning and preconditioning versus regular weaning.

The great diversity in the types of operations where beef
calves are raised makes it very difficult to determine the
possible effects of this change in management practices.
Ranchers who depend on beef production for their livelihood
face different levels of potential gains or losses than
mixed farmers. The amount of experience with weaning calves
and the possibilities of conflict with other farm operations
alter the risk that each producer faces. At the present time
there is a lack of information on the levels of risk and the
benefits and costs which may accrue to producers who adopt
preconditioning as an alternative management strategy. The
uncertainty which arises due to this information gap makes
it difficult for producers to decide whether or not such a
change is suitable for their own operations.

The problem can be defined as a lack of knowledge about
early weaning and decision making practices which do not
incorporate both profitability and risk into the analysis of
management alternatives.

II. ECONOMIC ANALYSIS

Producers attempt to allocate resources most efficiently in
order to achieve their personal goals. In doing so, they
follow the process of decision making summarized below.

1. Establishing goals and objectives.

2. Measuring performance against goals to detect problems
or opportunities.

3. Analyzing and specifying possible ways of solving the
problem or exploiting an opportunity.

4. Choosing a particular solution and implementing it.

5. Accepting the result and evaluating the consequences of
the actions.

Choice is involved in the decisions of producers since

there may be many alternative ways of using resources to

achieve a desired end. The ability to choose an alternative

which will bring an individual closer to his goals is

affected by the quality of information available. Improving

his information takes him through the process of gathering

information, reducing his uncertainty and allowing him to

make the decision with more confidence.5 Information which

can be used by decision makers is developed by the

cooperative efforts of workers in several disciplines. The

physical sciences define production possibilities and

relationships between resources and product, but the problem

of choice involved, is one of economics.6

5 Bauer, L. Todays farm business environment, ag/84
Conference, Lethbridge, Alberta. 1984.

6 Heady, E.o. Economics of Agricultural Production and
Resource Use Prentice-Hall Inc. Englewood Cliffs, N.J. 1952.

This thesis deals with the choice between two processes
for the production of beef calves, early and late weaning.
The objective of this thesis is twofold. First, to make use
of the Animal Science and Economics disciplines to provide
information which may be used in decisions related to the
choice between early and late weaning. Research will be
directed towards the quantification of the effects of
alternative weaning strategies on producer income and which
types of operations, if any, will benefit. The second
objective of this study is to provide a framework for the
investigation of the economic impacts of early weaning beef
calves under varying management situations which takes into
account both profit and risk.

A. The Partial Budget

Problems relating to the farm business can become very
involved and require an organized framework for a meaningful
analysis. When the dynamic characteristics of the system
being investigated can be abstracted, at least partially,
from the analysis without seriously compromising the
applicability of the results, a static method of analysis is
suitable. In the case of management decisions the method
most often used is the budget.

The main purpose of budgeting is to compare the

profitability of different kinds of organization.7 The

7 Castle , E.N., M.H. Becker and F.J. Smith. Farm Business
management. 2nd Edition. Macmillan Co. 1972.; Heady E. 0.
and H.R. Jensen. Farm Management Economics. Prentice - Hall
Inc . . 1954 .

budget is a tool for applying the principle of opportunity
cost in using limited resources most profitably. There are
two steps or methods in budgeting; complete budgeting and
partial budgeting. Complete budgeting refers to making out a
plan for the entire farm or for all decisions of one
enterprise. The partial budget is appropriate when the
proposed change is "marginal" in the sense that the entire
farm organization will not be affected. In such a situation
some of the costs and receipts will remain constant and some
will change. Partial budgeting is concerned with identifying
those costs and returns that will change and estimating the
amount by which they will change. The budgeting technique is
relatively easy to learn because it is complementary to the
typical manager's thought processes, is well rooted in
economic principles and can be directly linked to the
decision maker's statements of accounts.8

The final analysis for any change in management should
be made on the basis of profitability, affordability (cash
flow and risk) and desireability (personal

considerations).9 These considerations can be implemented in
problem analysis through the links between the financial
statements and economic theory. The following sections will
develop this link as it is provided by the partial budget.

8 Peterson, T.A.. Farm Bus i ness Management Counse 11 ing
Module F 3. Prepare and Use Partial Budgets . The Canadian
Farm Business Management Training Project. 1975.

9 See Bauer, L. Risk Management A paper presented to the
Regional Farm Management Seminar, Wainright, Alberta.
November, 1982.

B. The Partial Budget and Economic Theory

The theoretical framework upon which the decision
making process is based, originates from the theory of
production. The production process is described by a
production function that expresses the technical
relationships between products (outputs) and resources
(inputs) used.10 This process is most easily explained in
the case where certain assumptions hold:11

1. The decision maker is assumed to have perfect knowledge
of factor and product prices but does not have
sufficient control in the market to exert a pricing
influence .

2. The decision maker has perfect knowledge of the
technical relationships between factor inputs and
resulting products.

3. The producer's goal is profit maximization.

Profit is defined as the difference between the total
revenue from the sale of all output and the expenditure upon
all inputs.

Given these conditions, the business will strive to maximize
profit subject to the technical rules given by the
production function.12

1 “Heady , E.O. and J.L. Dillon Agricultural Production
Functions . Iowa State University Press 1961.

1 1 Baue r , L . A Quadrat ic Programm ing A1 gor i thm for Der i v i ng
Efficient Farm Plans in a Risk Setting, unpublished Ph.D.
thesis, Ore. State Univ. 1971.

1 "Henderson J.H. and R.E. Quandt, Microeconmic Theory - A
Mathemat ical Approach. 3rd Edition. McGraw - Hill. 1980.

Stated algebraically the problem is:

Maximize n = Z p ; y j
i = 1

(2.0)

Subject to:

F ( y 1 t • • • r y n r X i / • • » fXm)— 0

f • • •

(2.1)

Y i >0 i = 1

x j >0 j= 1 , . . . , m

Where

7r is profit.

yi is the output of the ith product and Pi its unit
price .

Xj is the input level of the jth productive factor and
rj its unit cost

F is the production function stated in implicit form
and chosen so that the non-negativity restrictions always
hold. The constrained maximization problem can be solved by
forming the Lagrangian function (2.2).

n m

where X is the Lagrangian multiplier.

The function is then solved by differentiating with
respect to its various arguments (y,x,X), setting these
functions equal to 0 and solving simultaneously.

3R/9yi = pj - X3F/9yj =0 i = 1,...,n

3R/3xj = r j - X3F/3xj =0 j = 1,...,m (2.3)

3R/3X = F(y , , . . . ,yn ;x , , . . . , xm) = 0

Solution of the system of differential equations (2.3)
provides the decision rules which must be fulfilled13 for
profit to be a maximum.14 These rules guide decision makers
in their choices of "How much to produce" (Decision Rule 1),
"How to produce" (Decision Rule 2) and "What to produce"
(Decision Rule 3 ) .

DECISION RULE 1

r j = p i 3y i /3x j (2.4)

The Marginal value product (MVP) of the jth input with
respect to the ith output is equated to the Marginal factor
cost (MFC), or price of the jth input. This must hold for
all inputs and outputs.

1 3Bauer , op c i t .

1 4See Appendix B.

DECISION RULE 2

r s/r j = - 3 x j / 3 x s (2.5)

The marginal rate of technical substitution (MRTS ) of input
s for input j , holding the levels of all outputs and all
other inputs constant, must equal the inverse ratio of the
prices of inputs s and j. This must hold for all pairs of
inputs .

DECISION RULE 3

" 3yi/3yk = Pk/pi (2.6)

The marginal rate of product transformation (MRPT ) of
product i for product k, holding the levels of all inputs
and all other outputs constant, must equal the inverse ratio
of the prices of products i and k. This must hold for all
pairs of products.

The relationship between economic theory and the
partial budget can be illustrated by manipulating the
mathematical forms of equations 2.4 - 2.6. 15 The thought
process of the decision maker can be better modelled by
evaluating the decision rules in discrete form (denoted by
"A") .

1 5Kaliel , D. Farm Enterprise Selection in a Risky
Environment. Unpublished MSc . thesis, Dept of Rural Economy,
Univ. of Alberta. 1981.

■

)

DECISION RULE 1 With unlimited resources, add units of
an input as long as the added return is greater than the
added cost. This concerns the extent of use of the factor
combination input and the transformation of these factors
into a product. The requirement that ADDED REVENUE > ADDED
COST can be stated mathematically as,

P i AY , > r j Ax j

DECISION RULE 2 When output levels, and consequently
revenue are the constant, subtitute units of one input for
another as long as the cost of the added input is less than
the cost of the input which is replaced. This involves the
least-cost combination of factors used on the farm. The
requirement that ADDED COSTS < REDUCED COSTS can be stated
mathematically as,

r j Ax j < - r s Ax s

DECISION RULE 3 When costs are constant, substitute
units of one output for another as long as the return from
the added output is greater than the return from the output
which is replaced.16 This involves the highest profit
combination of products on the farm. The requirement that
ADDED REVENUE > REDUCED REVENUE can be stated mathematically
as ,

P i Ay j > - pk Ay k

16 Fellows, I. Budgeting: Too 1 of Research and Extension in
Agricultural Economics. Univ. of Connecticut, Bulletin 357.
1960 .

■ A

These rules can be expanded to the case of limited
resources, where one should add units of an input in the
various alternative uses until the added return from each
alternative is equal. This is the opportunity costs concept
and can be considered through the construction and
comparison of separate budgets for several relevant
alternative opportunities (Fig. 2.1). The application of
this concept to the problem of early weaning will be the
main focus of this thesis.

This discussion has developed the connection between
the partial budget and economic theory in the case of
production under certainty. When the scope is expanded to
include the effects of time and uncertainty, adjustments
must be made to include imperfect knowledge and differences
in the risk attitudes of decision makers. The concepts of
risk and uncertainty can be incorporated into the budgeting
framework through the use of probability distributions and
discounting techniques.17 The partial budget assumes the
existence of fixed resources within a given time period,
knowledge of input-output relationships and the price
structure, and some knowledge of the probability
distributions surrounding the technical and price
information, and goals of the manager. Each individual
producer will employ his personal feelings regarding
production and prices to arrive at a decision which is
consistent with his goals. The success of a particular

1 ’Fellows , op. c i t .

. V

decision will be judged in part on its effect on the income

Figure 2.1: THE PARTIAL BUDGET AND DECISION RULES

WHAT CAN BE DONE?

The alternative

WILL IT PAY?

Added costs

( r j Ax j )

Reduced Returns

(-pkAyk )

Disadvantages
( r j Ax j -pkAyk)

Cash flow

Added returns

(Pi Ay i )

Reduced costs
( -r s Ax s )

Advantages
( p i Ay i -rsAxs)

CAN I AFFORD IT?

Risk

DO I WANT TO DO IT?

The decision (yes/no )

■

C. The Partial Budget and Financial Statements

The major value of the decision rules is the conceptual
guide they provide for decision makers. These rules can help
to identify problems (e.g. mi sallocat i on of resources among
competing enterprises) and provide an organized framework
for analyzing technical and economic relationships.

As well as being firmly grounded in economic theory,
the partial budget technique is consistent with the
principles of accounting and draws comparison information
from the financial statements.

The income statement is designed to measure the net
value of a firm's production during a specified accounting
period.18 As such, it also serves as the basis for
comparison of the profitability of various competing
alternatives. The concepts of marginal analysis (e.g. the
three decision rules developed earlier) and the income
statement are therefore interrelated. This idea can be
brought closer to the level of onfarm decisions by including
the balance sheet as a measure of a business' risk position.

Resource allocation decisions should consider the "real
world" constraints of risk and uncertainty. The double entry
accounting equation (2.7) reveals that claims against the
assets of a business are based on the source of funds used
to acquire those assets15.

18Barry, P.J., J.A. Hopkin and C.B. Baker. Fl'nanacial
Management in Agriculture. 2nd Ed. Interstate Printers and
Publishers, Illinois. 1979.

19 Boehlje, M. and V. Eidman. Farm Management John Wiley and
Sons, Toronto. 1984.

ASSETS = LIABILITIES + OWNER EQUITY (2.7)

At first glance the decision rules appear to impact only on
the income statement. Closer analysis reveals that revenues
and expenses have a direct impact on the balance sheet
(Figure 2.2). Investments in inputs or capital goods will
result in a claim against the business either by the owner
(equity) or an external financier (liability). Liability
claims represent a fixed commitment which must be honored
from revenues generated by the investment. The existence of
these fixed claims suggests that the timing and magnitude of
revenues are of importance. Since revenues tend to be of
uncertain magnitude and timing, liabilities represent a
source of risk to the business. An appropriate decision
framework will include the uncertainty of revenues in its
analysis, thereby providing the decision maker with some
measure of risk. Such a "risk budgeting" procedure will be
developed in the following section.

, ■ 1

FIGURE 2.2: DECISION RULES AND THE ACCOUNTING STATEMENTS

or cr cr

O Q O

Source: Bauer, L., "Farm Business Management: A Process of Information Seeking, Decision
Making and Action". A presentation to African Bankers at Finafrica - Centre for
Financial Assistance to African Colonies, Milano, Italy, June 1981.

D. A Problem Solving Framework

Economic theory suggests that costs change with plant
output.20 This concept can be rewritten to apply to farms
which exhibit structural differences. Among the producers
raising beef in Alberta differences exist in primary
enterprise, size, climate, breed of cattle, etc. Due to this
diversity, a single study such as this cannot provide
results which are suitable for all producers. Each
individual will need to develop a budget for his own
situation to determine if the added returns from
preconditioning are greater than the added costs. Such a
budgeting procedure can be standardized for all producers by
preparing a partial budget or using break-even analysis on a
per unit of production basis (e.g. per calf). The format of
the partial budget as shown in Figure 2.3 provides an
organized method of calculating the net benefit from
preconditioning. A break-even formula could also be employed
by the decision maker as a pro forma indicator of the
premium required to provide a positive net benefit from
preconditioning. An example of such a formula is as follows.

r = {C + Wz (P)/Wy } - P (2.8)

Where

r = The price premium for preconditioned calves.

C = Added cost of preconditioning and includes feed,

20 Berry, R.L. Break-even analysis: A practical tool in farm
management. Amer . J. Agr. Econ . 54: 121 - 125. 1972.

veterinary services, medicine, labor (above those costs
incurred for regular calves).

W2 = Final sale weight of regular calves including weight
gain during the preconditioning period, shrink and death
loss .

P = The price for regular calves

Wy = Final sale weight of preconditioned calves and is a
function of weight gain during the preconditioning period,
shrink and death loss.

The producer must then consider market conditions to
determine whether or not the required premium is attainable.
Both the partial budget and break-even formats could be
applied to the situation of a feeder considering the
purchase of preconditioned calves by including the cost of
purchasing calves.21

2 ’An application of the break even format to the feeder
example is provided in chapter 5.

Figure 2.3: THE PRECONDITIONING PARTIAL BUDGET

_ WHAT CAN BE DONE?

The alternative

Should I change from a regular weaning
program to preconditioning

WILL IT PAY?

Added costs
Feed

Veterinary & Medicine

Labor

Misc .

Reduced Returns

Regular Sale Weight

Disadvantages

Added returns

Added Sale Weight
Price Premium

Reduced costs
Feed

Veterinary & Medicine

Labor

Mi sc .

Advantages

CAN

I AFFORD IT?

Cash flow

Risk

Minimal impact

Death Loss

Price premium

DO I

WANT TO DO IT?

The decision (yes/no)

The time delay between the decision and a harvest of
the final product causes uncertainty of revenues. Some
variables which will affect costs and returns are beyond the
reasonable control of the producer. Random variables in this
problem include the prices paid for calves (P) the
preconditioning premium (r) and the final sale weight
associated with each alternative (Wz and Wy ) . A measure of
the variability of these random variables should be included
in the analysis to accurately represent the degree of
uncertainty associated with the decision.

A tool which is well suited to use in such a situation
is the triangular distribution which combines ease of
comprehension and statistical reliability.22 For each random
variable the decision maker provides his estimates of the
most optimistic (b) , most pessimistic (a) and most likely
(m) values specifying a probability density function (pdf)
as follows (Figure 2.3).
f(x) = 2(x - a)/(m - a)(b - a) ,a^ x< m
= 2 ( b - a ) /( b - m)(b - a) ,m< x< b
= 0 otherwise
Where

f(x) is the ordinate of the triangular distribution
a and b are the lowest and highest possible values
respectively

22The triangular distribution rather than the beta
distribution is used here. The degree of estimation error is
similar with each but the mathematical form of the
triangular distribution is simpler and is therefore better
suited to extension applications. See Bauer, L. op. cit.
1971.

. 1

x is the random variable

m is the most frequently occurring value23

The cumulative distribution function (Figure 2.5) is:
F (x ) = 0 , x < a

= (x - a)2/(m - a)(b - a) ,a< x< m
= 1 - (b - x)2/(b - m)(b - a) ,m< x< b
= 1 ,b ^ x
Where

F ( x ) is the probability of an observed x being less than a
stipulated value (i.e. P of x < x* ).

2 3No other restrictions are placed on the characteristics of
this distribution. Any degree of skewness or kurtosis can be
accomodated .

f (x)

Figure 2.4: The Triangular Probability Density Function.

F ( x )

Figure 2.5: The Cumulative Distribution Function

The mean (expected value) of the triangular distribution is:
M = 1/3(a + m +b) (2.9)

The variance is:

a2 = 1 / 1 8 { ( b - a)2 - (m - a)(b - m)} (2.10)

From the expected values and variances of these
variables we can calculate the expected net benefit and
variance for the decision. The expected net benefit can be
calculated as:

Net Benefit = E{Added Revenue] + E{Reduced Cost] - E{Reduced
Revenue] + E{Added Cost]

Where

Assumming stochastic independence of variables the expected
values and variances are calculated as either:

Ey = II [/Ij]
i = 1

2 4

(2.11)

n n

Vary = II [ a i 2 +m i 2 ] ~ n [Mi2]
i= 1 i = 1

(2.12)

For multiplication or division operations and

Ey = I Mi
i= 1

(2.13)

2 4 II is the product operator. See. Neter, J. et al. Applied
Linear Regression Models Richard D. Irwin Inc. 1983.

Vary = I a, 2 (2.14)

i = 1

for addition or subtraction operations

For example, calculation of net revenue from livestock sales
would incorporate the expected values (m) and variances (ct2)
of the following variables as calculated by equations 2.9
and 2.10.

Weight mx =700 lb. and ax2 = 369
Price My =$0.82 and ay2 =0.005
Total costs mz =$400 and oz2 =96

The expected value and variance of revenue would be
calculated as the product of weight and price.

E s = 700 x 0.82 = $574.00

Var s = [ 369+ ( 700 ) 2 ] [ 0 . 005+ ( 0 . 82 ) 2 ]-[ ( 700 ) 2 ( 0.82 ) 2 ] = 267 0
The expected value and variance of net revenue would be
calculated as the difference (sum) of revenue and cost.

E n = $574.00 - $400 = $174.00
Var n = 2670 + 96 = 2766

The calculation of net benefit involves the use of

several individual probability distributions. When these

distributions are combined they tend towards a single normal

distribution for the calculated net benefit.25 The

25The Central Limit Theorem states that if the sample size n
is sufficiently large, the sampling distribution will be
approximately normal. In this case the sample consists of
the previously estimated random variables. See. Mason, R.D.
St at i st i cal Techniques in Business and Economics. 5th Ed.
Richard D. Irwin Inc. 1982.

probability of achieving any specified level of benefit can
then be calculated by measuring the area under the normal
curve up to the specified point. In this example the
probability of achieving a net revenue of $100.00 could be
calculated by determining its location (z score) on the
normal distribution relative to the mean of $174.00.
z = ($100.00 - $174. 00) /52. 6 = -1.41
Where 52.6 is the standard deviation of net revenue.

The area under the normal curve (cumulative probability) up
to z = -1.41 is approximately 0.15 which means there is a 15
percent probability of being below $100.00 or an 85 percent
probability of receiving at least $100.00.

In deriving the estimates which make up the various
triangular distributions it is important that the
estimations be accurate reflections of the level of
uncertainty which exists. Thus, if the decision maker feels
fairly confident about certain variables the spread between
the estimates should reflect this confidence. In the case of
preconditioning, the decision maker may feel more confident
about the market price of calves than about the premium he
may receive by preconditioning. The spread between the
highest and lowest values would be relatively wider for his
estimates of the premium than for the base market price.
Following this procedure the farmer can develop a partial
budget for the preconditioning decision which incorporates
the level of certainty he feels comfortable with. The net
result is a format which provides the decision maker with

both an expected value and a measure of the degree of risk.

■

III. LIVESTOCK PRODUCTION PRINCIPLES

The proposed management changes may influence the
productivity of both cows and calves. A review of the
factors which may influence the performance of cows and
calves as a result of early weaning follows.

A. Calf Performance

The original purpose of preconditioning was to improve
the performance of calves during the postweaning period. The
reported benefits of this program include superior growth
performance and decreased shrink of early weaned calves
compared to that of suckling calves, resulting in a greater
quantity of product for sale. Investigation into these
results will require a comparison of the growth of calves at
the end of the preweaning period with another group at the
beginning of the postweaning period.

Preweaning Growth

The growth of suckling calves is influenced by growth

potential and environment, the most important component of

which is nutrition. The major variables affecting growth

potential are breed, sex, and age of the calf. Numerous

studies have been conducted to determine the effect of breed

on growth of calves.26 The consensus from these studies is

26Gregory, K.E., L.V. Cundiff, G.M. Smith, D.B. Laster and
H . A . Fitzhugh Jr. Characterization of biological types of
cattle. Cycle II. 1. Birth and weaning weights. J. Anim.

Sci. 47:1022-1030. 1978.; Gregory, K.E., L.V. Cundiff, R.M.
Koch, D.B. Laster and G.M. Smith. Heterosis and breed
maternal and transmitted effects in cattle. 1. Preweaning

that calves sired by bulls of the larger and faster growing
breeds (Simmental, Charolais) and crossbred calves, tend to
achieve significantly greater weaning weights than purebred
calves and calves sired by smaller breeds of bulls
(Hereford, Angus). Calves from mature cows are also heavier
at weaning than calves from heifers and very old cows.27 Sex
of calf also influences growth, with male calves exhibiting
weaning weights 4-15% greater than female calves.28

Age of calf influences growth in several ways. The size

or weight of calves, as a function of age, can affect both a

calf's ability to utilize available energy and its energy

needs. As a calf grows older and heavier it consumes

increasing amounts of roughage which stimulates a change

from monogastric to ruminant digestion. This shift in

digestive processes results in a greater relative capacity

to consume feedstuffs. Increased size also means a higher

maintenance requirement which forces the calf to consume

increasing amounts of feed energy in order to maintain its

growth rate. Another age-related factor for spring-born

calves being maintained on pasture is the availability of

feed energy. These calves will approach weaning age when

26(cont'd) traits. J. Anim. Sci. 47:1031-1041. 1978.;
Anderson, D.C., C.C. O'Mary and E.L. Martin. Birth,
preweaning and postweaning traits of Angus, Holstein,
Simmental and Chianina sired calves. J. Anim Sci .

46:362-369. 1978.; Cundiff, L.V., K.E. Gregory, F.J.
Schwoulst and R.M. Koch. Effects of heterosis on maternal
performance and milk production in Hereford, Angus and
Shorthorn cattle. d. Anim. Sci. 38:728-745. 1974.

2 7Anderson et al., op. cit.; Butson, S., R.T. Berg and R.T.
Hardin. Factors influencing weaning weights of range beef
and dairy-beef calves. Can. d. Anim. Sci. 60:727-742. 1980.
28Gregory et al. op. cit 1978.; Anderson et al. op. cit.

. V.'

both milk and available forage are decreasing. It is this

nutritional effect which most severely limits growth.

Research at the University of Alberta has shown that as much

as 50% of the variation in weaning weights of calves is

caused by differences in milk production of the cow.29 Thus

milk production is the single most important factor

influencing weaning weights within a herd. Milk production

is of greater importance in determining weaning weights

during the first 60-90 days of the calf's life than it is

later, since the calf can eat more forage as it grows older.

The level of milk production is also of greater importance

to calf weight gain when pasture is of poor quality due to a

gradual shift from milk as the primary nutrient source to a

dependence on forage as the calf grows.30 With poorer

quality forage ( low energy density ) the rate of gain is

more dependent on milk production since the energy available

from forage may be limited by rumen capacity. Thus, during

the middle and later parts of lactation, calves grazing

forage of low quality, gain weight in proportion to milk

intake, whereas those grazing higher quality forage are not

as dependent on milk. Fall range in Alberta is lower in

quality than that available during summer. As a result, the

performance of calves is largely influenced by the milk

production of the dam making persistency of lactation an

29Gleddie, V.M. and R.T. Berg. Milk Production in Beef Cows
and its Relationship to Calf Gains. Can. J. Anim. Sci.
48:323-333. 1968. ; Butson et al. op cit.

30 Holloway, T.W. , W.I. Butts and T.L. Worley. Utilization
of forage and milk energy by Angus calves grazing fescue or
fescue-legume pastures. J. Anim. Sci. 47:1214-1223. 1982.

important factor in calf gains. Although the lactation
curves of range cows are difficult to predict it has been
shown that cows with some dairy breeding and crossbred cows
produce at higher and more persistent levels than do the
traditional beef breeds and purebreds.31 This breed

difference is further developed by Ahunu.32

60 70 80 90 500 110 120 130 HQ ISO

Age of calf, days

Legend

® Hereford
B Synthetic
O Crossbred

Figure 2.4: The relationship between calf age and average
daily gain for three breeds.

Source: Ahunu op. cit.

31Butson et al. op. cit.

32Ahunu, B.. Factors affecting preweaning growth rates of
beef calves raised under range conditions. 63rd Annual
Feeders Day Report Dept, of Animal Science, University of
Alberta. 1984.

■

Results of his study indicate that for East-central Alberta,
calves may achieve long term average gains of 0.8-0. 9
kg. /day at 160-190 days of age (Sept. -Oct.) on a combination
of native and tame pasture, with crossbred cattle achieving
greater gains than those of predominantly Hereford breeding.

Data from the Midwest U.S. (Table 2.1) develops further
the effects of decreasing quality and quantity of forage on
calf growth rates in Western Canada and the United States.

Table 2.1: ADG of Hereford calves in Northwestern United

States by Season

Season

ADG (kg)

May- June

•

July-Aug.

0.9

Sept .

0.7

Oct .

0.7

Adapted from Stoddart, L.A., A.D. Smith and T.W. Box. Range
Management 3rd Ed. McGraw-Hill Book Co. 1975.

These studies illustrate that although gains may be
decreasing in the later months of lactation, significant
gains are still possible.

In situations where forage supply limits calf growth,
producers may provide supplemental feed in order to improve

weight gains. This practice is known as creep feeding. It is
generally agreed that creep feeding calves will promote
heavier weaning weights.33 The profitability of using creep
feed to improve weaning weights will depend on the cost of
creep feeding relative to the added revenue from a heavier
calf.34 Creep feeding may also influence the postweaning
performance of calves which will influence the price paid
for such calves. Preconditioning may have a similar effect
on postweaning gains since it also serves to increase
dietary energy levels prior to calves being placed in
feedlot for finishing. The effect of preweaning energy
levels on postweaning performance will be discussed in the
following section.

As discussed above, the gains which producers can
expect from suckling calves depend on several factors, the
most vital of which is nutrition. Producers using herds
composed of heavier milking breeds of cows and larger breeds
of sires can expect the highest potential gains. The actual
growth which is achieved will vary with quality of forage
with better gains being achieved on irrigated tame pastures
and in areas of higher rainfall. Producers on native dryland

33Anderson et al. op. cit. ; Martin, T.G. , T.W. Perry, W.M.
Beeson and M.T. Mohler. High urea supplements and preweaning
creep feed as factors affecting postweaning performance of
bulls. J. Anim. Sci . 44:739-744. 1977.; Martin, T.G. , R.P.
Lemenager, G. Srinivason and R. Alends. Creep feed as a
factor influencing performance of cows and calves. J. Anim.
Sci. 53:33-40. 1981.

34 The profit from creep feeding will vary widely from farm
to farm and constitutes a separate management problem which
is beyond the scope of this paper except as it relates to
the problem of preconditioning.

pastures, especially in low rainfall areas ( South and
Eastern Alberta ), can expect the poorest gains. It is those
producers who may benefit most by early weaning their
calves .

Postweaning Growth

Weaning causes considerable stress to the calf. Growth
during the postweaning period is influenced by two major
factors, namely length of time required to adjust to feedlot
conditions and diet, and the level of nutrition provided
following the adjustment process.

Under normal conditions, calves lose weight
(aproximately 3-5%) immediately following weaning, requiring
10-15 days to recoup the loss.35 If they are shipped
immediately to distant markets or feedlots, the loss will be
larger and recovery slower. Calves which have received a
higher level of nutrition prior to weaning will be in better
condition and are more subject to weight loss than calves
weaned in thinner condition. Following the adjustment
process, growth is influenced largely by the level of
nutrition provided. Few studies have been conducted to
evaluate the performance of calves in the 30 day postweaning
period. Results from the United States indicate possible
gains of 0.8 kg/day for calves on a 90 % concentrate

35Herrick, J. Preconditioning - Part of a Herd Health
Program. Proc. of the 11th Annual Conv . of the Amer . Assn,
of Bovine Pract i toners. 1978 . ; Dyer L . A . and C.C. O’ Mary,
op. cit.

ration,36 and 0.93 kg/day for calves fed a grain-corn silage
ration.37 Alberta results have indicated possible gains of
0.45 to 0.9 kg/day.38

The influence of nutritional levels during one period
on weight gains in the next is explained by the principle of
compensatory gains.39 This principle describes a phenomenon
in animal growth where the total amount of digestible energy
required to raise cattle to slaughter weight is relatively
unaffected by the feeding schedule used.40 Thus, calves
which are held at lower weights and poorer condition due to
lower energy intake will "catch up" to heavier calves of the
same age when provided with ad-libitum feed. The higher
rates of gain and superior feed efficiencies seen during the
catch up period are due to a saving in energy required for
weight gain because of a decrease in fat.41 The magnitude of
the compensatory effect will be influenced by the duration
and severity of the feed restriction. Calves which do not
achieve their potential rate of gain prior to the feedlot
period may therefore exhibit gains greater than those of

36Williams, D.B., R.L. Vetter, W. Burroughs and D.G. Topel.
Effects of ration protein level and Diethylstilbestrol on
early weaned bulls, d. Anim. Sci. 4 1 ( 6 ) : 1 525-3 1 . 1975.

37 Martin et al., op. cit. 1977.

38Karren D. and T.C. Church, 1981 ; 1982 op cit.

39Hironaka, R. , B.H. Sonntag and G.C. Kozub. The effect of
feed restriction on feed efficiencies and carcasses of
Charolais X Hereford cross steers. Can. d. Anim. Sci.
64:59-66. 1984.

40Hironaka, R. , B.H. Sonntag and G.C. Kozub. Effects of
feeding programs and diet energy on rate of gain, efficiency
of digestible energy utilization and carcass grades of
steers. Can. d. Anim. Sci. 59:385-394. 1979.; Anderson et al
op. cit.; Martin et al. op. cit. 1977.

41Hironaka et al, op. cit. 1984.

calves which were well fed. The extra feed provided through
creep feeding can affect subsequent gains. 42 Creep fed
calves may gain faster than regular calves during the period
immediately following weaning but overall gains and feed
efficiency up to market weights will be the same for both
groups or will favor regular calves. Since creep feeding and
preconditioning have a comparable effect on prefeedlot
energy levels, it might be reasonable to expect the same
compensatory response from non preconditioned calves as is
seen with non creep fed calves.

Factors Influencing Receipts to Producers

In budgeting out the expected returns from
preconditioning the producer requires information on the
differences between regular and preconditioned calves. While
data such as those reported above will provide some
guidelines, studies which provide a comparision of similar
calves under conditions which may be expected with
preconditioning are the most useful. To date Canadian
research into preconditioning has been limited but the work
which has been completed suggests that the profitability of
preconditioning is very situation specific. The gains which
can be expected on regular or preconditioned calves depend
strongly on the level of management provided. Since
management differs from farm to farm each producer will need
to determine what level of production he can achieve. The

42Martin et al, op. cit. 1977,1981.

costs incurred will also be a reflection of the level of
management and the desired gains. USDA research has shown
that during the preconditioning period preconditioned calves
gain from 11 pounds more to 11 pounds less than calves left
on pasture with their dams although the advantage has tended
to rest with preconditioned calves.43 Shrink during
transport to sale is variable and no clear consensus exists
as to which type of calf will shrink less. Alberta results
have indicated that preconditioned calves may shrink more
than regular calves44 while those from the United States
indicate an advantage of approximately 2 % for
preconditioned calves. An Ontario study compared the
performance of regular and preconditioned calves as they
were shipped from Saskatchewan to an Ontario feedlot.
Measurements of weight loss during the 6 day trip from
Saskatchewan to Ontario indicated no difference between
regular and preconditioned calves.45 Both groups in this
study lost 11.4 percent of body weight and required
approximately 3 weeks to recover the lost weight.

A major component of the benefits from preconditioning

is the price premium paid by feeders. This premium is paid

in anticipation of greater feeding margins with

43Cole, A. In Preconditioning: Has its time finally come?
Successful Farming October, 1981. "A. Cole is a USDA
research scientist at Bushland, Texas."

44Warawa, R. Preconditioning Trial in Beaver County. Data
collection and analysis conducted under supervision of Beef
Cattle and Sheep Branch, Alberta Agriculture. Unpublished
results. 1984.

45Wieringa, F.L. and Curtis, R.A.. A preconditioning program
- An assessment of weaning and measurement of stress.
Cattlemen August, 1971.

mm ■

preconditioned calves and is a function of weight gain and
efficiency as well as health performance. The performance of
preconditioned and regular calves have been compared under
feedlot conditions in Alberta and the United States. USDA
results indicate similar performance among the two types of
calves but suggest that preconditioned calves may
demonstrate poorer feed conversion than regular calves
resulting in similar break-even prices. Regular calves may
exhibit unexpectedly high rates of gain in the feedlot,
possibly as a result of a compensatory response to lower
levels of nutrition in the previous period. If this is the
general case, feeders will need to realize greatly superior
health performance from preconditioned calves in order to
justify the premium they pay. Feedlot data suggest treatment
rates 8-20 percent46 lower for preconditioned calves and
0.1 - 2.3 percent lower death loss.

There is some tendency among buyers of feeder cattle to
discount heavier and fatter calves47. This practice may be
due to anticipation of compensatory gains from thinner
calves and may work against preconditioned calves which tend
to be in better condition at sale than regular calves. A
comparison48 of preconditioned and preimmunized calves found

46Percent differences here are expressed as actual
percentage units. For example if one group had death loss of
2 percent and the second group 1 percent, the difference is
expressed as 1 percent.

4 7Mcintosh, C.E.. A Statistical Analysis of Cattle Prices on
Terminal and Auction Markets in Alberta. Unpublished MSc.
Thesis., Dept, of Rural Economy, University of Alberta.

1968.

48Warawa, R. op. cit.

. • -i

’

that heavier preconditioned calves received a lower price
than did the preimmunized calves.

In Alberta, estimated premiums have varied from $0.40
to $9.34 per cwt for steers and -$2.44 to $8.24 for heifers.
There has also been a tendency for premiums to be higher in
certain regions of the Province. Averages since 1981 have
been within the $4 to $6 range with the lower ranges in the

past year (Table 2. 2). 49

Table 3.2: Average Yearly Price Premiums For Preconditioned

Calves (1980 - 1983)

STEERS

HEIFERS

No.

Price

No.

Price

Year

Sales

Head

Premium

Head

Premium

1980

495

5.66

223

4.04

198 1

1518

4.04

1496

2.66

1982

2827

5.56

1683

5.74

1983

2605

4.50

1574

2.43

Avg .

4.94

3.72

Source

: Karren

D. and

Church, T. op.

c i t . 1 984 .

The great variability in past premiums suggests that
perhaps feeders are not certain of the benefits which they
may derive from buying preconditioned calves of various

4 9Karren , D. and Church, T. Alberta Certified Preconditioned
Feeder Program. 1983 Annual Report. Unpublished Alberta
Agriculture Agdex. 1984a.

sizes or types. It may be more useful to determine the
economic benefits to feeders rather than speculating on past
trends in premiums. The break even format described in
chapter 2 could be adapted for use by feeders to determine
the benefit to them from buying preconditioned calves and
the premium they could afford to pay.

B. Cow Production

The production of healthy fast-gaining calves requires
productive cows. Nutrition plays a vital role in producing
high calving percentages and weaning weights, which reduce
the costs per unit weight of calf weaned. Feed costs can
account for up to 65% of the costs of producing calves,
emphasizing the need for producers to recognize and satisfy
the varying nutrient requirements of the cow during the
production cycle. 50 This study is most concerned with the
period between the weaning of one calf crop and the
following calving. In Alberta, this period spans the winter
months where supplemental feed must be provided. In order to
use this feed efficiently it is necessary to determine the
factors which affect the required level of supplementation.

Cold can reduce the efficiency of livestock production
both directly and indirectly. The major effect of cold is
not the direct consequence of an animal's need to produce
heat to maintain body temperature during exposure to extreme
cold.51 The primary reduction in productivity arises from
the prolonged effects of cold involving a reduction in the
efficiency of digestion and physiological changes which
increase maintenance requirements.

One of the most important factors affecting the

wintering of cows and their maintenance requirements is the

5 °Bowden ,D.M. , R. Hironaka, P.J. Martin and B . A . Young.
Feeding Beef Cows and Heifers. Agriculture Canada
Publication 1670E. 1981.

51 Young, B . A . Effects of winter acclimatization on resting
metabolism of beef cows. Can. d. Anim. Sci . 55:619-625.

1974.

condition they are in; that is, the amount of fat cover they
have. A producer should ensure that his cows enter winter in
good condition.52 Overfeeding both heifers and mature cows
often results in the birth of weak calves.53 Obese heifers
often suffer from dystocia because of fat deposits impinging
on the birth canal and may suffer large losses due to still
born calves . 5 4

Cows appear to utilize the energy stored as body fat
for the maintenance of vital functions about as efficiently
as the energy of feed consumed directly for this purpose.55
Additional fat is an aid to the wintering cow by assisting
in the retention of body heat. Thin cows require more energy
for maintenance relative to their body weight than cows in
good condition.56 Cows in good condition may also lose 10 to
15 percent of their body weight in the middle third of
pregnancy without harmful effects.57 provided sufficient

5 2Although condition scoring can be a subjective process,
some guidelines do exist. One recognized method of judging
condition is by using the weight (kg) to height (cm) ratio.

A cow in good condition should have a weight to height ratio
of approximately 4:1. Bowden et al., op. cit.

53 MacDonald, l.e. . Veter i nary Endocrinology and
Reproduction. Lea and Febiger, Philadelphia. 1975.

54 Hughes, J.H., D.F. Stephens, K.S. Lushy, L.S. Pope, J.V.
Whiteman, L.J. Smithson and R. Totusek. Long-term effects of
winter supplement on the productivity of range cows. d.

An im. Sci . 47:816-827.

55 Bowden et al, op cit. 1981.

5 6Klosterman , E.W. , L.G. Sanford and C.F. Parker. Effect of
cow size, condition and ration protein content upon
maintenance requirements of mature beef cows. d. Anim. Sci .
27:242-246. 1978.; Bowden et al. op. cit.

57Jones, S.D.M., M. A . Price and R.T. Berg. Effect of winter
weight loss in Hereford cows on subsequent calf performance
to weaning. Can , d. Anim. Sci. 59:635-637. 1979.; Degen A. A.
and B . A . Young. Components of Liveweight Changes in Pregnant
Beef Cows. 59th Annual Feeders Day Report.; Lamond, D.R..

The Influence of Undernutrition on Reproduction in the Cow.

nutrients are available in late pregancy and after
parturition to replenish tissues. Such cows have longer
productive lives, are cheaper to feed and produce more milk
than overfed cows.58 Sufficient energy intake and reserves
are crucial with first and second calf heifers which must
continue to develop during pregnancy to ensure that they
have sufficient size to calve with a minimum of difficulty,
milk well and rebreed quickly after calving.

The timing of energy supplementation affects conception
as well. Lower precalving energy levels delay first post
partum estrus for two and three year old cows even when high
levels of energy are fed post-calving.59 Indeed, the high
levels of supplementation post-partum may stimulate milk
production more than the body reserves of females fed a low
pre-partum ration can accomodate, resulting in poor
subsequent reproductive performance. Thus by putting
additional fat on a cow before winter by allowing cows to
graze pasture after weaning, a producer may be able to save
on winter feed costs and improve the overall performance of
his cow herd. This may be especially so for younger and
higher producing cows. This extra gain may be achieved by

57(cont?d) J. of Animal Science. 38:359 - 372. 1970.

58Bowden et al, op. cit.; MacDonald op. cit.

59Davis, D. , R.R. Schalles, G.H. Kiracofe and D.L. Good.
Influence of winter nutrition on beef cow reproduction. J.
Anim. Sci . 46:430 - 36. 1977.; Similar results are reported
by Wiltbank, J.N., W.W. Rowden, J.E. Ingalls, K.E. Gregory
and R.M. Koch. Effect of energy level on reproductive
phenomena of mature Hereford cows. USDA Paper No. 1131.
1972.; and Bellows R.A. and R.E. Short. Effects of
pre-calving feed level on birth weight, calving difficulty
and subsequent fertility. J. Anim. Sci . 46:1522-28. 1978.

early weaning.

The purported benefits of preconditioning could result
in substantial increases in returns to producers. The
research thrust of this thesis is to quantify the technical
relationships between early weaning and animal growth and
apply the relevant costs and returns to determine the net
benefit to producers. The following chapters will describe
the research methods employed to provide the data required
for economic analysis.

IV. RESEARCH METHODS AND DATA ANALYSIS

The research thrust of this thesis has two components.
The first is to determine what factors influence the
performance of early and late weaned calves and cows and how
this relates to the profitability of early weaning. The
second is to determine how costs, and thereby net returns,
may differ for operations which exhibit basic structural
differences (i.e. size, primary enterprise, etc.).

A. Livestock Production Data

Trial 1 - Effects of Early Weaning on Performance of Cows
and Calves

Data on livestock production were collected from two
sources. The first was a research trial conducted at the
University of Alberta Beef Cattle Research Ranch, located at
Kinsella, Alberta. The major purpose of this trial was to
determine the effects of early weaning on the performance of
beef cows and calves and evaluate factors which may
influence this response. Collection of livestock production
data began in 1982. Cattle being allocated to this trial
represented four breed types; Beef Synthetic (SY), developed
from a synthesis of Charolais, Angus, and Galloway breeds;
Dairy Synthetic (DY), made up of Holstein, Brown Swiss,
Simmental and beef breeds; Hereford (HE); and Beef
Crossbreds (BC) which were greater than 50 % Hereford plus
other beef breeds.

■

■f £ '

The 1982 trial began with approximately 500 cow - calf
pairs which were divided into early (EW) and late weaned
(LW) groups by a random site systemmatic sampling technique.
This sampling method was designed to provide comparable
groups without introducing bias into the sample. Following
this selection procedure some cows and calves were removed
for use in other trials or for reasons such as physical
problems leaving 390 calves and 387 cows.

Calves were born during the months of April and May and

averaged 160 days of age. On the date of early weaning

(Sept. 27 - 29) calves and cows were weighed and divided

into their assigned groups. LW calves and cows were returned

to native pasture for the one month "weaning” period along

with EW cows. Calves from the EW group were removed to the

feedlot where they received grass hay on a free choice

basis. During the following one month period EW calves

received increasing levels of energy to a final average

level of 13 Meal per day.60 At the end of one month (Oct. 25

- 27) all animals were reweighed and LW calves were weaned

and placed in the feedlot. LW calves were placed on the same

diet offered to EW calves while the EW calves were

maintained on the same diet they had reached by late weaning

so that both groups could be placed on a 140 day feeding

trial from the same starting point. On November 16 the 140

day trial began with 156 bull calves which were weighed and

60Rations for EW calves in 1982 and 1983 are summarized in
Appendix C. Energy levels calculated from NRC United
States-Canad ian Table of Feed Composition 3rd. revision.
National Academy of Sciences Wash. D.C. 1982.

. -

\ r.

then placed on a barley grain diet.61 At the end of the 140
day test all bull calves were weighed and gains were
calculated as the difference between beginning and final
weights. A comparison of feed efficiency was not possible as
calves were group fed. Heifers were placed on a growing
ration during this period and were not included in
performance comparisons.

All cows were placed in their winter pastures. Two and
three year old cows were fed together during the winter in
one group and mature cows were fed in another. Cows from
both treatments were fed identically throughout the winter
feeding period. Cow weights were recorded again at calving.
Weight gain (loss) over the winter period was used as a
measurement of cow feed requirements.62 Performance of cows
during the following year was measured by recording weaning
weights of 1983 calves and determining the percentage of
cows from each weaning group which were successfully
rebred . 6 3

In 1983 the process of group allocation and weaning was
repeated in the same manner as the previous year. Early
weaning took place from October 3-5. EW calves received the

61Diet composition was 64% Barley, 21% Oats, 10% Alfalfa,
and 5% Supplement (29.1% Ca , 2.22%P, 68,000 IU of A,

11,200IU of D3, 68 IU of E and 1.02 mg of Selenium/kg).

62It was assumed that if both groups were fed the same diet
any differences in maintenance requirements would be
reflected in differences in weight gains.

63Rebreeding percentage calculated as a percent of cows
exposed to bulls in the 1983 breeding season. Pregnancy was
determined by veterinarian in December of 1983. Cows removed
from the study for other reasons (different studies or
physical problems) were not included in this calculation.

i *.

same diet as in 1982 except that energy levels were
increased at a slightly greater rate and calves reached an
average energy intake of 16 Meal per day by late weaning.64
LW calves and cows were returned to pasture until November
1-3 when all animals were reweighed and LW calves were
weaned. Weight gains of cows and calves during the one month
weaning period were recorded as in the first year, after
which data collection ceased.

Alberta Certified Preconditioned Feeder Program - Producer
Trials

Supplementary data were collected under the Alberta
Certified Preconditioned Feeder (ACPF) program and added to
this study in order to better represent livestock
performance under commercial conditions.65

These data were collected from two cooperating cow -
calf producers. Farm 1 was located in East-Central Alberta
and utilized native pastures while Farm 2 was located in the
Central Alberta foothills and utilized tame pastures. Cows
on Farm 1 were predominantly Simmental crossbreds while
those on Farm 2 were Charolais crossbred. Average age of
calves at weaning was approximately 195 days on Farm 1 and
200 days on Farm 2. Each producer allocated one hundred cow
- calf pairs to the trial in 1982. Half of each herd was
allocated to Preconditioned (PC) and Regular groups. In 1983

6 4See Appendix C .

6 sKarren , D. and T.C. Church. ACPF Producer Trials .
Unpublished data. Alberta Agriculture. 1984b.

1 11

130 pairs were included on Farm 1 and 151 on Farm 2. Half of
these animals were allocated to a Regular weaning group and
half to the preconditioned (PC) group. Figure 4.1
illustrates the sequence of weaning activities followed on
both farms in 1982 and 1983.

In 1982 calves were weighed on Oct. 7 at Farm 1 and
Sept. 28 at Farm 2. All calves were then returned to pasture
with their dams. After 18 days calves on farm 1 were weaned
and after 22 days farm 2 calves were weaned. Each group of
PC calves was then placed on a ration designed to achieve
maximum feed intake over the PC period.66 Regular calves
were returned to pasture with their dams. At the end of the
PC period, Nov. 23 on Farm 1 and Nov. 18 on Farm 2, all
calves were weighed and regular calves were weaned. During
the period from weaning to Nov. 25 regular calves were
offered hay and PC calves received the same ration they had
been on prior to late weaning. On Nov. 25 all calves were
shipped to a feedlot in Central Alberta and placed on a 68
day test where weight gains, feed intake and sickness were
recorded .

The producer trial was repeated in 1983 with the first
weighing on Sept. 19 at Farm 1 and Sept. 15 at Farm 2.

Within the PC group half were allocated to a 30 day PC
period (PC 30) and half to a 42 day period (PC 42). All
calves were shipped to the same feedlot as the previous year
on Nov. 17. where they went on a 95 day test. Weight changes

6 6See Appendix C .

during the transition period from farm to feedlot were
recorded in both years.

FIGURE 4.1: CHRONOLOGICAL SEQUENCE OF ACTIVITIES FOR ACPF PRODUCER TRIAL (1982 & 1983)

B. Economic Data

Costs and returns associated with preconditioning were
gleaned from several sources. Costs of preconditioning were
compiled from data collected by Alberta Agriculture67 and by
a survey of veterinarians involved with the ACPF program in
1983.

Veterinarian interviews, either by phone or in person,
were conducted in order to develop a representative fee
schedule which could be applied to most farm situations and
compared to results from the ACPF producer survey. Each
veterinarian was asked to provide information on fees
charged to producers for work under the ACPF program.
Information was also collected on treatment costs for health
problems related to early weaning (e.g. respiratory
diseases) .

C. Data Analysis

Production data from both trials were analyzed using

the General Linear Models procedure of the Statistical

Analysis System.68 For trial 1 age at weaning and initial

weights were analyzed by least squares analyses of

variance.69 Weight changes during various weighing periods

were analyzed by least squares analyses of covariance with

67Surveys of producers and buyers of preconditioned calves
were conducted to obtain data on costs of feed and treatment
and performance of preconditioned and regular calves in
feedlots. See Karren, D. and Church, T. op. cit. 1984.

6SSAS Institute Inc., Box 8000, Cary, North Carolina 27511.

6 9 Harvey, W.R., Least Squares Analysis of Data With Unequal
Sub-class Numbers. USDA Research Science and Education
Administration. 1979.

beginning weight of each period as the covariate.

Sources of variation for calf and cow data were breed
group ( N=4 ) , sex (N=2), treatment (N=2), age of cow (N=3)
and their two and three way interactions. Those sources of
variation with significant (P<0.05) F values were subjected
to a means separation by Student-Newma'n-Keuls multiple
comparison of means.70 Rebreeding percentages were tested by
Fisher's exact test of independence in a 2 by 2 table.

For the ACPF Producer Trial, initial weight and birth

date were analyzed by least squares analysis of variance.

Weight gains within farm were analyzed by least squares

analyses of covariance using the beginning weight of each

period as the covariate. Sources of variation for the within

farm analyses were treatment (N=2), sex (N=2 ) and treatment

by sex. Initial weight for the feedlot period and over all

farms of origin were analyzed by least squares analyses of

variance. Weight gains were analyzed by least squares

analyses of covariance using the initial feedlot weight as

the covariate. Sources of variation for this overall

analysis were origin of animals (N=2), treatment (N=2), herd

by treatment, sex (N=2), herd by sex, sex by treatment, and

herd by treatment by sex. Those sources of variation with

significant F values were subjected to a means separation by

Student-Newman-Keuls multiple comparison of means. Health

performance of calves in feedlot period were tested by

Fisher's exact test of independence in a 2 by 2 table.

70 Steel, R.G.D. and Torrie,J.H.. Principles and Procedures
of Statistics. McGraw-Hill Book Company Inc. New York. 1980.

■ ■

4 i

. • '■ji

V. RESULTS AND DISCUSSION

A. Trial 1

Results for cow and calf performance in 1982 and 1983
are summarized in Tables 4.1 to 4.5. Average age of calves
at early weaning was 153 days in 1982 (Table 4.1) and 160
days in 1983 while initial weights were 186 and 198 kg
respectively. Early (EW) and late weaned (LW) calves were
similar in age and initial weight for both years.

Initial weight of calves was significantly different
among breed groups in both years (P<0.05 in 1982 and P<0.01
in 1983). Dairy Synthetic (DY) calves were heaviest,
reflecting the greater milk production of DY cows, followed
by Beef Synthetic (SY) Crossbreed (XB) and Hereford (HE).
Males calves tended to be approximately 4 percent heavier
than females at EW, this difference being significant
( P< 0.01) in 1983. Weaning weight of calves increased with
cow age (P<0.01) in both years with mature cows (4 years old
or older) weaning calves which were approximately 27 kg
heavier than those from 2 year old heifers and 11 to 20 kg
heavier than those from 3 year old cows. These results are
consistent with the literature reviewed in chapter 3.

Initial weights of cows were similar between treatments
in both years (Table 4.2). Dairy Synthetic and Beef
Synthetic cows were heavier than other breeds at EW in 1982
(P<0.01) and heavier than Hereford cows in 1983 (P < 0.01).
Hereford cows were always lightest and XB intermediate.

Table 5.1: Least Squares Mean Age1 and Initial Weights(kg) of Early and Late Weaned Calves (Trial 1).

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of performance.

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1983. Gains were not different among breeds in 1982 but
differed (P<0.05) in 1983 when SY cows gained less than
other groups. Dairy Synthetic cows had the lowest rebreeding
percentages followed by Herefords. Beef Synthetic and Beef
Crossbreds were the highest. Heifers gained less weight
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not enough to affect winter maintenance requirements as EW
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effect on the weight gain of calves weaned the following
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. • ■“C

Table 5.2: Least squares mean EW Weights, ADG (kg/day) of

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squares
LW 1982

mean ADG (kg/day)
and 1983 (Trial

1 ) .

calves from EW

1982

1983

Source of

ADG. 1 2

ADG.

Var iat ion

Number

EW to LW Number

EW to LW

Breed Group

Hereford

0.40(0.05)

0.22(0.05)

Beef Synthetic

181

0.45(0.02)

157

0.31(0.03)

Dairy Synthetic

0.47(0.04)

0.40(0.03)

Crossbreed

0.48(0.03)

150

0.33(0.03)

Significance

N.S.

P=0 . 07

Sex of calf

Female

232

0.43(0.02)

221

0.26(0.03)

Male

158

0.48(0.03)

218

0.37(0.03)

Signi f icance

N.S.

Treatment

Early

197

0.16(0.02)

214

0.05(0.03)

Late

193

0.75(0.03)

226

0.58(0.03)

Signf icance

Age of

cow (yrs . )

Two

1 1 1

0 . 32 ( 0 . 03 )a

124

0.23(0. 04)a

Three

0.52(0.03)6

0.31(0.04)6

> Four

193

0.52(0.03)6

224

0.41 (0.03)C

Significance

1 ADG . values are adjusted for initial weights of calves for
each period using analysis of covariance.

The period EW to LW denotes the one month period between the
two weanings.

2Numbers in brackets denote standard errors of least squares
means .

Significance: ** P < 0.01, * P < 0.05, N.S. Not Significant
P > 0.10

Table 5.5: Least Squares Mean ADG (kg/day) of Male Calves

During Feedlot Phase (Trial 1).

Source

ADG. 1

of Variation

Number

Nov. to Apr

Breed Group

Hereford

1.66(0.08)

Beef Synthetic

1 .69(0.03)

Dairy Synthetic

1.56(0.06)

Crossbreed

1.59(0.04)

Signf icance2

N.S.

Treatment

Early

1.64(0.04)

Late

1.60(0.04)

Signi f icance

N.S.

Age of Cow
( Yrs . )

Two

1.58(0.05)

Three

1.65(0.05)

> Four

193

1.64(0.05)

Signi f icance

N.S.

1 ADG values are adjusted for the initial weights of calves
using analysis of covariance.

Significance: N.S. Not Significant P > 0.10

attributable at least in part to higher levels of feed
intake during this period. DY, XB and SY calves gained more
weight than calves from HE cows (P=0.07) in 1983 but no
difference was noted in 1982. Age of cow had a significant
effect on gain ( P<0 .01 in 1983 and P<0.05 in 1982). This
difference was more evident among LW calves than with EW
calves. No differences were seen in feedlot gains for any
treatments (Table 4.4).

Variability of gains from year to year was evident as
performance of both cows and calves was poorer during the
1983 weaning period than in 1982. Weight gains of suckling
calves during the weaning period were below long term
averages reported for this herd 71which suggests that forage
levels may have been below normal. Effects of sex of calf
and age of cow on calf gains were consistent with literature
but the expected difference between breed groups for LW
calves did not arise. This may have been due to below
average nutritional levels restricting the performance of
heavier milking cows.

Conclusions

Limitations of these data should be noted for EW calf
results. Calves were restricted in their feed intake during
the weaning period which reduced growth. It is not clear
whether or not this energy restriction was sufficiently
severe to prevent the expression of any other treatment

7 1 Ahunu , op. c i t .

effects. Gains by early weaned calves should therefore not
be considered as being representative of gains which may be
possible under a free choice feeding system. A better
indication of the levels of performance which might be
expected from early weaned calves under commercial
conditions may .be derived from results of the following
trial .

B. ACPF Producer Trials

Average initial weights of calves were 462 lb and 532
lb in 1982 for Farm 1 and Farm 2 respectively (Table 4.6).

In 1983 calves on both farms were lighter with weights of
445 and 515 lb ADG of regular and preconditioned calves
varied between farms and years. In 1982 ADG. of
preconditioned calves was 1.10 lb greater (P < 0.01) than
regular calves on Farm 1 and 0.19 lb (P< 0.05) greater on
Farm 2. In 1983 preconditioned calves on Farm 2 gained 0.48
lb per day faster ( P< 0.01) than regular calves while gains
on Farm 1 were the same. Preconditioning calves for 42 days
rather than 30 days had no effect on rate of gain. Weight
loss from farm to feedlot varied. No difference between the
two groups was found in 1982 but in 1983 preconditioned
calves shrank 1-2 percent less than regular calves. Regular
calves gained weight faster than preconditioned calves
during the feedlot phase (P< 0.01 for Farm 1 and P=0.95 for
Farm 2) in 1982 (Table 4.7). In 1983 regular calves from
Farm 2 gained faster than preconditioned calves (P<0.01) but

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Table 5.7: Least Squares Mean Initial Weights (lb) and ADG (lb/day)' of Regular and Preconditioned (Precond.) Calves

Numbers in brackets are standard errors of least squares means

Table 5.8: Average Feed Consumption (lb D.M./day) and Feed
Conversions for Regular and Preconditioned Calves During
Feedlot Phase (ACPF Producer Trial)

Feed ADG1 Feed2

Consumption Conversion

1982

Preconditioned

17.9

2.74

6.53

Regular

16.9

3.02

5.60

S ign i f icance 3

1983

Preconditioned

16.6

2.22

7.51

Regular

14.8

2.28

6.49

Signif icance

N.S.

1 ADG values are adjusted for beginning weights of each
period using analysis of covariance

2Feed Conversion calulated as lb of feed per pound of gain.

Significance: ** P < 0.01 N.S. Not Significant (P > 0.10)

no difference was seen in calves from Farm 1. ADG of calves
during the weaning phase had no effect on gains in the
feedlot. Overall ADG (across both herds) exhibited by
regular calves in the feedlot was greater than
preconditioned calves ( P< 0.01) in 1 982 and feed conversion
ratios were lower by approximately one pound of feed per
pound of gain in both years (Table 4.8). Health performance
of preconditioned calves was superior to that of regular
calves with treatment rates 17 percent lower and death loss
1.9 percent lower. Over all treatments and time periods
growth of steer calves was 5-10 percent greater than that
of female calves.

Feed consumption of preconditioned calves during the
preconditioning period is listed in Appendix C. Valued at
current market prices72 feed costs at these rates of
consumption would total approximately $30 for a 30 day
preconditioning period. Cost of feed may vary depending on
location and market conditions for a particular operation.
When home-grown feeds are being fed, calculation of costs
should be based on true market value rather than cost of
production. In this way preconditioning can be fairly
compared with other alternative uses for this feed.

72Grain - $125 per tonne, Supplements - $250 per tonne and
Hay - $80 per tonne.

C. Veterinarian Survey

Veterinarians interviewed collectively preconditioned
approximately 3500 calves in 1983 or 35 percent of all
calves preconditioned that year in Alberta. Charges for
services required under the preconditioning program were
variable but no one area of the province was consistently
more expensive than others. Mileage charges for farm calls
ranged from $1.00 to $1.25 per km for the oneway distance to
the farm with all but two clinics quoting the $1.00 figure
(Table 5.9). Upon arrival at the farm most clinics charged
by the hour rather than on a per head basis. This practice
was instituted by veterinarians to better reflect the
variability in processing speed associated with livestock
handling facilities of different quality. The hourly charge
ranged from $35 to $75 per hour with most quotes in the $60
to $70 range.

Charges for vaccines and warble treatments varied
widely but no one clinic or area seemed to have the highest
prices for all required pharmaceuticals. IBR - PI3 and 8 -
way clostridial vaccines ranges from $0.30 to $0.66 and
$0.45 to $1.00 per dose respectively. Warble control was
available for $0.30 to $0.41 per head. Total costs for
pharmaceuticals ranged from $1.20 to $1.90 per head.

Treatment rates and drug costs for respiratory diseases
indicated an expected cost of $5-10 per treatment. These
values agree closely with those collected in the ACPF

Table 5.9: Summary of Preconditioning Veterinary Costs ($)

from Veterinarian Survey.

Source of

Values Chosen

Charge Range of Values

For Budget

Mileage 1.00 - 1.25

1 .00

Hourly Rate 35.00 - 75.00

60.00

Pharmaceuticals 1.20 - 1.90

1 .50

Sickness 5.00, - 10.00

10.00

Note: Sickness charge listed on a per

treatment basis.

Note: Pharmaceuticals on a per head basis.

producer survey.

D. Conclusions

The results of Trial 1 suggest that early weaning has
no immediate effect on the productivity or maintenance costs
of beef cows. Any benefits must therefore be derived from

calves and will depend heavily on the

differences in weight

gain between early weaned and regular

calves during the

preconditioning period. Data from the

producer trial suggest

that gains by early weaned calves may

consistently exceed 2

lb per day during the preconditioning

period. Regular calf

gains are more variable as they are influenced by factors
which are beyond the control of the producer, the most

important of which is quality of pasture as it is affected
by weather conditions. The extra weight gain which can be
achieved by early weaning therefore may range from 0 to 60
lb.

Feed and veterinary costs did not vary significantly
which suggests that these costs can be budgeted accurately
during the decision - making process. A greater degree of
uncertainty exists with factors such as death loss, sickness
and shrink. Death loss and sickness during the
preconditioning process will tend to be slightly higher for
preconditioned than regular calves. Shrink during transport
and sale is highly variable and is influenced by handling
procedures and diet of calves. No evidence arose during this
study to suggest that calves from one weaning treatment had
a consistent advantage over the other in terms of shrink.
This is consistent with the literature reported earlier.

The feedlot performance of preconditioned and regular
calves appears to be comparable. Preconditioned calves
provide superior health performance with treatment rates 10
to 20 percent lower and 0.5 to 1.5 percent lower death loss
than regular calves. Regular calves are superior in terms of
feed efficiency and appeared to be so in weight gain
although the latter is not consistently evident. The
superior feedlot performance of regular calves may be due in
part to compensatory gains and is consistent with the
literature on this topic.73 Although preconditioned calves

73Hironaka et al, op. cit. 1984.

> v - ' ■■€ ' -3 ' \

. , ' . .

may reach the feedlot at heavier weights than regular
calves, there is no saving in the total digestible energy
required to raise calves to slaughter weight. Rather,
preconditioning may transfer the benefits of possible
compensatory efficiency improvements back to the cow - calf
producer. If the compensatory effect is economically
significant, prices for preconditioned calves may drop to
reflect what feeders consider to be lost benefits.

The following chapter includes examples of budgets for
both feeders and cow - calf producers. The relative
importance of different factors which may influence the
profitability of producing or buying preconditioned calves
are analyzed using these budgets.

.. o-jiaS

. . -

-i

VI. APPLICATION OF THE BUDGETING PROCEDURE

The variability in production parameters reported in
this study and the literature suggests that separate budgets
need to be prepared for each situation where preconditioning
is being considered. The purpose of this chapter is to apply
the production and economic information collected in this
study to the partial budget developed in chapter two. The
budget can then be used to determine the expected net
benefit from preconditioning under a variety of situations
and the level of risk associated with each. A further
benefit of this approach is its ease of application for
determining the sensitivity of returns to changes in
different variables.

Feeder Budget

The budget can first be applied to the case of a feeder
considering the purchase of preconditioned rather than
regular calves. The range of possible premiums which may be
paid for preconditioned calves may be determined using the
budget in a what-if format. These premiums can then be
applied to a budget for the producer of feeder calves to
determine the profitability and risk of providing
preconditioned calves to the feeder.

The feeder example will be analyzed using a base
situation from which sensitivity analysis can be conducted.
The base feeder situation is as follows.

1. The period of investigation will be 100 days. This

"'•-5

' t

■

' • • <

•n

period has been chosen to match the length of feeding
periods from which production parameters were developed.

2. Calves purchased at an average weight of 500 lb for
$0.80 per lb

3. Gain during the 100 day period under consideration is
2.5 lb per day for both regular and preconditioned
calves .

4. Sale price of calves at the end of the period is $0.82
and all animals are deducted 4 percent for shrink.

5. Feed conversion of 7 lb feed per lb of gain for all
calves and treatment costs are $10 per treatment.

6. Death loss is 1.5 percent lower for preconditioned
calves and sickness is 20 percent lower.

7. Other reduced expenses include a $2 saving on vaccine
and warble control and a $5 saving in labor and
miscellaneous expenses due to the improved health of
preconditioned calves.

8. Calculation of net benefit is based on the assumption
that the feeder has paid a $0.04 premium for
preconditioned calves.

These values are placed into the budget to determine the

expected net benefit and the probability of a positive net

benef it .

”

' ' ■ ■ ~

■ r ■ \

1 .

Table 6.1

1 : FEEDER

PARTIAL

BUDGET

Mean

Variance

low <

> high

REGULAR

Purchase Price

0.80

Initial Weight (lb)

500

Weight Gain (lb)

200.00

250.00

300.00

250.00

416.67

Death loss (%)

0.010

0.020

0.030

0.020

0.000

Shrink (%)

0.040

0.000

Total Sale Weight (lb)

705.60

369.76

Sale Price ($/lb)

0.78

0.82

0.86

0.82

0.000

REDUCED REVENUE ($)

578.59

2418.74

Cost of Animal ($)

400.0

Feed Conversion

7.00

Feed (lb)

1750.0

Price ($/lb)

0.065

Feed Cost ($)

113.75

Veterinary ($)

5.00

Medicine ($)

5.00

Labor ( $ )

10.00

Miscellaneous ($)

10.00

REDUCED COST

543.75

PRECONDITIONED

Weight Gain (lb)

200.00

250.00

300.00

250.00

416.67

Death loss (%)

0.000

0.005

0.010

0.005

0.000

Shrink (%)

0.040

0.000

Total Sale Weight (lb)

716.40

380.41

Price ($/lb)

0.82

0.000

ADDED REVENUE ($)

587.45

2492.84

Premium Paid

0.040

Cost of Animal ($)

420.00

Feed Conversion

7.00

Feed (lb)

1750.0

Price ($/lb)

0.065

Feed Cost ($)

113.75

Veterinary ($)

5.00

Medicine ($)

1 .00

Labor ($)

7.00

Miscellaneous ($)

8.00

ADDED COST

554.75

EXPECTED NET BENEFIT

- $ 2 . 14

4911.59

Standard Deviation

70.08

BREAK-EVEN BID PREMIUM

0.036

■

. • ~

Table 6.2:

CUMULATIVE PROBABILITY OF

NET BENEFITS

Cumulative

Probability

Z score

Net

Benefit

0.01

-2.33

-165.44

0.05

-1.65

-117.78

0.10

-1.29

-92.55

0.15

-1.04

-75.03

0.20

-0.85

-61.71

0.25

-0.68

-49.80

0.30

-0.53

-39.29

0.35

-0.39

-29.48

0.40

-0.26

-22.37

0.45

-0.13

-11.25

0.50

0.00

-2.14

0.55

0.13

6.97

0.60

0.26

16.08

0.65

0.39

25.19

0.70

0.53

35.00

0.75

0.68

45.51

0.80

0.85

57.43

0.85

1 .04

70.74

0.90

1 .29

88.26

0.95

1 .65

113.49

0.99

2.33

161.15

■

CUMULATIVE PROBABILITY

FIGURE 6.1: PROBABILITY OF POSITIVE NET BENEFIT

• ; _

■

In the situation presented above the expected net
benefit to the feeder is -$2.14 (Table 5. I).7 4 Given that
the feeder has paid a $0.04 premium for preconditioned
calves the probability of receiving a negative net benefit
is 52 percent (Fig. 6.1). The break - even premium is
$0,036 . 7 5 At this premium a feeder would have a 50 percent
probability of a positive benefit. A risk averse individual
would be less willing to pay a premium of this size and
would be inclined to purchase only regular calves unless
premiums were below the level he felt was profitable.

Research results suggest that the variables which are
most likely to vary are sickness rates, death loss and feed
conversion. Sensitivity analysis of these variables will
provide the feeder with a more complete analysis of the
situation (Table 5.3).

Sensitivity analysis indicates that the variable with

the greatest influence on net benefit is feed conversion.

The magnitude of this effect is dependent upon the price of

feed. When feed is valued at $0. 065/lb a 0.5 lb advantage in

feed conversion for regular calves results in an $8.13

decrease in net benefit to the feeder and a $0,017 decrease

in the break-even bid premium. At a feed price of $0.05 per

lb the loss to the feeder is only $6.25. By increasing the

advantage in feed conversion to 1 lb, which is consistent

74Expected net benefit is calculated on the basis of all
variables as set out in Table 6.1.

7SBreak-even premium is calculated using all variable in
Table 6.1 except that rather than using the premium
specified, the net benefit is set to zero and the premium
required for this to be true is calculated.

'if no k : 90*33 -s.'-i

■

U ••• < : ‘ -

Table 6.3: FEEDER SENSITIVITY ANALYSIS1

Feed

Treatment

Death loss

Expected

Break-even

Conversion

Rate (%)

(%)

Net Benefit

Premium

( $/lb)

0.5

10.95

0.022

1.0

13.90

0.028

1 .5

16.86

0.034

0.5

11.45

0.023

1.0

14.40

0.029

1 .5

17.36

0.035

0.5

11.95

0.024

1.0

14.90

0.030

1.5

17.86

0.036

0.5

2.83

0.006

1.0

5.78

0.012

1 .5

8.73

0.017

0.5

3.33

0.007

1.0

6.28

0.013

1.5

9.23

0.018

0.5

3.83

0.008

1.0

6.78

0.014

^ased on differences
calves for

each variable with all
situation .

1.5 11.61 0.019

between preconditioned and regular

other costs as in the previous base

NOTE : Net benefits calculated using no premium thus the
resulting benefits are higher than those in the sample
budget .

•

- . ’4

with the research results, the net loss to a feeder would
increase by $12.50 to $16.26 per calf.

Treatment costs are relatively small compared to feed
and as a result the sensitivity of returns to changes in
treatment rates is less significant. A 5 percent increase in
the difference between regular and preconditioned calves '
results in a $0.50 drop in benefits and $0,001 in the
premium. Death loss lies between the previous two factors in
terms of influence on net benefits. A 0.5 percent change in
the difference between the two groups results in a $2.95
change in benefits. This figure will increase with the
selling price of calves. 76

Another factor which does not appear in the table is
ADG of calves. A 0.25 lb per day advantage would result in
decreased benefits of $10.54 or $0,021 of premium. The
effects of feed conversion and ADG also increase as the
length of the feeding period increases. It is important
therefore to determine more accurately the magnitude and
duration of differences in ADG and feed conversion between
regular and preconditioned calves.

Within the limits of the situation presented above, the

highest break-even premium for feeders would be $0,036 which

is well below reported premiums in the past. Possible

explanations for this discrepancy are found in the

76The weight of calves when purchased serves as the
denominator in the calculation of break-even premium.
Therefore, as the weight of calves increases the premium the
feeder can pay drops. This effect is algebraic in origin and
has no connection with any relationship which may exist
between initial weight and calf performance.

discussion following the next budgeting example.

Preconditioning Budget

The range of possible premiums determined for the

feeder example can be included in the budget for the cow -

calf producer. The base cow-calf situation is as follows.

1. The farm is located 30 km from the veterinary clinic. At
$1 per km. the mileage charge will total $30.

2. The operation has 100 calves available for
preconditioning which can be processed in two hours. The
hourly charge to the farmer is $60 resulting in a cost
of $120 and a total veterinary charge of $150 or $1.50
per calf.

3. At the time the decision is made calves weigh an average
of 450 lb and the producer feels that he can add an
extra 20 lb to the weight of his calves by
preconditioning .

4. Death loss during the preconditioning period is 0.5
percent higher for preconditioned calves and shrink is 1
percent lower.

5. Treatment rates for preconditioned calves are 5 percent.

6. Feed cost is $30, vaccine and warble control totals
$1.50 and miscellaneous expenses (fuel, supplies,
repair) are $3.00.

Labor required for processing and handling during the 30
day period averages 1.25 hours per day at $8.00 per hour

V, ■ f . }

and totals $3.00 per calf.77

8. Expected premium for preconditioned calves is $0,030.

77 The value of labor during this time of year will vary
from farm to farm. In situations where there are conflicting
activities occurring at the same time (eg. harvest) the
producer may need to hire extra labor or suffer expense
through loss of crop or calves. Conflicts are most likely to
occur in the Central and and Northern areas of the province.
Producers in these areas have less time to complete farming
activities than do producers in the south. In such a
situation the cost of labor may be considerably higher than
that reported here. Rutledge, P.L. and Russell, D.G. Work
Day Probabi 1 it ies for Tillage Operations in Alberta. Agric.
Eng. Res. Bull. 71-1. 1971.

• J ».* .V . * - "

Table 6.4: PRECONDITIONING PARTIAL BUDGET

Mean

Variance

low <

> high

REGULAR

Initial Weight (lb)

450

Weight Gain (lb)

0.00

20.00

40.00

20.00

66.67

Death loss (%)

0.00

0.000

Shrink (%)

0.030

0.040

0.050

0.040

0.003

Total Sale Weight (lb)

449.63

61.03

Price ($/lb)

0.78

0.82-

0.86

0.82

0.004

REDUCED REVENUE ($)

368.70

921.87

Feed (lb)

Price ($/lb)

Feed Cost ($)

Veterinary ($)

Medicine ($)

Labor ($)

Miscellaneous ($)

REDUCED COST

0.00

PRECONDITIONED

Weight Gain (lb)

20.00

40.00

60.00

40.00

66.67

Death loss (%)

0.000

0.005

0.010

0.005

0.000

Shrink (%)

0.020

0.030

0.040

0.030

0.000

Total Sale Weight (lb)

472.92

62. 14

Price Premium ($/lb)

0.023

0.030

0.036

0.030

0.000

Price ($/lb)

0.85

0.000

ADDED REVENUE ($)

401.83

1020.86

Feed (lb)

600

Price ( $/lb )

0.050

Feed Cost ($)

30.00

Veterinary ($)

1.50

Medicine ($)

2.00

Labor ($)

3.00

Miscellaneous ($)

3.00

ADDED COST

39.50

EXPECTED NET BENEFIT

-6.37

1942.72

Standard Deviation

44.08

0.043

BREAK-EVEN PREMIUM

*5.

' H

’

; ■. v- r

Table 6.5:

CUMULATIVE PROBABILITY

OF NET BENEFITS

Cumulative

Net

Probabi 1 i ty

Z score

Benef i t

0.01

-2.33

-109.07

0.05

-1.65

-79. 10

0.10

-1.29

-63.23

0.15

-1.04

-52.21

0.20

-0.85

-43.84

0.25

-0.68

-36.34

0.30

-0.53

-29.73

0.35

-0.39

-23.56

0.40

-0.26

-17.83

0.45

-0.13

-12.10

0.50

0.00

-6.37

0.55

0.13

-0.64

0.60

0.26

5.09

0.65

0.39

10.82

0.70

0.53

16.99

0.75

0.68

23.60

0.80

0.85

31.09

0.85

1 .04

39.47

0.90

1 .04

50.49

0.95

1.65

66.35

0.99

2.33

96.33

’

• ~~

CUMULATIVE PROBABILITY

FIGURE 6.2: PROBABILITY OF POSITIVE NET BENEFIT

The expected net benefit in this situation is $-6.37
(Table 5.3) and the probability of a negative benefit is 56
% (Figure 5.2). The break-even premium for the producer is
$0,043. Sensitivity analysis indicates that the extra weight
gain by calves through preconditioning appears to be the
major determinant of net benefit (Table 5.4). A $15.70
increase in net benefits and a $0,032 drop in the break-even
premium is associated with every 20 lb of extra gain.
Variations in shrink and death loss account for changes of
$2 to $4. All three of these factors affect the total weight
of product sold. Thus, their influence on returns will
increase with the value of calves.

;

Kfci - 1 r

(T’.

v '

Table 6 . 6 : PRECONDITIONING SENSITIVITY ANALYSIS1

Added

Death loss

Shrink

Expected

Break-eve

Gain (lb)

(%)

Net Benefit

Premium ($

0.5

-40. 1 1

0.082

•

-1.0

-35.95

0.073

1.0

-42.12

0.087

-1.0

-37.98

0.078

0.5

-24.44

0.050

-1.0

-20.26

0.041

1.0

-26.43

0.055

-1.0

-22.29

0.046

0.5

-8.73

0.18

-1.0

-4.57

0.009

1.0

-10.74

0.022

-1.0

-6.60

0.13

0.5

6.95

-0.014

-1.0

11.12

-0.023

1.0

4.95

-0.010

-1.0

9.09

-0.019

’Based on differences between preconditioned and regular
calves for each variable with all other costs the same as in
the previous base situation.

NOTErNo premium was included in the calculation of net
benefit resulting in lower net benefits than in the example
budget .

- -• :: uK ; . v • * •' :-k r>: ... ■

Discussion

The results of the budgeting procedure and sensitivity
analysis reemphasize the theme which arose in the review of
literature and analysis of research data, namely that the
returns from preconditioning can and do vary widely. Returns
to feeders who pay a premium can be negative, as shown in
the sample budget, and are most strongly influenced by feed
costs and weight gain. The premiums which feeders can afford
to pay to cow - calf operators appear to be lower than those
reported in the past. This discrepancy between reported
premiums and those calculated here suggests that feeders may
have overestimated the benefits of buying preconditioned
calves. Overestimation of possible benefits may be linked to
the problem of information gaps which may have been filled
in part by speculation rather than controlled experiments.
The importance of feed conversion and weight gain during the
feedlot period has not received sufficient attention from
researchers. Future premiums may be lower as a reflection of
the true economic value of preconditioned calves to feeders.

Producer returns depend heavily on the extra sale
weight which may be achieved by preconditioning and premiums
for preconditioned calves. Costs of preconditioning appear
to be reasonably consistent. The decision whether or not to
precondition should therefore be based on a budgeting
procedure similar to the one used above and should be made
near to the time of weaning so that the decision maker can
obtain a proper range inventory upon which to judge possible

•c

. ■ :

* * ! ’

gains by suckling calves. Results of the feeder study have
important implications for producers. As premiums drop, the
relative importance of added weight gains increases and
fewer producers will find preconditioning to be profitable.

f £ S V ,

' • ■ * - \

VII. SUMMARY AND CONCLUSIONS

This study was directed towards two interrelated
objectives. The first was to provide a framework for
investigating the economic impacts of two methods of
producing beef calves, namely early and late weaning. This
was achieved through a review of the theory of production
economics and the development of decision rules as a
conceptual guide for identifying and solving problems of
resource allocation. The rules were linked to the decision
making process through the partial budget. Risk and
uncertainty, two "real life" factors, were incorporated into
the budget with the use of subjective probabilities. The
result was a decision tool which takes into account both
profit and risk.

The second objective was to collect physical data from
the animal science perspective to define the physical
relationships between resources and products required for
application of the budgeting procedure to the problem of
early versus late weaning. Investigation of the physical
relationships associated with preconditioning yielded
several results which conflicted with previously published
literature and identified possible routes for further study.
Previous reports on preconditioning have suggested that the
performance of cows will improve following early weaning.
Data from this study indicate that there is no immediate
effect on the performance of cows. Extension literature in
Alberta has suggested that the feedlot performance of

f *-
J

preconditioned calves will be superior to regular calves.

The results of this study indicate that regular calves gain
faster and more efficiently. The net result is that the
value of preconditioned calves to the feeder is lower than
feeder buyers may have been led to believe. Earlier
literature on the topic of preconditioning has also failed
to consider the importance of the variability of returns.
This study has found that returns to producers and feeders
can vary considerably. For this reason it is important that
the information provided to producers be technically
accurate and economically relevant.

The results of this study reemphasize the importance of
explicitly including economic criteria in evaluating
management decisions and in evaluating research priorities.
The economic analysis based on data collected from this
study reveals a possible mi sallocat ion of resources by
feeders who have purchased preconditioned calves in the past
and establishes new priorities for further research into
preconditioning. Earlier research has emphasized the health
advantages of preconditioned calves and it appears that
feeder buyers have made their decisions based on this
information. The variables with the greatest impact on net
returns to feeders however, are feed conversion and rate of
gain. Regular calves exhibit superior performance in these
areas suggesting that feeders have been paying excessively
high premiums in the past. This result has important
implications for cow - calf producers. Premiums make a

y:.i ,

’

V •

r' •

bJ •: < 4 : f ,*

•> . ■ -c.

■

substantial contribution to benefits for cow - calf
producers as do heavier sale weights. If premiums drop
significantly the extra sale weight required for producers
to make a positive return will increase and fewer producers
will find preconditioning to be a feasible alternative.

Recommendations for future research and extension
activities are as follows.

1. Future research should be designed to investigate the
possibility that a cumulative effect on performance of
beef cows may develop over time with repeated early
weaning. The relative growth and efficiency of regular
and preconditioned calves in the feedlot should also be
investigated more closely in order to determine more
accurately the value of preconditioned calves.

2. The variability of costs and returns from
preconditioning must be recognized more explicitly by
research and extension workers. The need for careful
budgeting guided by economic principles becomes more
evident as the range of possible gains and losses
increases. It should be recognized that budgets should
be developed for individual situations and that one
result will rarely be true for all. Budgets need to take
into account the resource base and constraints within
which each manager must operate. The relative value of
resources will vary depending on alternative uses. Risk
preferences of individuals will be influenced by
technical and economic constraints. Thus, economic

' ; - 5^2rJua> '

/ 1% 1

analyses are most informative when they include
measurements of both profit and risk.

3. Future research efforts into the question of

preconditioning should emphasize the most economically
important variables. This will require closer
cooperation between physical scientists and economists
in the plannning stages of research as well as in the
evaluation and application of results.

/ ■ .

•••*-

BIBLIOGRAPHY

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Production 2nd Edition. Lea and Febiger, Philadelphia.
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» *

Gregory, K.E., L.V. Cundiff, G.M. Smith, D.B. Laster and
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55(5) : 1214-1223. 1982.

Hughes, J.H., D.F. Stephens, K.S. Lushy, L.S. Pope, J.V.
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performance to weaning. Can J. Anim. Sc/. 59:635-637.
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100

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101

Wieringa, F.L. and R.A. Curtis. A Preconditioning Program -
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, js v a : : % ;

I .•# . £ I

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re * »t' ' • S^.®B

. |

VIII. Appendix A

■

102

103

Alberta Certified Preconditioned Feeder Program Requirements

The Alberta Certified Preconditioned Feeder (ACPF)
program includes two options.78 These options are:
Preconditioned and Preimmunized.

Preconditioned Option: Calves must be,

1. At least four months of age prior to being vaccinated.

2. Owned by the operator 60 days prior to sale or shipment.

3. Castrated and dehorned at elast 3 weeks prior to sale or
shipment .

4. Vaccinated with IBR - PI 3 and multi - Clostridial (7
way) vaccine 3 weeks prior to sale or shipment.

5. Treated for warble grubs at least 3 weeks prior to sale
or shipment.

6. Accompanied by an official ACPF certificate completed
and signed by both a veterinarian and the producer.

7. Calves must be weaned from the cow at least 30 days
prior to sale or shipment.

8. Tagged with an official ACPF green tag applied under the
supervision of a licened veterinarian.

Preimmunized Option:

The preimmunized option has the same requirements as
the preconditioned option with the exception of the weaning
requirement. Preimmunized calves are tagged with official
ACPF white tags.

7 8Karren , D. and Church, T. Alberta Certified Preconditioned
Feeder Program 1983 Annual Report. Unpublished Alberta
Agriculture Agdex.

■

11 . '

’

IX. Appendix B

■

105

Table C.1: Feed Consumption of Early Weaned Calves on Trial

1982 Weaning date - Sept. 27
Weaning to Oct. 10 - Free choice Hay

Oct. 11 to Oct. 20 - 2.75 lb. Grain and 7 lb. Hay
Oct. 21 to Oct. 28-5 lb. Grain and 5 lb. Hay

1983 Weaning date - Oct. 4
Weaning to Oct. 10 - Free choice Hay

Oct. 11 to Oct. 18 - 1.8 lb. Grain and 7.8 lb. Hay
Oct. 19 to Oct. 30-4 lb. Hay and 6 lb. Grain
Nov. 1 to Nov. 8 - 10.6 lb. Grain
Nov. 9 to Nov. 16 - 11.5 lb. Grain

NOTE: Free choice straw provided daily to all calves in both

years .

106

Appendix C.2. Daily Feed Consumption of ACPF Trial Calves

(lb D.M./day)

1982
Farm 1

Preconditioned (30)

Farm 2

Preconditioned (30)

1983
Farm 1

Preconditioned (30)
Preconditioned (42)

Farm 2

Preconditioned (30)
Preconditioned (42)

1 Grain was Barley-Oats for

2 32% protein supplement

NOTE: Numbers in brackets

period in days.

Grain 1 Suppl . 2 Hay

4.8 .75 13.5

4.4 .75 11.0

7.9

•

8.5

•

13.0

•

1.0

13.9

5. 1

1.0

13.9

Farm 1 and Barley for Farm 2

denote length of preconditioning

' • "c

■ r>

X. Appendix C

■

107

108

To further demonstrate the method of calculation used
in the determination of Net Benefit, The Reduced Revenue
portion of the Feeder Budget (pg. 74) is presented below.

The means (m) and variances (a2) of weight gain, death loss
and sale price were calculated using formulas 2.9 and 2.10
(pg. 25) .

For example

Weight gain: vz = [200+250+3003/3 = 250
o z 2 = 1/1 8 [ (300-200) 2 - (300-250) (250-200 ) ] = 416.67

By the same method

Death loss Md = .020 o62 = .0003

Sale price /us = 0.82 cts2 = .0003

Given

Initial weight = 500 lb
Shrink = .040

Total sale weight m t = [ (500 + 250) ( 1 — .020) ( 1 — .040) ] = 705.60
o t 2 = [4 1 6.67 + (250) 2 ][ . 0003 + ( 0 . 98 ) 2 ] [ 0 + ( 0 . 96 ) 2 ]

- [250 x 0.98 x 0 . 96 ] 2 = 369.76

Reduced Revenue = 705.60 x 0.82 = 578.59

a k 2 = [369.76 + (705.60) 2 ] [ . 0003 + ( 0 . 82 ) 2 3

- [705.60 x 0 . 82 3 2 =

2418.74

i . .

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