Many investors purchase cattle from inventory owned by feed yards. These animals may be priced according to current market value or original cost, plus all incurred costs, such as feed and processing.

Regardless of whether or not cattle are purchased from inventory or on the open market, shrink and weighing condition must be evaluated. Two types of shrink should be considered – pencil shrink and transit shrink. Pencil shrink is a percentage of gross weight that is deducted to determine sale weight, as seen in Table A.

Table A

Cattle purchased through auction markets are generally weighted after they are purchased to determine sale weight with no pencil shrink applied to the scale weight. The degree of fill on the cattle (how much feed and water they consumed just prior to sale) can impact purchase cost and feedyard performance.

For example, if a 500-pound steer sold for 60 cents per pound, it would cost $300. If the same steer were restricted from feed and water until just prior to the sale and then consumed enough feed and water to regain normal fill plus 25 pounds more, it would cost an additional $15, which would equate to 63 cents per pound for the 500 pounds of true weight.

Experience order buyers generally are able to detect such variables and adjust bid prices to compensate for them. The excess fill is not true weight gain; therefore, more time in the feedyard is required to reach the weight paid for when cattle are overfilled, which means more days on feed, a less desirable feed/gain ration and a higher cost of gain.

When cattle are purchased in the country by order buyers, commission agents, or by direct contract private treaty, the buyer and seller should agree on weigh conditions and pencil shrink. In most areas, cattle are gathered off pasture early in the morning and weighed. In other areas, it is customary to gather them the night before shipment, allow them to stand overnight without access to feed and weigh them the next morning. Generally, pencil shrink of 2 percent to 3 percent is applied to the gross weight to determine sale weight.

If scales are available locally, the cattle will weigh more because they will lose less fill in the weighing process. If scales are not available locally, the distance they are hauled to be weighed is related to the degree of they will shrink (transit shrink). Most shrink occurs during loading, during the first part of the haul, and during unloading. The shrinkage increases at a slower rate with additional miles.

In many areas the only scales available to weigh several head of cattle at one time are at grain elevators. If cattle are weighed on the truck, the calculated weight will depend on when the trucks themselves are weighed. If the trucks are weighed prior to picking up the cattle, the calculated weight of the cattle will be greater than if the truck is weighed after the cattle are delivered because manure and urine accumulate on the truck during transit.

Regardless of weigh conditions and pencil shrink, the actual price paid must reflect true market value for animals to be a good buy. Shown in Table B are examples of adjusted bid prices to equate the true value per pound based on different weigh conditions of the same steer. If a steer weighs 500 pounds and the market value is 65 cents per pound, the total cost would be $325.

Table B. Weigh Conditions

The amount of shrink will vary with each group of cattle. Cattle on lush pasture or high moisture forage will shrink more than those on dry grass or a concentrate ration. Freshly weaned calves will shrink more than those that have already gone through the stress of weaning. Range cattle that have had very little close contact with humans will generally be more excitable and nervous. Consequently, they will shrink more than tamer cattle.

While much of the shrink will be recouped when feed and water are made available, cattle often require two to three weeks to regain their pay weight at the feedyard because, in long-hauled cattle, up to 50 percent of the weight loss is tissue shrink. Tissue shrink is more slowly regained than digestive tract losses.

The degree to which shrink affects an animal’s feedyard performance depends on shrink relative to total gain. Table C gives an example comparing two animals.

Table C shows that the actual pounds of shrink that must be recovered are greater for the heavier steer. More importantly, however, the amount is a greater percentage of the total weight gain (54/200 = 27% vs. 24/700 = 3.4%).

This example also shows why pay weights must be used to accurately portray performance or purchase price must be adjusted for shrink to obtain meaningful closeout information.

Pencil shrink of 4 percent is standard in selling finished cattle to area packers. Fat cattle are weighed early in the morning and the pencil shrink is deducted to determine pay weight.

Table C.