What is in this article?:
- Forage Value Broadens Stocker Opportunity
- Doing More With The Basics
The primary challenge for stocker producers these days is evaluating how they might do things differently in order to exploit the added flexibility provided by increased forage value.
Recognizing the increased value of forage and production, and the marketing latitude that comes with it, is the primary profit driver in the stocker business today, says Derrell Peel, Oklahoma State University Extension livestock marketing specialist.
“For 30 years, cattle feeders could put pounds on calves cheaper themselves than they could buy them because of the cost of gain (COG). For stocker operators, I think that’s what has really changed,” Peel says.
Consider that feedlot COG based on closeouts for Kansas feedlot from 1992 to 2006 averaged about $56/cwt. During that same period, Peel explains the value of gain (VOG) averaged $56-$58/cwt. It was consistent no matter the particular kind of stocker program or season.
In other words, Peel explains VOG reflects COG and should.
“The market encourages the industry to be as efficient as possible. It comes down to who can do something the cheapest,” Peel says. “Feedlot COG really set the bar on how high stocker VOG could be. From a feedlot perspective, it’s a question of whether you want to put more pounds on the cattle yourself or buy them.”
Around 2006, skyrocketing corn prices pushed feedlot COG beyond $1/lb., pulling VOG along.
“VOG has jumped sharply because it’s driven by feedlot COG, which is the alternative for adding weight to cattle,” Peel emphasizes.
When cattle feeders could no longer add pounds cheaper than they could buy them, Peel explains stockers carved out more opportunity to buy calves at heavier weights, to own the cattle longer and to market feeder cattle across a broader range of weights.
“Now that feedlot COG is not the cheapest way to add pounds, stockers have another 200 lbs. of weight gain to work with and a broader range of placement weights. We have more opportunity to hold cattle longer and to put more weight on them,” Peel says. “Where you could work before was economically narrow. You’d buy the lightest calf you could and then sell them at around 650 lbs. In general, there is a lot more opportunity now, and in a lot of ways it’s easier. The market gives you more room to work than it ever did.”
Peel believes the primary challenge for stocker producers these days is evaluating how they might do things differently in order to exploit the added flexibility provided by increased forage value.
“The secret to the stocker business has always been to have a robust playbook and then look to the market to determine which play to call,” Peel says. “It used to be only one play would work in a given year or season but now a handful can.”
Spun differently, a stand-by program of buying cattle at a certain weight for a rigidly specific program likely will work less frequently today.
Changing Value Drivers
As forage value and VOG increase, the relative value components of stocker production change.
Generally speaking, Peel says stocker operations have made money three primary ways: upgrading mismanaged cattle and assembling and sorting cattle into uniform groups; adding pounds (VOG); and exploiting seasonal price trends.
“Higher VOG puts more relative emphasis on the ability of cattle to gain weight,” Peel says. “For some, there could be a proportional shift in their motivation toward cattle with more ability to gain, making more of their money from the VOG (vs. making it from upgrading).”
That means while the buy price remains crucial to the stocker profit equation, producers have more incentive to buy cattle with more ability to gain pounds.
“By and large, the market hasn’t rewarded good cattle as much as it has paid to upgrade poor-quality cattle,” Peel says. “Historically, a lot of value came from upgrading cattle. There is still a place for that, and there is still value in assembling uniform groups of cattle, but all else being equal, high VOG puts more premium on higher-quality cattle. Cattle that gain better have more value.”
“Stocker operators who can identify those cattle in sale barn or out in the country are the ones who have an advantage,” says Stan Bevers, Texas AgriLife Extension agricultural economist.