Cattle Economics

Opportunity Galore For Beef Stocker Sector

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The stocker cattle business will never be confused with an easy, carefree pastime. But at least the value of gain continues to run ahead of average breakeven costs for many. The incentive to add weight outside the feedlot should continue, given corn prices and the odds for them to climb rather than slide.

There's plenty of opportunity for the stocker industry to boost returns, too, by exploiting more of the basics to a fuller degree.

According to Oklahoma State University (OSU) research conducted a couple of years ago, 59% of respondents nearly always implant steers. That means 41% are leaving 8%-18% of potential pounds of gain on the table most of the time.

If Oklahoma isn't the stocker capital of the U.S., you don't have to crawl up a very high fence to see it from there. Rachel Johnson, then an OSU graduate student, led that survey of stocker operators.

Only 43% of the stocker producers in that study marketed cattle in load lots. Just increasing sale lot size from 1 head to 10-15 head increases sale price $2.50/cwt., according to previous OSU research.

Her study also found that only 52% of respondents nearly always conducted soil tests every 3-4 years.

“Soil tests reveal the exact amount of fertilizer needed to maintain soil-nutrient levels and thus optimize forage growth,” say the OSU researchers. “Just as soil tests can guard against inefficient fertilizer use, thus reducing costs, testing hay and silage can also realize economic benefits with the information being used to adjust the amount of supplement being fed.”

Only 31% nearly always conducted forage tests and estimate animal requirements.

Moreover, in an age when increasing cattle prices elevate equity requirements and risk, only a minority of producers responding to the survey employed price risk management: 34% in the study utilized futures contracts, 29% utilized options, 26% used cash contracts.

For that matter, only half the responding stocker producers reported having a business plan at least five years out.

Really, it's cow-calf producers who have the most opportunity. The majority of stocker producers are cow-calf producers who also stocker cattle, according to the landmark National Stocker Survey (NSS) conducted by BEEF Magazine and 11 land-grant universities, and sponsored by Elanco Animal Health in 2008.

“We've always known that a number of cow-calf producers retain their calves to grow to heavier weights. The NSS data underscores the fact that a sizeable portion of cow-calf producers involved in the stocker business also buy a significant number of calves to stocker and background in addition to those from their own herds,” Dale Blasi said at the time. He's a Kansas State University stocker specialist who coordinated the NSS university efforts.

NSS data indicates cow-calf producers comprise 64.6% of all stocker operators. Only 17.2% of stocker operations would be regarded as “pure” stockers — those who engage in that segment of the business exclusively. Cattle feeding operations that also have a stocker enterprise represented 4.8% of stockers in the NSS. The remainder (10%) were those stockering cattle who also run a cowherd and retain ownership in their cattle though the feedlot.

More broadly, Jason Sawyer, Texas A&M University stocker specialist, explained last year, “It's difficult to quantify the absolute inventory of stocker cattle, but it's been estimated to vary seasonally from 8% to 20% of total U.S. cattle inventories. Based on 2009 inventory levels, this would represent 3.3-8.2 million animals in stocker systems depending upon season.

“Because these numbers represent seasonal counts, such that new cattle enter the segment per season, a reasonable estimate is that 11.5 million head of cattle flow through these systems per year. Each animal typically gains 300 lbs. of body weight in a stocker program and this gain is valued at 75¢/lb. (last year). Based on these estimates, stocker cattle production adds $2.6 billion of direct value to beef cattle per year,” Sawyer says.

Relative to unexploited potential for management practices like those mentioned here, that's a heap of opportunity.

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.

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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...

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