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Purchasing Stocker Calves This Fall
October, 2016
Chris Prevatt, UF/IFAS Range Cattle Research and Education Center, Ona
The fall-to-spring stocker enterprise sometimes offers a profit opportunity for cattlemen to either retain their own lightweight calves as stockers or purchase lightweight calves to add weight to them and market them as feeder cattle to feedlots the following spring. The stocker enterprise in the Southeastern U.S. usually requires some type of quality winter and spring grazing coupled with supplemental feed. This enterprise also requires a higher level of management since it involves matching above average quality forages and feedstuffs to young calves that have often been stressed during the weaning process. Additionally, the dynamics of stocker and feeder cattle market prices contribute to higher levels of risk and reward for this enterprise.
Most cattlemen like to assess the likelihood of financial profits or losses from the stocker enterprise before they invest their money. If the results of this assessment suggests the potential for financial profits, then producers will either retain their lightweight calves or initiate the buying of stocker calves. Alternatively, if financial losses are expected many cattle producers will forgo running stocker calves.
An easy way to assess the profitability of the stocker enterprise is to look at the value of gain, cost of gain, and net value of gain. Table 1 provides an example of a Fall-to-Spring Stocker Economic Evaluation for 2016-2017. This spreadsheet may be downloaded for your use from the Range Cattle Research and Education Center’s Website (http://rcrec-ona.ifas.ufl.edu/Economics/index.shtml).
The first section of Table 1 includes the assumptions used in the analysis. The data inputs are highlighted in blue. In this example, 150 feeder steers were assumed to be purchased on September 15, 2016 weighing 350-pounds for $1.45 per pound. The 150 feeder steers were purchased to graze 100 acres and were provided limited supplement. The expected sale date would be May 15, 2017 with the feeder steers weighing 750-pounds (shrunk weight) with a 4 percent death loss and chronic percentage. The expected total cost of gain was $0.85 per pound. Additionally, a potential change or increase in cost of gain was assumed to be $0.10 per pound to provide an additional evaluation. Today’s date was assumed to be August 1, 2016 on which the May 2017 Feeder Cattle Futures Contract was trading at $133.80 per hundredweight. Assuming a May 2017 estimated Feeder Cattle steer basis of -$10.00 per hundredweight results in a May 2017 expected Feeder Cattle steer cash price of $123.80 per hundredweight.
The second section of Table 1 summarizes the basic data and calculations for stocker calves, feeder cattle, and the difference (often called the gross margin). In the last three columns these data are expressed in Total Dollars, Dollars Per Head, and Dollars Per Acre. Essentially, if the total cost of production is less than $57,579, or $421 per head, or $576 per acre, then the stocker enterprise would be profitable based on the assumptions specified.
The third section of Table 1 shows the calculations of the value of gain analyses. The value of gain was $1.04 per pound, $400 per head, $576 per acre, and a total value of gain of $57,579. If the total cost of gains are less than these measurements, the stocker enterprise will be profitable.
The fourth section of Table 1 shows the net value of gain analyses. The value of gain minus the cost of gain equals the net value of gain. This example evaluated the net value of gain using a cost of gain of $0.85 per pound which resulted in a net value of gain of $0.19 per pound, $72 per head, $104 per acre, and $10,404 total. Alternatively, the net value of gain was also evaluated using a cost of gain of $0.95 per pound which resulted in a net value of gain of $0.09 per pound, $34 per head, $49 per acre, and $4,854 total.
The estimates of prices and inputs in this article are simply estimates to provide an example and are not intended to be typical for any producer. They are presented in a format to aid the producer in making the stocker decision. If cattle producers will adjust the estimates in this article using their facts and figures, they will be able to determine if stockering purchased calves or retaining their own calves for a stocker enterprise is profitable. Good luck with your stocker enterprise and may the markets, grazing, feedstuffs, production, and the weather be favorable.