As drought conditions cripple parts of the High Plains and the West, there may be improved opportunity for stockers building into the cattle market.
In an interview with DTN, Kenny Burdine, University of Kentucky livestock marketing and management specialist, said he's not seeing an influx of lightweight calves from drought-stressed parts of the country into his state yet. If conditions continue to deteriorate, however, producers with plenty of forage moving into the summer may see opportunities in buying lightweight calves and adding pounds on standing forages. But Burdine cautions that producers taking on this challenge have to do it with their eyes wide open.
"These calves can be a good buy. When we see early weaned calves come into stocker operations, the first thing we have to recognize is there is more potential for a higher level of management, and that there will be health problems," explained Burdine.
Balancing those two ends of the spectrum means running the budget to see what the numbers look like. Every operation will be different.
"Pay a lot of attention to the health of the cattle. If they are lighter and higher risk, don't be afraid to do more to manage them on the health side," he said.
To see how some producers are already culling head in parts of the country, read this article by DTN Staff Reporter Russ Quinn: https://www.dtnpf.com/….
WHERE STOCKERS FIT
Stocker cattle can make a big economic impact. A good stocker system can use pasture forages during the early spring and fall as the main source of weight gain. That is especially attractive when feed prices are high. It's also a way to make otherwise idle ground profitable.
In Missouri, Extension beef specialist Eric Bailey noted stocker cattle operations can be game changers for producers because less money is invested in things like grain, hay, equipment or buying new land. Farmers with forage in the spring can run a set of stockers from early February to early July and additional stockers from October to the end of the year if the forage quality and quantity hold out.
"I am taking a 500-pound calf and I am hoping to deliver a 700-pound calf who is ready to go into a feedlot at that time," he explained. "I am shooting for 100 days. And I am hopeful that I will put about 200 pounds of weight on them in those 100 days with minimal feed supplements."
In Missouri, he added, many successful stocker operations he knows of started as custom grazing for an owner on a leased farm. It's a workable, often low-cost way to get into the cattle business.
MARKET VOLATILITY CONCERNS
What about all of today's market volatility? Kentucky's Burdine addressed that in a report he wrote with Greg Halich, a professor in farm management economics for the University of Kentucky.
It's important, Burdine told DTN, to always look ahead and forward price contract if that is an option for you. He advises looking to the CME feeder cattle futures price for the projected sale month. A common timeframe for stocker sales is October and November.
"If you have stockpiled grass, you may be able to get into November and December," he added. "As you move further South, stockers can get into that later marketing timeframe. Use those futures to estimate and manage price."
Earlier this year, Burdine and Halich assessed the likely profitability of a summer stocker program for 2021, establishing target purchase prices for calves based on estimated returns. At that time, they were anticipating sales prices on 750- to 850-pound calves, using a CME futures contract price for October 2021 of $157 per hundredweight (cwt) as a guide. Under this scenario, a 775-pound steer was estimated at a value of $152.50/cwt, and an 875-pound steer at $146.50/cwt. Prices were based on the assumption cattle sold in lots of 40 or more head.
To walk through the numbers, Burdine says if a stocker bought a 500-pound steer and targeted a $75 gross profit per head, he would need to sell the steer at 775 pounds at $1.525 per pound, for a total of $1,182. Estimating variable costs at $141, and deducting a $75 profit, that put the target purchase cost for that calf at $966, or $193/cwt on a 500-pound calf.
"There is a tendency for calf prices to reach their seasonal price peak when grass really starts growing in early spring," he noted. "There is little reason to think this won't happen in 2021, which will result in tighter expected margins for stocker cattle during those periods."
Burdine noted two factors in 2021 are critical. First, there is an unusually large difference between prices for heavy feeder cattle and what the fall board is suggesting. This disparity has led to some stockers bidding less aggressively, likely because they are looking at heavy feeder prices rather than fall expectations. Second, higher feed costs will probably discourage feedlots from putting lighter-weight calves on feed, holding down competition in the calf markets.
Burdine notes many producers won't have the ability to sell in truckload lots, which would allow them to use put options to protect their price. Those producers, he said, should consider Livestock Risk Protection (LRP) insurance.
LRP is a USDA-subsidized insurance product to protect against downside risk by setting a price floor based on national feeder cattle prices. It creates an opportunity to take advantage of market increases, but if national prices fall below where a producer has locked in a floor, it can trigger a payment. The LRP uses CME feeder cattle futures prices. Coverage periods range from 13 to 52 weeks, and the minimum number of head to participate is just one. Subsidy rates depend on the coverage level chosen and how far out the price is contracted.
To locate an agent or explore local coverage and rates, the USDA has a locator tool at: https://rma.usda.gov/….
Victoria Myers can be reached at firstname.lastname@example.org
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