Higher grain prices increase attraction to stocker programs

Casper – Several years ago, with cheap grain and more costly hay and grass, moving calves directly to a feedlot situation was more economical than moving them through yearling programs.
    However, as the cost of gain in feedlot has risen, alternative production systems have come back to the side of profitable management decisions, and it’s those alternatives that Dillon Feuz of Utah State University discussed at the early December Range Beef Cow Symposium in Casper.
    “The recent rapid increases in grain prices have created more interest in different types of stocker programs,” said Feuz, noting those increases coincide with changes in U.S. energy policy that tied those markets directly to grain markets.
    “A third of the corn acres were converted from food or freed to energy usage, and as we look forward to what the federal mandates require, there will be more crop acres converted to energy as long as the policy is in place,” he explained. “Long-term we’ll continue to see higher grain prices, as there’s a battle for fuel versus the feed and food component.”
    Although the increased cost of gain affected the entire livestock sector, including beef, pork and poultry, Feuz said the beef industry has faired the best.
    “The beef industry can respond better to higher grain than most other livestock because we have the opportunity to do other things with grazing and with alternative feed sources,” he said. “This is what’s driving the move away from calf feds to stocking programs and ways to add weight outside the feedlot cheaper than the cost of gain on corn.”
    Feuz said when corn was around two dollars a bushel the cost of gain was around $50 per hundredweight, which is now around $73 and was at one time over a dollar per hundredweight when corn was at eight dollars per bushel. He said he expects the cost of gain to stay in the $70 range if corn stays around four dollars for the next two or three years.
    He said alternative to feedlots are drylot hay programs, traditional wintering on cornstalks or wheat residue, distillers grains, grazing turnips or nontraditional feeds.
    “One feedlot I know of gets the refuse cookies and donuts from a bakery facility and mixes them into the rations to cheapen the cost of gain,” said Feuz.
    “What we’re trying to do is get to that summer grass, and mother nature still provides us beautiful grass to add weight to cattle, which can’t be added to the other products we compete against in terms of pork and poultry,” he noted.
    He said not matter which program a producer decides to construct for their operation, the efficient market hypothesis applies, which he said works great in the cattle industry.
    “The main premise is that the price of feeder cattle is based on the price of fed cattle plus the cost of gain in a feedlot,” he explained. “If you can figure out your own cost of gain for your program, and if it would be cheaper than a feedlot, you’ll have a better chance of making a positive return.”
    Feuz said the big alternative to feedlots is grass, which is a cheap program. “Grass will cost 33 to 50 cents per day if they’re gaining a pound and a half, at $10 to $15 per head per month,” he calculated. “The feedlot cost of gain is 70 to 75 cents right now.”
    However, he said the question is how to get cattle to grass. One solution, he said, was to go with fall-born calves and wean in the spring, which he noted is a whole different topic.
    Another alternative, used in this part of the country where there’s not ready access to cornstalks or wheat pastures, is to feed hay, he said, but without really cheap hay it gets expensive. “That only works if you can keep from losing enough money so you can offset it in the summer on grass,” he said.
    “The challenge is to get them through the winter cheaper than feeding hay, and cornstalks are a great way to do that, with a total cost of gain under 60 cents,” he added.
    Another cheap rate of gain is to supplement range with cake and bring the cattle back to meadows with turnips or other winter annuals. “Whatever ration you can put together,” said Feuz, adding, “The more you can let the animals harvest it themselves, and the more you don’t have to mechanically harvest feed, the better off you’ll be.”
    “The big thing on stocker programs is the direction of the market,” said Feuz of their profitability. “If there’s a lower cost of gain in a stocker program compared to the feedlot you’ll be more profitable.”
    “If feedlots are losing $100 per head, will stocker programs still be profitable?” Feuz questioned. “If those losses occur because of high corn costs, you’ll still be profitable. But if they’re because of the market, that’ll have an effect on you as well, if you haven’t protected your output price at the time you put cattle in your program.”
    But, no matter where the margins fall, Feuz said the challenge always is that cattle producers are eternal optimists, expecting higher returns than they’ll get, and therefore are almost always disappointed.
    “Higher grain prices mean there are opportunities to put gain on in grazing and stocker programs with less cost of gain, and there can be positive returns if you can do that on the average,” he said. “Determine your own numbers for your operation and make the comparison.”
    For more information on Dillon Feuz and alternative production systems visit his website at www.cattlemarketanalysis.org. Christy Hemken is managing editor of the Wyoming Livestock Roundup and can be reached at christy@wylr.net.