When was the last time stocker production was harder than marketing?

Derrell Peel, Oklahoma State University Extension livestock marketing specialist, asks that question in light of little, if any, wheat pasture available for grazing on the dry High Plains and the disastrous drought in the Southeast.

At the same time, feeder cattle futures prices remain high, generating a “value of gain” and profit probably as close to automatic as ever.

But this is, after all, the cattle market. And anything can happen around the corner or around the world to negatively impact prices just when you're ready to make the sale.

However, Peel sees opportunities for stocker operators to secure the good markets on the table - strategies that can protect against a wreck and even lock in a $30+/head profit.

“We often say production is easy and marketing is hard,” Peel says. “It's almost the opposite now. There are a lot of factors that project good feeder-cattle prices well into 2008.”

Those factors include a flat line in cattle numbers caused by the reverse in herd buildup. “In early 2006, we had a large pool of replacement heifers,” Peel notes. “But a lot of those were slaughtered (because of the drought). We've had to start all over again.”

That's keeping prices up there, in the $111-$112/cwt. range on the feeder-futures market.

On-feed figures tell the story

Cattle-on-feed and placement numbers show why feeder-cattle shortages will likely continue to see pressure. Nationally, there were 2.716 million head placed on feed in October, up 12% from the previous year. Every state but California and Idaho had higher placements in feedyards.

That's keeping prices in the $108-$112/cwt. range on the feeder futures market.

January's USDA Cattle On Feed Report indicated that feeder cattle shortages will continue to see pressure. Placements in feedlots during December totaled 1.70 milion, 1% below 2007 and 10% below 2006. Net placements were 1.64 million head.

Placements of cattle and calves weighing less than 600 lbs. were 480,000, compared to 470,000 a year earlier. Placements at 600-699 lbs. were 505,000, compared to 504,000 in 2006. Seven-weight placements totaled 420,000, equal to 2006. And 800-lb. placements were at 296,000, up from 320,000 in 2006.

It's likely that many of those cattle were sent to the feedyard before their owners wanted because of the lack of grazing, Peel says, adding that if dry conditions continue, even more pressure will be placed on replacement heifer buildup.

Since there's been little grazing in key stocker areas, calf prices are closer to feeder prices as far as overall value is concerned. So buying calves and grazing with supplements up to 800-850 lbs. should more than pencil out.

“Overall, you can easily see a 77-78¢ value of gain,” Peel says, “which is nearly the same as the cost of gain feedyards are seeing for finished cattle.”

For example, using Oklahoma City average prices, a 450-lb. steer would cost about $1.33/lb., for a total cost of about $600. If that animal is over-wintered to 850 lbs., it would be worth about $1.07/lb., based on Oklahoma City numbers.

Worth the risk?

A risk-management strategy could be used to protect that price. And spring and summer feeder-cattle futures have been offering such protection and even a profit.

Referring to futures prices in early December, Peel says stocker operators had the opportunity to lock in a profit using the March, April, May, August and even September feeder cattle futures contracts. “I can see these good prices for the foreseeable future,” he says.

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