The Cattle Business - Making Expensive Stockers Work
Livestock Update, April 2001
Bill R. McKinnon, Extension Animal Scientist Marketing, VA Tech
Generally higher price levels work to the advantage of margin enterprises such as the stocker cattle operator. A higher price structure usually means that the operator gets paid more for the pounds added to the cattle. At the current price level, there is a fair amount of sticker shock when folks go to purchase stocker cattle this spring.
Looking at the last ten years worth of data for Virginia graded feeder cattle sales, it comes as no surprise that there is a substantial drop in price between 5-weight steers in April and 8-weight steers in September. During that ten year period it was interesting to note that the percentage drop was actually lower during the five years of highest prices.
Stocker Cattle Price Relationships
1990 - 1999
High Years vs. Low Years
|Ten Year Average||$88.98||$70.09||$18.89||21.2%|
|High 5 Years||$95.54||$76.52||$19.02||19.9%|
|Low 5 Years||$82.42||$63.66||$18.76||22.8%|
The current price structure would seem to be trying to reflect past price patterns. Currently L&M1 5-weight steers are in the $105/cwt. range. At the same time September futures at $88 would tend to translate into $82/cwt. 8-weight steers in graded sales this fall. This means a $23/cwt. or 21.9% reverse margin.
This severe reverse margin presents the largest single cost to the spring stocker cattle operator. The term reverse margin refers to the fact that the weight purchased is sold at a lower price per pound at sale time. Given the above current projections, the 550 pounds purchased might be sold for $126.50 less than it was purchased (550 lb. @ $1.05 at purchase vs. 550 lb. @ $.82 at marketing). This reverse margin demands that the stocker cattle operator put on lots of pounds very cheaply.
Once the cattle are purchased, the operator only has two avenues to impact profitability - cost effective weight gains and excellent marketing. Pushing for more pounds on cheap gain on pasture is critical to stocker cattle profit. Given the current price structure, the operator who can only achieve 250 pounds of gain on the 5-weight steer until September needs roughly $10/cwt. more at sale time than the neighbor who puts on 350 pounds of gain.
Certainly pasture quality and management can impact gain per head. Keeping large amounts of forage available and in a vegetative state in crucial to high rates of gain per head. It is gain per head that is critical to stocker cattle profit. Maximizing pounds of gain per acre has little to do with profit. Managing for maximum pounds of beef gain per acre may actually be detrimental to stocker cattle profit if it results in lower gains per head. Improving pounds of gain per acre may slightly lower pasture costs per head, but this cost reduction may be more than offset by loses per head if gains per head are reduced. It is the pounds that we add to the cattle that market the forage.
Another issue critical to stocker cattle gains is the use of a growth promotant implant. Implants simply represent the cheapest, most reliable method to obtain an additional 25 pounds of gain. There are several alternatives that work well for stockers: Ralgro, Syonex S or H, Revalor G, Compudose, Component E-S or E-H, Encore, etc.
Figuring out a way to implement a strategic deworming program in the stocker cattle enterprise can mean an additional 20- 40+ pounds of gain over the traditional deworming at turn-out time. Use of some of the new deworming products with persistent activity can facilitate keeping cattle and pastures relatively parasite free well into late spring and early summer with minimal cattle handling. Additionally, the use of the dewormer, fenbendazole (Safe-guard) in block or mineral mix can be another component in a strategic deworming program.
If a producer's forages and management will not allow him to put on more than 250 pounds of gain in 150 day grazing period, he needs to drastically change management or enterprises. The stocker cattle business is a competitive enterprise with neighbors competing for cattle and grazing boundaries. The operator who cannot compete on cattle gains will also not be able to compete in buying limited supplies of stocker cattle.