There is no fundamental basis to determine prices today. Now, commodity prices are impacted greatly by the macro-economic environment and local-weather effect on international crops.
“Managing for a margin is much more important today than at anytime in the past,” says John Rakestraw, CEO of Colorado-based Agra Holdings, which feeds cattle, provides feedlot consulting, and manufactures feedlot nutritional supplements, among other feedlot-based activities. Between 1984 and 2003, Rakestraw worked for ContiBeef LLC – he was CEO and president from 1995 to 2003. ContiBeef – sold to JBS and operating currently as Five Rivers Cattle Feeding – was and is the largest cattle feeding organization in the world.
Rakestraw shared his perspective with stocker operators at the recent Mid South Stocker Conference in Tennessee.
“You need about double the money to operate today than a few years ago,” Rakestraw says. “Your return on assets deployed has decreased and will continue to decrease unless net profits per unit of production also double.”
At the same time, Rakestraw explains, “There is no fundamental basis to determine prices today. Now, commodity prices are impacted greatly by the macro-economic environment and local-weather effect on international crops,” Rakestraw says. “The effectiveness of forecasting future prices based on underlying fundamentals has greatly decreased.”
Likewise, Derrell Peel, Oklahoma State University Extension livestock marketing specialist, says, “Pretty much anything you have to sell today sells pretty well. Marketing has gotten easier. Quality management is now the primary concern.
“You need to spend more of your attention than ever before on managing production. Manage health, manage nutrition and manage cost to benefit from this market environment we’re in.”
Peel was speaking to stocker operators at the recent Backgrounding for Quality seminar at White Brothers Cattle Co., Chickasha, OK.
So, Rakestraw suggests focusing more intently on managing the margin, recognizing and controlling components of production and marketing that can be controlled, while managing risk on the uncontrollable.
Purchase prices of cattle and feedstuffs, hedging and incremental selling prices are all aspects of marketing that can be controlled, Rakestraw says. Meanwhile, performance, consistency of performance, as well as production and operating costs, are production components that can be controlled.
Consider an example from Rakestraw – a $230 ration and putting 300 lbs. on a 550-lb. steer – where apparently inconsequential gains yield staggering return. Decrease purchase price by 50¢ and increase the sales price by 50¢ through old-fashioned bargaining. Reduce feed costs by 5%, be it through buying outside the spot market, bargaining harder or finding lower-cost ingredients. Reduce mortality by just 0.25%. Make 50¢/cwt. by hedging. These small changes add up to $16.86/head or an additional 2.56% annualized return on investment.