Strategic Positioning

The trend toward vertically coordinated beef systems is carving out new stocker opportunities. Adding pounds is no longer the only goal.

Rather than merely taking the chance to add cheap gains when grass supplies and calf prices line up, more stocker cattle growers are strategically positioning themselves. They're aiming to supply vertically coordinated beef systems with the kind of feeder cattle they need, when they need them.

The stocker business is “changing very fast from an opportunistic venture into a vital part of the beef supply chain,” says Bill Mies, director of supply chain development for eMerge Interactive.

He says that as feedlots became involved in alliances and needed to spread out placements and marketings, they began using pasture contracts to spread cattle out over more placement and marketing months. “As we see more alliances, I think we'll see more of this,” Mies adds.

For instance, Mies says that in the late 1980s feedlots began contracting stocker cattle in the fall for spring delivery. In some cases, this has evolved into feedlots owning the cattle. These feedlots then contracted someone to run them as stockers, or formed partnerships with stocker operators to own and manage the cattle from the stocker pasture through the feedlot.

“One thing a feed yard really likes about these arrangements is that it allows you to program your occupancy rate in the yard,” Mies says. “Plus, you can start doing risk management on the cattle before they ever get to the yard.

“I think feed yards are fairly open to these arrangements today. And, I think the stocker operator has more marketing options today rather than just taking on the whole deal himself [owning all of the cattle through the stocker phase].”

Ken Odde, head of the animal and range sciences department at North Dakota State University, says he's seen more of what he calls “professional stocker operators and backgrounders.” That's in contrast, he adds, to those operators who have grass or harvested feed and try to add value to that resource by grazing some calves.

“More are in the stocker business today as a business, and I think we're seeing the same thing in backgrounding,” Odde says.

Keep in mind the realities described here are a far cry from the predictions many experts made just a few years back. The claim was that the stocker industry was a short step away from becoming a footnote in history books. Too many cattle trading too many times, adding too much cost to the system, the refrain went.

But that was just cheap corn talking, Mies says. “We always hear those predictions when corn is right near the bottom.”

Arguably, the predictions also had plenty to do with history. In a business where entry and exit decisions are understandably dominated by forage availability and corn prices, Mies points out stocker operators have been known to buy during times of excess demand, then sell during times of excess supply.

Fill Customer Needs

As corn climbed back over $2, though, the industry began to take more seriously the sense and holistic necessity of keeping calves healthy from day one.

“Twenty-five years ago, stocker operators didn't worry about turning out and taking care of high-risk cattle,” says Mies. “With new information and the growing industry philosophy that these cattle shouldn't ever have a bad day in their lives, or else it hurts the grade, we're seeing stocker operators step up and pay premiums for pre-conditioned calves they know won't get sick.”

Spun with a different rope, Odde believes untapped stocker potential exists for those who want to do more than add value to feed and grass. He suggests: “Look at it not just in terms of how much cheap gain you can put on calves, but how can you provide something that that has greater value that can be documented — be it less morbidity, increased feedlot performance or increased carcass merit.”

Moreover, in the past decade, retailers began looking harder at beef supply chains to help limit the liability that goes with a dearth of biosecurity, coupled with concerns about foreign animal diseases and food-borne pathogens.

“I think we'll see supply chains become more prevalent, and there are four or five drivers for it: the threats of agro-terrorism and bovine spongiform encephalopathy, country of origin labeling, and increasing export requirements,” Mies says.

According to Mies, the most effective way to monitor — and help prevent in some cases — the liability spawned by these forces is to identify and track cattle, moving them through the supply chain with their own data and history attached to them. “You might have bought the same cattle for a couple of years, but that's not a supply chain, it's a coincidence,” says Mies.

Pick Your Mark

Of course, there's nothing easy or guaranteed about any of this. Depending on your definition of the stocker business, the industry has contracted during the past two decades. That's due to overall shrinkage in the entire production industry, in addition to improved genetics having grown weaning weights and limited the number of days stockers can run on grass.

“I think the stocker industry has shrunk overall the past few years, primarily because of calf weights, especially in the Northern Plains,” says Ben Brophy, manager of value-added alliances for Caprock Cattle Feeders. Besides managing one of the nation's largest cattle feeding organizations, Brophy also comes armed with his ongoing experience in his family's Arizona-based ranching and stocker operations.

“From a marketing standpoint, it's not a lot different than it used to be,” Brophy says, “but there's greater differentiation in terms of what buyers you deal with. There used to be a larger pool of buyers that fed everything they bought,” explains Brophy.

Now, not only are there fewer buyers, he adds, but many want the stocker operator to at least share some ownership in the cattle through the feedlot. Depending on the attitude of the stocker operator, that factor can be viewed as much a minus as a plus.

In addition, large cattle feeding outfits continue to raise stocker cattle in their own pastures or contract with others to warehouse cattle and straighten them out ahead of coming to the yard.

A Locked-In Sector

Even so, while the easy-come, easy-go nature of the business makes it impossible to define the exact number, Odde estimates 80% of all fed cattle spend time in a stocker or backgrounding enterprise before heading to the feedlot.

Regarding his own family's stocker operation, Brophy explains, “The biggest change we've seen in the past five years is the availability of quality and health in the calves we can buy.”

According to Mies, that's by design. Rather than buying lower quality calves and upgrading them, he believes more are looking to buy higher quality cattle to begin with, then focus on maintaining the quality for their feedlot customers.

Although weather, forage availability and corn prices continue to dominate stocker decisions, Brophy believes there are some basic ways that stocker operators and backgrounders can add value to their cattle.

“It always comes down to understanding your customers better,” says Brophy. “As an example, all else being equal, timing has value. From a feed yard perspective, you can buy more cattle that you can imagine between the first of September and the middle of October. As a result, the guy who holds cattle later or brings them to us earlier adds value. If you can be untraditional from a delivery standpoint, it adds lots of value.”

Moreover, Odde believes stocker and feeding opportunities are growing in nontraditional parts of the country, too. For instance, he explains agronomic progress has expanded the Corn Belt in recent years. The fact that corn and soybeans are now being grown in areas traditionally limited to small grains grown in the geographic area where low-cost grain is available for feeding cattle.

Likewise, Odde points to what he believes will be the exponential growth of ethanol production in this country. The distillers grain that is a byproduct of ethanol production is a low-cost protein source. Potentially that means more cattle could be fed in non-traditional areas. It also means that new availability of feedstuffs might grow more stocker/backgrounding enterprises within reasonable freight distance of the ethanol plants.

Even if everything else remains the same, Mies emphasizes stockers already have more marketing options than ever if they choose to seize them.

“Even if it's just sitting down on the Internet and looking at the different alliances and brands,” says Mies. “Before you buy calves, you may want to take a serious look at whether or not you want to be involved in one of those programs.

“And, if you do, you need to decide whether or not you want to buy calves that you know can qualify for them. You'd have to live in a unique part of the world for there not to be the kind of cattle you can run that also fit a brand.”

As much as the industry may be changing, Odde points to one constant that should continue: “If you have low-cost grass out there, it will likely find cattle.”

For more stocker segment production information check out