The Economics of Winter Stocker Production; 1993 vs 1996

M. H. Poore

When I came back to North Carolina in 1990 from school, I was eager to improve the sale weight of calves from my family's farm (Triple Creek Ranch, located north of Oxford) as a way of increasing our revenues. It took several years to start seeing results, and much to my dismay, when we sold calves in the fall of 1993, I found we sold 450 lb calves for almost as much ($/head) as 550 lb calves. That year we sold 450 lb calves for $1.07/lb ($481.50/head) as compared to 550 lb calves at $.905/lb ($497.75/head). The value of the gain going from 450 lbs to 550 lbs was only $.16/lb for us that year. It is an extreme example, but the truth is that gain has normally been worth a lot less than the selling price of a calf.

Feed was inexpensive at that time compared to now and we considered feeding our light calves over the winter instead of trying so hard to improve weaning weights, but when I penciled it out, it just didn't pay. In fact we did save and feed some calves and we lost money on them. The reason was that the light calves were in demand by large stocker operations and our labor and other input costs were high per calf because of the small size of our operation.

With the recent changes in both grain prices and cattle prices it is clear that the situation has changed dramatically, so I pushed the pencil again regarding the decision about whether or not to keep the light calves this winter. Anyone that has looked at the prices in our graded feeder calf sales can see that there is virtually no price slide in calves as weight increases this year, and in fact in many graded and weekly auction sales the slide has been the reverse with heavy calves bringing more per lb than light calves. The value of gain is much higher now than it was just three years ago, but with feed prices so high most folks still think that if you have to feed calves anything there is no way a stocker program can work.

I'll use an example to illustrate how things have changed. Consider 450 lb black and baldy calves purchased at the NC graded feeder calf sales in Fall 1993, stockered for 150 days and then sold at the spring stocker sales in 1994 at 750 lbs. To compare to today, I'll assume that the calves will sell at $.60/lb either this fall at 450 lbs and $.60/lb next spring at 750 lb which is consistent with the fall sales, and is what futures suggest we will be seeing in the spring. I'll assume that each calf is provided with an acre of stockpiled fescue and charge them $35/acre for the nitrogen and labor to produce the stockpile, a cost that has not changed in sometime. The supplemental feeding program is 6 lbs soybean hulls/day and an ionophore mineral free-choice. Soyhulls have gone from $80/ton this time of year in 1993 to $130/ton today, while the cost of the mineral has not changed ($600/ton). A summary of the costs and revenues is given in Table 1. The return over feed cost is the revenue that is left to service any debt on capital investment, pay for labor, and to provide returns to land, capital and management.

It is clear that even with the increased feed costs we are experiencing, the potential for profitable stocker production has dramatically improved. The gross return on the calves now is 1.5 times higher than it was in 1993, and despite a near doubling in the price of supplemental feed, the return over feed cost improved by over $37/head.

You might assume that it would be even better if we just didn't use the supplemental soybean hulls, but we better think that through a little deeper. The rule of thumb that I use to determine a break even point for supplementation with an energy feed is that when the value of the gain is greater than 6 times the value of supplemental grain, then it will pay to supplement. This is taken from the fact that cattle will convert the energy supplement to gain at a rate of about 1 lb of additional gain from 6 lbs of supplement, which has been observed in many studies here and elsewhere in the southeast.

In 1993 the value of winter gain was $.40/lb, while in 1996 it is expected to be $.60/lb. The grain supplementation would have been profitable at up to $133/ton in 1993, while in 1996 it is profitable at up to $200/ton.

The extra return achieved by supplementing with soyhulls would then be $23.85/head in 1993 vs $31.50/head in 1996 (calculated as the difference in the price paid and the break-even price, multiplied by the total amount of soyhulls fed). The supplementation improved returns in either scenario, but it is more important now than it was then. This is something to really consider, however, because if you are feeding a commercial type of supplement, it very likely is costing you more than $200/ton this year, and it won't pay you to supplement.

Marginal return from using the ionophore mineral should also be considered, as it will cost about $.025/head daily more than a "regular" mineral. It is very conservative to assume you will get an improved gain of .1 lb/day in pastured cattle from using the ionophore, so that the break even value of gain is $.25/lb (value of gain would have needed to be higher than that for it to pay). In 1990 the ionophore mineral would have paid $.015/head each day for an extra $2.25/head return, while today the $.025/day investment would return a net of $.035/day or $5.25 over the 150 day period.

I challenge producers to push their own pencil to make sure they are making good business decisions. There will be great opportunities in the next several years for cow/calf producers to profitably stocker their own calves, and for new producers to get into the stocker business. If you are a small producer, however, beware of getting into the "habit" of stockering cattle. When the cattle cycle runs it's inevitable course again and grain prices change, the whole thing might turn around, and it again may make no sense for small producers to stocker calves. It is wise to push a pencil each year to make sure you are making the right decision.