One of the stocker industry's primary assets may quickly become its heaviest liability in light of new regulations aimed at shoring up the nation's surveillance program for bovine spongiform encephalopathy (BSE).
“We don't have the luxury of time anymore,” says Jim Link, Texas Christian University School of Ranch Management director.
In an industry built around the opportunity to warehouse cattle fairly cheaply on forage for as long as it takes to ride out price and supply storms, Link explains the new USDA rule prohibiting specified risk materials from cattle 30 months of age and older from entering the food chain has shaved off a chunk of stocker latitude.
Specifically, some packers have already informed feedlots they will apply devastating discounts to cattle 30 months of age or older, due to the decreased value of these cattle because of the new rule. Think in terms of discounts as heavy as $50/cwt. In turn, feeders will presumably pass this discount along to incoming cattle at risk of missing the under-30-month age window.
“The real impact of all of these new regulations on stocker operators is the 30-month rule and how close you want to push cattle to that age limit,” says Jason Sawyer, an assistant professor of animal science and stocker specialist at Texas A&M University.
This task gets even trickier when you consider that USDA inspectors will use dentition to age cattle in the absence of birth documentation or a discrepancy in that documentation when cattle are presented for harvest. Specifically, if the second set of permanent incisors has even begun to erupt (can be seen ready to break the gum line), the new rule says these cattle must be classified as 30 months or older.
An Inexact Science
Understandably, plenty of producers are put off, not by the new regulation, but by the means of determining age. They understand that using teeth to estimate age up to a specific day is akin to guessing wind speed with a worn earflap. Depending on the physiologic maturity of cattle, where they've been grown, and a host of other variables, the best that plenty of experts say you can hope for is to get within six months of being right. The point being that the most accurate tool available to quickly estimate age isn't all that accurate.
Consequently, even with documentation, producers who want to avoid costly discounts will likely hedge their bets by ensuring their cattle will mouth within the age window, no matter their actual age.
“The risk is too high to take the chance,” Link says. “I think the rule will change the way some of us (stockers) do business. I know it will for me. I'm going to shorten up the time period.”
In his own stocker operation, Link intends to knock off at least four months from the time he traditionally figured he could use before moving cattle to the feedlot. Enough stockers adopting a similar tactic could create significant economic ripples that extend beyond the stocker industry.
First, Link explains that if stocker operators can't dilute price and breakevens with time, they will have to do so by paying less for calves than they traditionally would.
“I'll buy bigger calves than I used to and push them harder to get them to the feedlot quicker,” Link adds. “Any lightweight calves I buy, I'll have to figure out a ration I can push them with on pasture to get them to the feedlot in time.”
Keep in mind, this is in addition to Link stepping up the efforts he began years ago to round up source and birth information on the calves he buys.
Next, the age rule could mean certain stocker strategies become the stuff of history books.
Although fewer programs use this strategy today because grain is so inexpensive, it pretty well has seen the ghost, says Sawyer: grass long yearlings, dry winter them, take them to summer grass, then stop off on winter wheat before heading to the feedlot.
For that matter, buying flyweight calves and running them for better than a year now requires extra evaluation, says Link.
Even the traditional western approach of dry wintering weaned calves then running them on summer grass ahead of the feedlot at around 20 months of age could get dicey if they start pushing the dentition window when they're 23-25 months of age.
And don't even talk about the Mexicans.
“Part of the value in Mexican cattle used to be the extra age you were buying at lower weights, which helped on the grade,” says Link. “That age is a detriment now.”
Take them out of the mix or discount them so severely no one can make them work and you change economic dynamics in a hurry. Some could argue keeping Mexican imports out of the U.S. would boost calf prices with more competition. You could just as easily argue the predicted resulting attrition on the buying side would dampen prices more.
For those who figure their way around the dilemma, Sawyer suggests, “Before money traded hands, I'd want them mouthed on the Mexican side of the border in quarantine, and I'd write the contract saying either I wouldn't take them if they already had a permanent incisor, or I'd discount them accordingly. If that's not happening already, I think you'll see it soon.”
Remember, this discussion assumes 30-month-and-older cattle will be discounted. While many expect it when the industry finally catches up to all of the new regulations, so far it has been applied on a spotty basis.
The good news is that while the 30-month rule stands to impact the stocker industry the most, it's also the BSE-based regulation that stocker operators can do the most to manage. Whether it's with documentation of birth, choosing heavier calves, switching growing strategies or some combination of all these, producers will have plenty of choices in how hard they want to stretch the age envelope.
Less controllable are the new regulations dealing with specific feed ingredients.
For instance, poultry litter is now banned from use in ruminant feed. While that doesn't impact the stocker industry overall, it can have a dramatic impact on operators in certain parts of the country.
“In areas such as East Texas and the Southeast, where poultry litter has been a big part of rations, the new rule will obviously change the price of alternative feed commodities,” Sawyer explains. “In some of these areas, though, there are other by-products like rice milling by-products that are available but have been under-utilized in the past.”
Similarly, blood and blood meal are now banned from feed. But, Sawyer says its cost has long made it a rare choice in stocker rations anyway. Even if a producer had depended on it, there are other substitutes such as fishmeal and feather meal that are still allowed.
Finally, the new feed regulation requiring manufacturers of both ruminant and non-ruminant feeds to have dedicated production lines for each will probably affect the smallest feed companies the most.
“The really big manufacturers with centralized plants already have more than one production line in their facilities.,” Sawyer says.
On one other front, both Sawyer and Link believe the prohibition of non-ambulatory cattle from the food chain will have little impact on the stocker industry. After all, taking a non-ambulatory stocker animal to a packing plant was never much of an option anyway, given animal size. As for salvage through rendering, many stockers are far enough away from a renderer that it hasn't been an opportunity.
Forcing Trends Faster
More than anything, at least where stockers are concerned, the new regulations may really just be pressing the cattle industry overall toward where it was already headed, just faster.
Consider age documentation. Link says it was probably coming anyway with the industry's move toward a national identification (ID) and tracking system. So, adding information represents another step rather than a new route.
“It does change the scope of what we've been looking at,” Sawyer says. “With a national ID program we've been talking about it as a tracking and source-verification tool, as an animal health monitoring and management tool. With this 30-month rule, now we're talking about the need for something that goes beyond premise and animal ID toward being able to verify other information like age.”
Even with the changes, though, one thing is likely to remain constant, Sawyer says. “I don't believe any of this changes the fundamental structure of the stocker business. As a margin business it will continue to be fairly high risk with the potential of making fairly high returns on investment.”
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