Cattle Economics

The Stocker Cattle Business Is A Margin Business

RSS

“A pet peeve of mine is that those of us in the cattle business are responsible for driving young men and women out of this business,” says Pete Bonds of Bonds Ranch at Saginaw, TX. “This is a tremendous business, and you have to look at it as a business and not as a cattle way of life.”

When you do, Bonds points out there are plenty of opportunities to thrive financially. Bonds is BEEF magazine’s 2011 Stocker of the Year honoree.

To his way of thinking, the stocker sector represents the road least littered with barriers to entry. It also offers plenty of opportunity to cow-calf operations looking to leverage resources and diversify.

“What some people don’t understand about the stocker business is that it’s a margin business,” Bonds explains. “It’s the margin between what the cattle cost, what it costs to put gain on them, and what you can sell them for. This isn’t rocket science; it’s third-grade math. This business is a lot of common sense.”

The stocker business also offers quick expansion opportunities with the ability to enter and exit the market quickly.

“A lot of people don’t understand the concept of compounding money,” Bonds says. He offers the example of an individual or group that buys 100 head of cattle to stocker. If those calves return 50% to the equity invested – more than possible, especially with the current high value of gain – and the money is reinvested, you’re running 200 head the next year. Carry that out, and the financial wherewithal exists to run 3,200 head in eight years’ time.

Futures market is a must

If you get your feet wet in the stocker business, though, Bonds says, “You’ve got to contract cattle or hedge them.” He also emphasizes profit is made on the buy, just like it always has been.

Obviously, some cow-calf operations can and do grow their own calves. But, Pete says of his own cow-calf operations, “If I’m doing my job as a cow-calf producer, I shouldn’t be feeding my own yearlings. I should sell them and buy something back that I can add more value to. It’s the same with my calves. I should sell mine and buy something back of similar quality that’s cheaper.”

Now, the smaller stocker operator has some advantages, too. Where an outfit like Bonds Ranch has to deal in load lots, Bonds says, “If a guy only needs to put together a load of cattle, he can stay at the sale late and buy 10 or 15 head of singles that are cheaper and have 25% of the load.”

That’s the same strategy Bonds uses, but in a different way. “As stocker operations get larger and there’s more involvement by large cattle-feeding organizations, it gives you an opportunity to buy cattle around the edges.” Cattle, in other words, that don’t fit the recipe some have in order to obtain large-scale efficiency.

Outside the box

“To get started today, a guy is going to have to think outside of the box,” Bonds says. For instance, Bonds Ranch provides calves to various college rodeo programs. He pays them on a gain basis while they use the calves and get them straightened out.

Patience also pays in a margin business of constant buys and sells. “The hardest thing I ever learned to do was nothing,” Bonds says.

What's Cattle Economics?

Wes Ishmael provides tightly focused analysis and commentary on specific beef quality and marketing issues of practical importance to beef producers.

Contributors

Wes Ishmael

Among the industry’s most insightful thinkers, Wes Ishmael concentrates on industry price and market perspectives for BEEF magazine. Along with his monthly “Cattle Economics” column...

Sponsored Introduction Continue on to (or wait seconds) ×