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Specialization's The Key

You can't blame stocker/backgrounders for sometimes feeling a little like Rodney Dangerfield, the standup comic who claims he gets no respect. After all, it wasn't that long ago that many in beef industry thought the days of the stocker segment as a regular stop in a beef animal's trail to the packer rail were numbered. The prognosis was based on an expectation that more calf-feds calves with the

You can't blame stocker/backgrounders for sometimes feeling a little like Rodney Dangerfield, the standup comic who claims he gets “no respect.” After all, it wasn't that long ago that many in beef industry thought the days of the stocker segment as a regular stop in a beef animal's trail to the packer rail were numbered.

The prognosis was based on an expectation that more calf-feds — calves with the growth genetics to go from weaning straight to the feedyard — would bypass the stocker phase. It made sense, given that feedyards — striving to cut costs and improve margins — would eagerly want to sidestep the middleman.

The situation didn't shake out that way for a number of reasons. First of all, the advent of value-based marketing — which stresses inter-sector coordination as a way of building more efficiency and quality into the final beef end-product — has made the stocker segment's contribution more integral.

“It's the need for specialization in order to take fuller advantage of value-based marketing programs,” says Kansas State University's (KSU) Dale Blasi. “These types of cattle can be high maintenance and put a lot of demand on a feedyard labor force. It makes more sense to some feedyards to have specialists straighten out these calves before they move into the finishing phase.”

An Extension beef specialist in stockers and forages, Blasi and his KSU colleague Mark Spire, DVM, developed and administer, an Internet clearinghouse for stocker management and education information. BEEF magazine is a partner.

“I'm seeing a lot more contracting going on,” Blasi says. “More and more Kansas stocker producers are talking to larger yards about working with them. It's a win-win deal. The stocker operators don't have the risk of ownership or the hassle of finding calves, and the cattle feeder has a supply of well-prepared, quality calves when they need them.”

The stocker segment is, in effect, a staging area, metering calves into finishing yards as they're needed to meet consumer demand for products.

“Without stocker/backgrounder operators, we'd have trouble doing that,” says Harlan Ritchie, Michigan State University distinguished professor of animal science. “Though the industry is seeing some movement toward late spring or fall calving, the majority of calving in the U.S. occurs in early spring. Grass and drylot programs allow the industry to regulate the supply of calves for finishing.”

Another factor owing to the institutionalization of the stocker/backgrounder segment is a more favorable industry attitude toward calf preconditioning programs, Ritchie says. The benefits in feedlot performance and end-product quality are well established.

Dan Hale of Texas A&M University says four years of Ranch-to-Rail data shows that calves backgrounded at least 45 days, vaccinated and re-vaccinated with an effective animal health program have a reduced death loss and morbidity. They also gain faster and are less apt to produce “out” carcasses.

The data also indicates that sick calves on average lost $31.97/head, while calves that never got sick had a net return of $61.23. On a 571-lb. feeder calf, that equates to a sick calf being worth $16.32/cwt. less than a healthy calf.

“Basing the cost of a VAC-45 program at an additional $7/head purchase cost on a calf, some feeders estimate that VAC 45-type calves may be worth $8/cwt. more,” Hale says. “That's with the assumption that 50% of non-VAC 45 calves might get sick.”

In addition, the stocker/backgrounder segment is an effective way for many producers to gather more benefit from available resources while keeping their marketing options open.

“Smart producers try to build as many options as they can into their programs — a lot of escape routes, if you will, for the marketing of their calves,” Blasi says. “If you have the resources, stockering allows you to carry them further, retain ownership or sell them.”

With the average cowherd size in the U.S. being just 40 head, Blasi, says stocker/backgrounders are here to stay.

“All those calves have to be assembled by someone. That will make the stocker segment the one that a lot of the alliances will have to target because the low-hanging fruit — the larger cow/calf herds — has been picked.”

Blasi believes there are tremendous potential returns for alliances and marketing groups that are able to band those smaller producers together.

“It's a great opportunity for folks like local veterinarians to step in and help out these smaller outfits by coordinating these herds and advising them on factors like sire selection, etc., in order to build more market clout,” Blasi adds.

Stocker Trends

The stocker/backgrounder sector is migrating, experts say. Just as packing followed the feeding segment, stocker/backgrounders are following suit.

“It's the trend and it makes sense,” Blasi says. “Why would a feedyard spend all that money purchasing a preconditioned calf and then subject it to the stress of transportation? It's much easier on both the calf and the feedyard if there's close proximity.”

Ritchie says he sees more small- and mid-size feedyards converting from finishing to backgrounding.

“That will also be a factor in increasing the concentration of stocker/backgrounding enterprises in the traditional finishing areas,” Ritchie says. “I think we'll see more and more stocker cattle being drylotted, but there will still be a place for the grazers as well because grass is such a tremendous resource in this country.”

In addition, Blasi reports that some feedyards have added stockers as a customer service.

“It allows them to offer financing for the purchase of lightweight calves. From there, they can put them on a grower program using either grazing, by-products or grain. They can also partner with customers on the cattle. Half the job of getting that client to eventually feed at your lot is already done because the cattle are already there,” Blasi says.

Some feedlots are even using center pivots and low-output wells that cannot reliably grow corn to irrigate perennial forages for stocker grazing.

“Several feedyards have put in circles of perennial cool-season grasses adjacent to their yards. Perennial forages are less intensive and less risky than row crops, and grazing doesn't pull the same amount of phosphorous or nitrogen off the land as corn does,” Blasi says. “It also allows them to apply lagoon effluent when they want.”

Blasi says the fortunes for stocker/backgrounders and feeders are particularly bright in the Midwest and upper Midwest due to a recent boom in ethanol production.

“The state of Kansas now has five ethanol plants, and projections call for that to double within three years. Iowa, South Dakota, Nebraska, Minnesota and Illinois will also play a role in ethanol production,” Blasi says. “That's a great, new source of by-product feed and offers tremendous opportunities for low cost of gain.”

The bottom line, says Ritchie, is that there's a lot of opportunity.

“Producers just need to figure out what they're good at doing. A lot of producers in this country go buy calves in spring because that's the way they've always done it, even though the calf market traditionally goes up at that time. People have to get beyond that mindset.”

He says smaller operators can contract with feedyards for custom stocker/backgrounding work. They can probably provide the intensive care that larger operations can't, Ritchie says. Plus, they're minimizing their risk by not owning the calves.

Blasi says another advantage of smaller, specialized operators is that they may be more able to provide “the intensive care high-risk cattle need.” He says that will be particularly important if regulatory constraints are placed on the use of antibiotics in livestock as they have been in poultry.

Harlan Hughes, North Dakota State University professor emeritus, says that whatever the choice in management direction, of prime importance is good production and economic records.

“In the cattle business, we dig our own hole when we buy cattle. Often, the economic outcome is already decided by what we paid for them,” Hughes says. “Producers need to really push the pencil, and they can't do that without good cost-of-gain figures, a good business plan and a good job of measuring their financial performance. That's particularly important in this phase of the cattle cycle when calves will be high priced.”

Blasi says he empathizes with how unnerving the rapid change hitting the beef industry can be for producers, but within that change lies tremendous opportunity for those willing to seek it out and adjust.

“Many producers want to maintain independence, he says. “But we all rely on someone. The primary question all producers must address is ‘What's the best way to capitalize on the new opportunities yet maintain the viability of my independent operation for future generations?’”