Extension by Dallas MountWritten by Saige
By Dallas Mount, UW Extension Educator
With the record cattle prices and what many analysts think will be a long run of high feedlot costs of gain, I would challenge you to consider moving to a combined cow-calf-stocker operation if you are not already there.
If you analyze the value of the gain traditionally paid to stocker operations it usually mirrors the cost of gain in the feedlot. As corn goes up, so does the value of gain. If you have an operation that has forage resources, you can likely put gain on calves much cheaper than a feedlot can.
Step back for a moment and consider your ranch simply as a forage resource. How you choose to market that forage resource is a key business decision. You could lease it out, take in cattle, run cows, run stockers or a variety of other enterprises, as well. If you run cows, and graze out for 10 months or so, then you are investing about 12 to 14 AUMs (Animal Unit Months) in each pair. If you run a stocker and graze for six months, then you are investing around four AUMs per stocker (depending on the size). What is your return per AUM invested from each of these animals?
I have been analyzing ranches for the past few months, and a common return from a well-run cow-calf operation is around eight dollars to $12 per AUM, or $100 to $150 per cow after having paid all economic costs. For stocker businesses a common return is $30 to $50 per AUM, or $120 to $150 per stocker under a similar analysis.
Many ranchers are resistant to run stockers because of the variability of returns due to market fluctuations. Forward contracting, put options and other tools have been available for some time, but they don’t get used much due to their complexity and other factors. A relatively new tool is Livestock Risk Protection, which works more like crop insurance, where you pay an insurance premium for the minimum price you would like to protect. Your local crop insurance agent can fill you in on the details, but it can take much of the price risk out of the stocker business.
Whatever your mix of enterprises, the most important thing is to do a routine analysis and make sure opportunities are not passing you by, and that you don’t get stuck in a rut. These are exciting times to be in the beef industry. I hope you are taking advantage of the good times.