STOCKER INDUSTRY HAS FORTIFIED POSITION IN SOUTHEAST

by: Clifford Mitchell

What some may call a “new era” in the beef industry has led to some significant changes in the way cattlemen conduct business. High corn prices have changed trade models and Mother Nature has shifted production to different regions, while at the same time, depleting cow numbers due to harsh weather conditions. Adjusting to some of the new rules of the game will transform operations into successful ventures looking to take advantage of opportunity.

During the last several years drought has taken its toll on traditional yearling country. Couple this with not only high grain prices, but also increases in transportation costs and increased value of gain; and the stocker industry has fortified its position in the Southeast.

“The value of gain has provided the right kind of incentive and the stocker industry has been slowly growing. It started out with cow/calf operations taking their calves to larger weights before marketing,” says Dr. Walter Prevatt, Extension Economist, Auburn University.

“It's really an opportunity few were taking advantage of, with the ability to produce low cost forage and the value of gain,” says Brian Beer, Extension Beef Specialist, Clemson University.

“The cost of gain in the feedyard is so high those guys are looking to buy weight. We can put on gain so much cheaper with low cost forages,” says Dr. Justin Rhinehart, Extension Beef Specialist, University of Tennessee.

As with most business models purchase price plays a big role in what profitability will be in at the end of the venture. Knowing costs will allow most producers to accurately price those light weight cattle, not set off a buying frenzy just because they have something for them to eat and bid themselves out of a profit before the first blade of grass is eaten.

“Cattlemen are using the futures and basis a lot more as tools to know where they are and what they can afford to pay for those calves,” Beer says. “Buy-sell margin calculators work well helping to figure breakevens, but there are almost too many tools out there and some producers could get overwhelmed. Knowing costs will make sure you get adequate returns to land, labor and management.”

“Some guys are looking at risk management on the other end and projecting those cattle out before deciding a purchase price. It's not like the “old days,” lenders have to be educated to the process so stocker operators have the financial backing needed to purchase those calves,” Rhinhart says. “You have to know your costs and take a diligent approach to marketing these yearlings at purchase.”

“At purchase, stocker operators have to know what it costs per pound of gain and what that gain is worth,” Prevatt says. “Some will pre-purchase inputs to keep costs low and they know what it costs for a load of fertilizer before calves are purchased. Others adjust the program from a traditional 150 day grazing period to longer increments to keep costs in check based on gain.”

Cattlemen tend to be a visual kind of group, but most would not like to see graphs and models that deal with production costs the last four or five years. Market pressures, coming from where some might ask, have led to escalation in fuel, feed and fertilizer costs. With costs reaching levels the industry has not seen in the past, every chance at adding a dollar makes sense.

“Taking those calves to eight-weights and marketing them to the next sector in the production chain makes a lot of sense right now. A lot of producers are taking advantage of rotational grazing to add those cheap pounds,” Rhinehart says. “A mix of cool season grasses and winter annuals usually can produce two pound per day gain with a little supplement. Guys get locked in to a 90- or 120-day grazing period.”

“It makes sense to carry a calf through the winter in our area. The market is usually headed in the right direction and we can make those five-weights, eight-weights before the quality of the cool season forages starts to wane. We just can't get the gains to justify carrying cattle in the summer months,” Beer says. “Stockpiled fescue and winter annuals like rye or rye grass help cheapen gain. It's not cheap to plant those winter annuals, but it's still cheaper than feeding from a truck.”

“Most recognize we have good early fall grazing, especially in mixed enterprise operations where these calves can come behind row crops,” Prevatt says. “Winter annuals, like wheat, rye grass or oats, provide really good gains. Some do it on fescue and clover which works, but you're only probably looking at a pound to a pound and half per day gain.”

Research indicates some supplementation will help the efficiency of these cattle during the grazing process. Keeping gains at acceptable levels and helping extend forage resources for the duration of the grazing period. Commodity or by-product feeds are often associated with low cost yearling production. Just like costs however, the game has changed a little when some start looking at viable supplementation sources that keep profitability in the yearling enterprise.

“In year's past, by-product feeds helped cheapen the cost of gain on these light cattle. Most of what we used to use has become cost-prohibitive in the yearling business today and we have to derive most of the gain from forages,” Prevatt says. “The higher cost of these commodities has also led to the development of pockets in our area that have “niche commodities.” Low cost feeds available only in certain areas because they can't be transported very far.”

“Most in our area will supplement those calves with something throughout the grazing process. Some will rely strictly on forages and graze them longer,” Beer says. “This is a tough predicament. You need a sharp pencil to make sure your commodity mix will work and still help profit, otherwise some of these products are too expensive to feed.”

“Most traditional commodity feeds have priced themselves out of the yearling business in our area. Resources are available in our area for a little non-traditional supplementation,” Rhinehart says. “Whiskey and ethanol distillers are fairly reasonable, but mixing rations could be a headache. There are also areas that have developed certain niche commodities because they are wet and can't be hauled very far.”

Most yearling outfits are concerned with gain, but also realize calves have to stay alive to gain weight. Adding that health and maturity to calves that have been customarily hard to transition to a new home many miles away is another big part of the value proponent.

“Stocker operators who can take those fly weights and get them straightened out usually have a profit waiting. An increase in death loss from three to eight percent on fresh weaned calves is significant. This has forced producers to become a lot more diligent on the receiving and weaning end to limit death loss,” Rhinehart says. “I think this has been a very educational process for cattlemen to get a glimpse at the risk feedyards take with those freshly weaned calves and as to why heavy cattle got valuable in our area.”

“It's very important to keep them alive and growing in the stocker business. Proper vaccinations and herd health get those calves off on the right foot. Recognizing illness early and getting cattle back on track makes a big difference. Continued pulls will erode profitability pretty fast,” Beer says. “Getting cattle close by seems to work in our area. Those cattle coming from a long way away sometimes have greater disease challenges. When we source cattle as close as possible, it really helps out from the preventative side as far as respiratory diseases.”

“Operators who can limit death loss and chronics to two or three percent are doing well, at six to nine percent there is a serious problem and it's hard to make a profit. Most are taking a chance when they procure cattle through the stockyard because even though our genetics and health programs have gotten better there are still big differences in these cattle and how they perform,” Prevatt says. “Some operators choose to limit that risk at procurement and buy the healthiest calves that they can.”

The challenge for most stocker operators has not only been not bidding themselves out of a profit at purchase, but also marketing. A more highly educated seller and technology have allowed Southeast yearling operators to become more competitive from a price standpoint.

“Because cattlemen know their costs they aren't afraid to do things like forward contract or use the tools that are available to market these yearlings,” Rhinehart says. “Video and Internet sales with later delivery dates are also very good marketing opportunities.”

“A lot of our stocker operators will lock in a profit on at least half of what they have and market the rest on the cash market. They aren't afraid of these tools any more,” Prevatt says. “Video sales get to a wide range of buyers and technology has made us a lot more competitive. We don't see as much forward contracting in our area because of transportations costs. Many of our traditional sale barns have also gone to having video sales, marketing cattle for later delivery. We have to do whatever we can to solicit more buyers.”

“At certain times of the year, selling cattle on the video with a delivery date that is two or three months down the road allows cattlemen to take advantage of a little better market opportunity,” Beer says. “More and more operators are becoming accustomed to off farm sales and getting the most value they can.”

Health, maturity, weight and market delay to a more favorable opportunity have all been associated with the stocker business for many years. The value of gain is high at this point, but there are also other value components to the yearling business finding a new home in what has traditionally been a “one head at a time” marketing practice at the brick and mortar barns of the region.

“Our ability to produce low cost forage is adding value to some small operations. Stocker operators are adding value to those calves by just putting together truckload lots,” Prevatt says. “Each group of calves get sorted a little better to more uniform groups and the next guy in line gets a better product.”

“There is always strength in numbers and we have seen a greater emphasis on marketing load lots in our area, whether it be the cow/calf guy buying more calves to make a load with his home-raised calves or small operators getting together and forming a co-op to capture value,” Beer says. “A lot of what the stocker operator is doing is improving herd health, sorting load lots and creating cattle that can go to the feedlot from this part of the country and perform right away. Making the most of those mismanaged calves by straightening them out and adding value.”

“Stocker operators have to get all the value they can out of a load of calves,” Rhinehart says. Sorting healthy calves into load lots with enough volume makes a pretty attractive opportunity to the feedlots. Aggressive marketing makes it easier to get all they're worth.”







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