“We spent most of the last 30-40 years figuring out how much grain we could get cattle to consume,” says Derrell Peel, Oklahoma State University Extension livestock marketing specialst. “I think we’ll spend the next 30-40 years figuring out how to finish cattle and produce high-quality beef with as little grain as possible.”
That single statement aptly sums up the primary reason cattle producers should be optimistic about the future, especially those in the stocker business.
“Permanently higher grain prices mean the stocker segment takes on renewed emphasis. It means the industry has to get back to the basics of beef cattle as forage animals; it emphasizes the value of ruminants,” Peel explains.
Spun with a different loop, Emmit Rawls, University of Tennessee agricultural economist, shares the fact that through the late 1970s, Tennessee was one of the largest producers of feeder pigs in the nation. Then an outfit called Murphy Farms came along with an idea to own sows and build for themselves from conception the hogs they’d be finishing.
“Future Beef had the same idea in the cattle business, integrating from the packer backwards,” Rawls says. “It failed for a number of reasons. That leads me to believe the stocker business model will continue unless someone comes up with something to replace it.”
In the simplest terms, most would agree that the basic model for the stocker business has been to buy the cattle right, keep them alive and put as much gain on them as possible for a value of gain exceeding the cost of gain.
Peel explains the traditional focus was on production value, buying someone else’s mistakes, straightening out a hodgepodge of cattle, grading them up and sorting them up. Though that’s still the primary strategy for some, Peel explains the industry today provides as many opportunities for those who focus primarily on value of gain or market timing.
Though, “buy them right,” is still sound advice, Stan Bevers, Texas AgriLife Extension economist, says the definition of buying them right has changed. “Traditionally, that meant buying them cheap enough. Now, it means buying value. Stocker producers don’t mind paying more in relative terms if they know what they’re getting,” he says.
The same goes for feedlot buyers. That’s one reason Dale Blasi, Kansas State University beef stocker specialist, believes records will continue to play a larger role in the stocker business on both sides of the buy-sell equation.
“If you can maintain the identity of cattle starting at younger ages and lighter weights, the industry can avoid a lot of repetition in cattle processing and minimize the unknowns,” he says.
That’s also why Blasi believes successful stocker operations will spend more of their time developing what he terms critical relationships. Whether it’s with suppliers or customers, he says these trust-based relationships will grow in importance as all industry sectors, including the stocker segment, continue to consolidate.
While the basic stocker model looks to remain, Peel stresses the future favors the most flexible. He compares it to coaching football. “The key is not having one or two good plays. In the stocker business it’s about having 6 or 10 or 15 different strategies that work. The trick is knowing which play to call at a particular time,” he says.
Ironically, some of the cattle attributes considered impediments to opportunity in the age of cheap corn become advantages today and the foreseeable future.
Whether the forage is native grass or cool-season annuals, Rawls emphasizes the nation’s diverse forage base enables not only cattle production but the flexibility the cattle industry has to spread out cattle supplies via the stocker segment.
That and, as Peel points out, “you can sustainably change the age of slaughter cattle up to a year.”
None of this is to say that it’s easy street in the stocker business. For one thing, the availability of qualified labor continues as a bottleneck. And the average age of producers continues to rise.
“By and large, I think the stocker business is a young man’s game,” Blasi says. “But it also offers the greatest opportunity for young people to enter the cattle business.”
Perhaps more vexing, at least in the short term, is that calf supplies are tighter than anyone can remember. The reasons for the extended national cattle herd liquidation are neither simple nor quick to remedy.
Go back far enough looking at cattle numbers and drought as the cause is overwhelmed by time, Bevers says. That leaves the lack of economic incentive and competition for pasture ground.
Bevers ran the numbers for developing bred heifers in his part of the world. “It costs $1,050 to raise one proof-positive bred heifer, if you include depreciation,” he says. “If you project calf prices at $140-$145 going forward, she never pays for herself until the day you take her to town for salvage.”
Until calf prices move significantly higher, Bevers says there is little economic incentive for producers to grow their herds unless doing so increases efficiency. He cautions that’s tough to do if expansion requires more land or labor.
As cattle numbers decline, more than one stocker producer has wondered, figuratively at least, when the supply of cattle simply runs out.
“What we run out of, and this year, is the ability to sustain beef production without accelerating herd liquidation,” Peel says. “The past three years the industry has maintained beef production through harvesting cows and heifers. That’s not sustainable.”
Though some argue for the demise of the cattle cycle, Peel believes it’s been masked by a string of supply shocks since 2003. “Calves at $1.50 is a cyclical market signal to at least begin thinking about expansion,” he says.
As for competition for pastureland, Bevers believes that race is largely run. From Florida to East Texas, he says cows have left the landscape as land use has switched from grazing to real estate or other alternate uses. Meanwhile, in the Midwest and anywhere else row crops can be planted reasonably, corn is king.
Even in the heart of wheat-pasture country, Bevers says things are changing. “Ethanol provides a price floor for wheat,” he says. “With wheat that can be contracted for $7.50, how willing is someone going to be to take cattle in?” Or, how willing will they be to run their own cattle and make a dual-purpose crop out of it?
That leaves the stocker staple of native-grass rangeland.
“It’s forage that guarantees we’ll have a cattle industry in this country,” Peel emphasizes. “For the stocker sector, I think things look better than they have in the last 20 years.”
Next month: A look at the seedstock sector.