If it spooks you to pencil out a budget and see lots of profit potential, you may have to learn to live with the fear.
Derrell Peel, Oklahoma State University Extension livestock marketing specialist, pointed out last week that the stocker value of gain in September was running $80-$90/cwt. for cattle weighing from about 400 lbs. to 900 lbs. (basis Large and Medium #1 steers, Oklahoma City).
Stocker value of gain is defined as the gross sale price of a head of cattle minus the gross purchase price, divided by the pounds of gain.
Peel explains part of the lofty level has to do with generally high cattle prices across the board, buoyed by tight supplies, as well as a typically narrow price rollback between weight classes. It also has to do with what he terms permanently higher corn prices.
“Stocker value of gain is the mirror image of feedlot cost of gain,” Peel explains.
For the three decades before the commodity bubble two years ago, corn prices hovered tightly in the range of $2-$2.50/bu. Subsequent cost of gain at the feedlot of roughly $30-$50/cwt. meant stocker value of gain was capped at the same level.
Now and into the future because of the global shift to higher grain prices, forage-based gains have relatively more value. In fact, the stocker sector – already an essential cog in the industry wheel – becomes relatively more important.
Incidentally, winter stocker programs this year appear to have extra potential, according to Peel. In September, he was estimating the marginal cost of wheat pasture production at 30¢-40¢/lb. of gain, depending on stocking rate and rate of gain. Logic suggests renting wheat pasture in the High Plains this fall might run 40¢-50¢.