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Choosing The Stocker Business

Gallery Ranch at Dewey, OK is the winner of the 2007 National Stocker Award's backgrounding/drylot division.

Like the cattle they grow, this year's National Stocker Award finalists share some similarities. Namely, each adds value to mismanaged cattle, presenting feedlots with a more uniform, lower-risk product. Along the way, beef consumers benefit from pounds grown for less cost than is typically possible in the feedlot.

Like those cattle though, each finalist is also unique, as each pursues a different and innovative path in accomplishing the aforementioned objective.

For about two decades, the answer for the Gallery Ranch at Dewey, OK — the winner of the 2007 National Stocker Award's backgrounding/drylot division — was stockering cattle and retaining ownership through the feedlot. A few years ago, they switched to partnering with Joplin Regional Stockyards of Joplin, MO, and Wheeler Brothers Feedyard of Watonga, OK, whereby each partner owns a percentage of cattle from procurement to harvest. Along the way, they diversify risk, while each partner leverages their expertise.

“Before, we would have numerous grass deals and have to buy a certain number of calves at the right weight to fit. It backed us into a corner on price,” says Bill Gallery, who runs the stocker phase of the ranch with his brother, Tom.

Now, the Gallerys typically receive and ship two or three loads of cattle each week. Cattle will spend the first 28 days here in separate home groups, and then another three weeks or so in commingled groups aimed for further stockering or straight to the feedlot.

Starting in 2000, Tom explains they began conducting commercial research trials. In 2003, they began gathering individual data on all of the cattle they touch. Now all their decisions are data-driven.

Similarly, Scot Holcombe of the Holcombe Ranch — winner of the summer stocker division — based at Bartlesville, OK, leverages his stocker knowledge with partnerships.

“In the stocker business, I feel we will increasingly need to operate within an alliance or marketing group. The lone stocker who buys and sells without forming these relationships will be isolated and have more difficulty marketing their animals on any kind of value-added market,” Holcombe says. “We have to have animals that can be more predictable for these kinds of markets; the problem is finding these animals at a cost with which we can make a profit.”

Holcombe manages diverse and extensive forage — all lease ground — running stockers for himself and Mull Farms and Feeding of Pawnee Rock, KS.

“Land ownership and running cattle on it are two separate decisions,” says Holcombe. “It's cheaper to lease land than to own it, and it gives you more flexibility.”

In some cases, Holcombe will retain ownership in cattle through Mull-owned feedyards, which are tied into the Beef Marketing Group (BMG). BMG is a cattle-feeding and marketing partnership that enables participants to pool and market large jags of value-added cattle.

Sean Mercer of Mercer Cattle, LLC at Richton, MS — winner of the fall/winter stocker division — on the other hand, will retain ownership through the feedlot, but he prefers to trade away his risk in the cattle before then.

Mercer specializes in flyweight calves, averaging no more than 250 lbs. “I know some people dislike handling these light calves, but we don't see a lot of health difference between a 250-lb. calf and one that is 450 lbs.,” he says.

Mercer classifies his operation as smaller, too. Stockers generate all his stocker-cattle income, but he relies on more than the stocker business for his livelihood.

As such, Mercer says, “I don't want any moving parts.” He doesn't own or lease the equipment for haying, mixing feed and the like, nor does he want to.

“The advantage of our smaller size is we can keep our overhead low and turn more profit per animal, rather than run numbers,” Mercer says. “Larger operations can hit a home run in half the time when the numbers fall right, but they have so much more at stake. They have to run so many head just to keep the wheels turning.”

Flexibility and return

The primary commonality shared by these finalists is that each developed their stocker or backgrounding business based on economics.

For the Gallery Ranch, it was a matter of needing more cash flow.

“The cow-calf operation just wasn't generating enough income for me,” says Dan Gallery, the family patriarch. That was in 1985, with a herd of top-producing cows the family had begun developing in 1952. At the time, Dan also had a farm and feedlot in Nebraska, and was running stockers on leased ground.

“The cows just weren't profitable; stockers fit my plan better,” Dan says. So, they sold the cows. Ironically, the Gallerys added a cow-calf enterprise back to their operation a couple of years ago in the name of diversification and cyclical opportunity.

For Scot Holcombe, the decision revolved around choosing a challenge with profit potential after his father sold the family ranches — both cow-calf and stocker — in the mid 1990s. With a master's degree in business administration, he understood the economic potential. Just as important though, he explains, “I enjoy the challenge of it. If I didn't enjoy it, I'd find something else to do.”

For Mercer, it had to do with figuring out how to make a family farm pay once he took it over.

“Traditionally, this was a cow-calf operation,” Mercer explains. “When my grandfather died, my grandmother wanted to keep the cattle. It didn't take us long to realize it wouldn't provide enough cash flow. Stockers were the best option for our time and resources.”

Another commonality among finalists is the bright future they see for stockers and backgrounders, despite increasing costs.

On the one hand, the Gallerys point out, “Our biggest challenge is the rising cost of our inputs. There has been a shift in the demand for corn, not just increase. That has pressured many of our input costs upward.

“We're caught in the middle until corn supply shifts to meet demand. Whatever moves the corn market makes, there will be increased pressure on fertilizer costs, rental rates, fuel prices, etc., in the short term. Growing beef demand is critical to keeping pace with rising input costs,” Dan Gallery says.

On the other hand, he adds, “The higher corn gets, the more grass is worth. In the short term it makes calf prices go down, but in the long term it's good for business.”

Likewise, Holcombe says, “I feel my role as a stocker operator will become increasingly important over the next few years. With the increased price of corn, grass-based programs will become an increasingly important part of the industry and its efforts to be competitive with poultry and hogs. If we can take advantage of our lower cost on grass, we should be able to take some market share from our competition.

“With the price of corn increasing to the $4 range, the opportunities we will have as stocker producers are exciting. We have structured our operation to compete with cheap corn, and at times that has been a struggle. With high-priced corn, our grass programs should have a sustained profit period.”

Though he doesn't enjoy rising input costs, Mercer explains, “Typically we have been able to take lightweight cattle and consistently produce quality stockers that have allowed us to keep the family farm viable and growing in revenue. We're able to prove that cattle can be very profitable and that we can take marginal land and make cattle make us money by utilizing our grass output.”

Spun differently, these operations are confident they can continue to find new ways necessary to accomplish what will likely remain the same challenge and opportunity that is the stocker business.

“We're looking for a calf that has certain genetics and growth potential, but hasn't been managed properly,” Mercer says. “We want to bring that calf to our farm and provide all the necessary ingredients to put weight on the animal and ultimately provide an upgraded animal that will interest the feedyard.”

Tom Gallery says: “Our role as a backgrounder is to turn mismanaged cattle in the right direction and warehouse them for a period of time. We're a gathering point for one of the only commodities in the world that is worth more in bulk. We're feed-based, but forage-enhanced; thus, we're still converters of grass.”

Holcombe adds: “The stocker business won't change because we're going to continue to buy under-valued cattle and add value to them.”

Lessons learned

Along the way, these finalists expect to add to the education they've earned through hard-won experience.

“Every load of cattle is different and must be managed and sold with this in mind,” Mercer says. “There's no cookie-cutter approach to the way we run cattle. We must evaluate every load, and we try to always take a profit when prices are right. We may not always sell our cattle at the very top of the market, but we've never sold at the very bottom, either. We believe we will never go broke making a profit.”

Holcombe adds: “My most valuable lessons over the years have also been my most expensive. I found that when I made a decision because I felt that I had to do something, often times that decision turned around and bit me. I've learned to let those types of decisions come to me instead of trying to force an outcome. When I do have to make the major decisions, I will take the opportunity to gather as much information as I can, and I don't spend any time second-guessing my decisions.”

The Gallery crew boils it down to this: “Find a way to apply your talent, develop it to full potential, get paid for it, and have a passion for what you do.”

The National Stocker Award

The National Stocker Award (NSA) — sponsored by BEEF Magazine and Elanco Animal Health — was developed to recognize stocker operators and backgrounders for their contributions to the beef industry. Moreover, it serves as a platform for top producers in these businesses to share ideas and learn from one another.

The NSA is divided into three categories: backgrounding/drylot stocker (feed-based); fall/winter stockering (forage-based); and summer stockering (forage-based). A single winner is chosen from each category, and the overall NSA winner is selected from these. The NSA winner receives $10,000 in cash and an expenses-paid trip to the 2008 Cattle Industry Convention in Reno, NV, to receive the award; the other two divisional winners receive $2,500 in cash, sponsored by Elanco.

Look in the October issue of BEEF to see this year's NSA winner, and read profiles about all the finalists.

More information about the NSA can be found at