The U.S. stocker cattle industry is one of the hardest segments of the business to get a handle on. Stocker operators can be in the business one day and out the next. And while traditional stockers graze places like the California coastal highlands, High Plains wheat pastures and the hills of Kansas and Nebraska, stockers can just as easily pop up anywhere on the map.
The decision to keep calves for grass or grow them in a feedyard usually hinges on cost of gain on pasture versus silage-based rations. For many cow/calf producers though, the choice to run stockers or sell calves often backs up against grass availability and weaning management.
“By their nature, cow/calf producers who can run stockers have a lot of flexibility,” says Doug Hixon, a professor of animal science at the University of Wyoming. “Being in the mindset to run stockers allows some flexibility from a forage management standpoint.”
Grass Vs. Corn
Can young cattle in the Northern Plains and Intermountain region be grown on grass as economically as shipping them to where corn is grown?
“It depends a lot on the genetics of the cattle,” answers Hixon. “There are some cattle that are best fit to grass. They may not be top-of-the-line in terms of genetics and can utilize the grass efficiently to meet genetic endpoints as a finished animal.”
This year, corn might be as close as ever to grass in terms of cost of gain, Hixon admits. “Grass prices could be pretty high, and it doesn't look like corn prices are going to change a lot from last year.”
Performance is also the key to a successful stocker operation — whether gain is on corn, grass or wheat pasture. “Beyond keeping those stocker calves alive and healthy, selecting the cattle that will do best and gain the cheapest is the trick,” says Hixon.
Of Numbers And Equity
Whatever the management scheme used to get calves to stocker stage, the advantage today is with the cow/calf operator, says Harry Knobbe, West Point, NE. He and his family feed cattle but also buy and sell stocker cattle. They are also in the risk management business through Knobbe Commodities.
“We have more feed bunks than we have cattle walking on the ground,” he says of the feeding business in general. “This puts the cow/calf man in the driver's seat — and he can use his management experience to go whichever way makes the most economic sense at the time.”
Knobbe predicts feeder cattle this year will come very close to hitting their highs of last year. He's been through other wrecks in the feeding business — the first one in 1963 — but believes someone out there will buy cattle.
“There is always equity out there,” he says. “You'll probably be able to recognize the ones who didn't lose their hides because they'll be buying a lot of cattle this year.”
Ranchers might be in for an adjustment in calf and stocker prices early on, he says. “But, once the cattle feeder starts making more money — which I think will be later in the spring and into summer — things will turn around.”
Early Weaning Management
There are as many ways to get into the stocker business as there are ranchers looking at stockers as an option. Weaning calves early off two- and three-year-old cows is one practice that fits with stocker management.
“I don't think there's a management decision a person can make that would be more profitable,” Hixon says. “Early weaning can help reduce costs in many ways.”
The obvious advantage is in feed savings for the cow because she enters the winter feeding period in better condition. In an 80-day period there can be as much as a 120-lb. weight advantage in young cows with August-weaned calves versus their counterparts that lactate into late fall.
“With older cows we don't see a lot of difference in their weight at weaning,” he says. “But, early weaning makes a heck of a difference in the body condition of the younger cows.”
The key, particularly for ranchers looking at stocker options, is they can make up the difference by putting the early-weaned calves out on late summer meadow re-growth.
“Those calves on meadow re-growth gained right along with the calves on cows grazing mature range grass and weaned 80 days later,” explains Hixon. “If you're predisposed to running yearlings, can you imagine how well those calves would do as stockers?”
Knobbe believes the tremendous diversity of investors in the feeding business will help stabilize the equity situation. The equity equation is also being buoyed by the increasing use of risk management tools.
“We have all kinds of people investing in cattle, for whatever reason,” he says. “And the use of futures and options really helps in tough times.”
Nevertheless, everyone needs to take a better look at financial decisions.
“Don't make the decision to get into the stocker business on impulse,” he advises. If 550- to 600-lb. calves are bringing at or near and all-time high prices, why does a rancher want to retain ownership?
“I would not keep them as stockers or put them on feed unless they are below the five-year price average,” he says. But, if a cow/calf or stocker operator is in a program where he has to retain ownership, they need to cover themselves with market insurance.
It's no different than buying insurance for a 100,000 house, explains Knobbe — except the consequences of losing the house are far greater than losses that you might incur feeding cattle.
A Capital Approach
Vern France, former owner of Triangle Feedlot, Gooding, ID, has been working closely with producers involved in a variety of management systems — from selling all their calves directly off the cows, to more complicated retained ownership programs.
Some of those programs involve variable-weaning strategies in which calves are weaned according to their weight and the body condition of the cow — as opposed to the calendar.
“This approach to marketing can capitalize on a ranch's best genetics through retained ownership,” France says. “ It can also provide groups of calves that are more attractive to the feeder or stocker buyer without significant added cost.”
France, who retired from the feeding and trucking businesses last year, agrees that risk management in the form of futures and options should be considered as a part of any marketing program.
“Tax ramifications should also be considered,” he says, “especially when planning a program where stockers might be sold the following year.”
Cow Numbers Fall
The 2002 U.S. cattle inventory report indicates another modest decline in cattle numbers. Total cattle and calves are estimated at 96.7 million head, slightly below a year ago. Beef cows are estimated at 33.1 million head — down 300,000 head.
“There are some indications that liquidation may end in 2002 with beef replacement heifers showing a slight increase from a year ago,” says Jim Gill, Amarillo, TX. He's market director for the Texas Cattle Feeders Association. “However, only a slight increase in heifer retention for herd replacement may be offset by a larger cow slaughter, which was up 11% in 2001.”
While feeder numbers may be a little tighter in 2002, fed cattle prices should average $72-73/cwt., slightly higher than last year, says Randy Blach of Cattle-Fax, Denver, CO. They say the equity losses that cattle feeders endured in 2001 will limit stocker and feeder cattle prices.
Cattle-Fax expects 750-lb. feeder steers to average $86/cwt., down $1 from 2001, and 500-lb. steer calves about $104/cwt., down about $1.50.
Beef demand is expected to rebound in the first half of 2002 as foodservice and export movement improves. In addition, a significant increase in retail featuring is expected to increase demand.
Cattle-Fax predicts feeder cattle supplies will tighten and cattle-on-feed numbers will dip. This means fed cattle slaughter should decline about 500,000 head to 28.5 million, down 2% from last year.
The Grain Outlook
It's well documented that stocker management decisions often hinge on corn price. This is especially true when excess feedyard space increases in light of declining cattle numbers.
This year's corn price predictions signal a business-as-usual outlook. The national cash corn price received by farmers for the marketing year ending September 2002 is forecast at $1.95/bu. says Steve Meyer, Livestock Marketing Information Center analyst in Lakewood, CO. This is up slightly from a year ago, but remains 50¢ to $1 lower than the previous five-year average.
“This is if corn prices are not supported by problems in major producing states this summer or by a surprising surge in foreign demand,” explains Meyer. “Corn prices and competing crop prices suggest little change in acreage planted in 2002.”
At 1.9 billion bu., U.S. corn stocks as of September 2001 were 11% above a year earlier. Projections in early 2002 put total U.S. corn supply this crop year at about 11.4 billion bu., a 2% decrease from 2001.
“Total 2001 U.S. corn production was about 9.5 billion bu. compared to nearly 10 billion bu. in 2000,” Meyer adds. “Total usage is expected to at least match the record large level of last year.”
Export projections have been revised lower in recent months. For the first four months of the 2001/2002 marketing year, USDA's weekly corn inspections for export were fully 8% below a year earlier.
Many important foreign markets for corn, especially Japan and Mexico, are still in recession. Any uptick in corn exports will support a modest increase in feed grain prices. Though corn exports have been rather flat in recent years, increasingly more corn has been exported in the form of meat and poultry.
In recent years, industrial use of corn has increased. As industrial corn processing grows, cattle producers will see more supplies of feedstuffs that are by-products of these production systems.
If total usage remains as strong as expected, the national average corn price received by farmers may be above $2/bu. for the 2002/2003 crop-marketing year.