Congratulations to Pete Bonds of Bonds Ranch at Saginaw, TX, this year's BEEF National Stocker Award winner. This is an excerpt of the story you can read in the October issue of BEEF.

"This is the only legal business I know of where you can make the kind of return on money that we can," says Pete Bonds of Bonds Ranch, based at Saginaw, TX.

Bonds pulls up spreadsheets from a customized computer program for different sets of cattle in his sprawling stocker operation. He'll show you calves owned for 163 days that made $42/head. Based on paying 30% of the calf up front, that represents a 72% return on equity (ROE). He'll show you another set that made $107/head or 184% ROE (see the October BEEF "Cattle Economics" column).

Calves must be bought, managed and marketed right, but focusing on ROE leads you to different decisions than when focusing on profit per head.

When Bonds used to focus on profit per head, he wouldn't contract or hedge cattle until they achieved his profit goal. That meant losing more money more times than he had to because he hadn't managed risk and the profit goal was never achieved.

That focus also cost plenty of opportunity. "If I'm willing to do it for $35/head (because the ROE is so high), it makes it a lot tougher for someone else looking to make $100/head," Bonds says.

Bonds remembers sitting atop a beer cooler at a tank in one of his pastures in 1980 shooting doves and doing what he termed at the time "some thinking drinking." He says it finally struck him that he wasn't in the cattle business; he was in a business that involved cattle. He thought about how other businesses operate, no matter the product. He ended up at ROE.

That's one of the things he appreciates about the stocker business.

"With the cow business, the main goal often times is the way of life rather than making money," Bonds says. "If you're turning out yearlings, you’re turning them out to make money. The stocker sector is a lot more business-minded. I don't have to compete with people who aren't in it to make money."

Understand, Bonds is in the cow-calf business, too. He also feeds lots of cattle. The Bonds Ranch operation encompasses cattle in 26 Texas counties, Oklahoma, Kansas, New Mexico, Nebraska, Iowa, South Dakota and Montana. Bonds Ranch also has operations in Vera Cruz, Mexico; and Alberta and Saskatchewan in Canada.

Each enterprise at Bonds Ranch operates as its own profit-driven entity with the leverage between them offering more flexibility and opportunity. On the stocker side of the fence, this profit focus means Bonds has no standard program.

When Bonds calls an order buyer, it's not for a certain number of head of a certain sex, class and condition. Instead, Bonds asks the order buyer, "What's the cheapest thing you’re seeing?"

Besides profit being made on the buy, Bonds explains most every head walking will be cheap relative to the market at some point in its life. Own one long enough and he says it's rare not to be offered a profit at some point during your ownership.

Bonds stretches the definition of stocker further than most. He explains, "As a stocker, you buy and add value to cattle. That doesn't have to be a steer or heifer calf. You can do it with a thin open cow or a thin bull, too."

That's one reason the stocker business offers opportunity even during the current drought.

On the one hand, Bonds explains, "I've got a lot of cattle contracted for fall delivery because I thought if it rained…If it doesn't rain and there's no wheat pasture, we'll have to take them to grow yards. In the yearling and stocker business you always need to have a Plan B."

On the other hand, Bonds says, "We've been able to buy a lot of light calves at prices under what we would have had to pay for them (in a normal year)."

Bonds had four loads of thin, open Brangus cows and found grass for them. "At what these cows are worth today, they’ll make a lot of money," he says. "I don't like the fact that I can't hedge them, but at this point in the cycle, I think it's a good play."

The only two times that focusing on ROE didn't work for Bonds is when he broke his own rule and didn't hedge the cattle. He's always liked and understood the futures market as a way to manage risk. With cattle prices and equity requirements so high today, he says, "these 'uh-ohs' now (un-hedged cattle) could break some people. That will give us the opportunity to pick up more cattle and expand.

"In the cattle business, you have health risk, performance risk, market risk and weather risk. Futures allow me to take one of those risks out of the equation."

He's quick to add, "You've got to realize when you're hedging cattle that you aren't through. You have to trade the basis, too, and we've been pretty successful at doing that."

A few years ago, Bonds began negotiating guaranteed cost of gain on some of the cattle he feeds. "That way, we're both standing some risk," he says.