Dillon Feuz: Returns to a summer stocker operation | TSLN.com

Dillon Feuz: Returns to a summer stocker operation

Dillon M. Feuz

On a weekly basis, I utilize Nebraska feeder cattle auction price data for various weights of feeder steers; the current futures market for both Live Cattle and Feeder Cattle; and the present cost of gain based on current feed prices to project returns to backgrounding various weights of feeder steers and to finishing various weights of feeder steers. For the past several weeks, I haven’t found many opportunities for positive returns in either of these cattle feeding endeavors. It appears in spite of the very optimistic Live Cattle futures market, cattlemen are even more optimistic at the sale barn – paying more for feeder cattle than can be justified with present futures prices. Now perhaps they have contracted cheaper feeds and they can afford higher feeder cattle prices. It may also be the case that feeder cattle prices and fed cattle prices will increase more in the future than the present futures market expects, and this could also result in positive returns.

However, as green grass is starting to appear in some areas, I looked at placing feeder steers on pasture for 120 or 150 days to see if one could expect a positive return from this enterprise. I used this past week’s Nebraska auction market prices and then assumed the calves would be fed a cheap maintenance ration until May 1. I assumed a $20 per head per month grazing cost, and assumed some other operating costs (vaccines, implants, interest, death loss, miscellaneous supplies and a little hay to get to May 1) that varied from $54-$60 per head.

I then used the August and September Feeder Cattle futures and historical basis values to predict yearling steer prices for this fall. I assume that calves gain 1.75 pounds (lbs.) per day if they are pastured for 120 days, that is just over 200 pounds for the summer. I assume that they gain 1.65 lbs. per day if they are pastured for 150 days, or 250 pounds. I looked at placement weights of 550-750 pounds.

The results depicted a positive return to a summer stocker operation. The highest return of just over $110 per head was for 750-pound steers pastured for 120 days. These steers would be expected to weigh 960 pounds at the end of August. Based on the Feeder Cattle futures prices for mid-April and the historical Nebraska basis for that weight of steer, the expected fall sale price would be $134 per hundredweight (cwt.). My projected breakeven price for those steers would be about $122 per cwt.

Returns for the lighter weight 550-pound steers placed on grass were $80 and $90 per head for the 120- and 150-day pasture scenario, respectively. Those steers would weigh 760 pounds after 120 days, or 800 pounds after 150 days on pasture. Breakeven sale price would be $131 per cwt. for the 760-pound steer and $128 for the 800-pound steer. Returns to the 650-pound steers were between those for 750- and 550-pound steers.

Not all summer stocker programs will return the same amount. For example, I did a similar analysis for summer grazing in Utah and found that returns varied from an expected loss of $30 per head to a positive return of $11 per head. What is the difference? Some of the difference was in expected gains, which I assumed were a little lower in Utah. This may or may not be the case depending upon the type of pasture or range the cattle are on. Much of this difference in profitability has to do with differences in feeder cattle prices. The estimated break-even sale price is actually lower in Utah than it is in Nebraska, but the expected sale price for the heavier feeders in Utah is considerably lower than it is in Nebraska. Hence the lower returns.

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What are feeder cattle prices in your area? What rate of gain do you expect on your cattle? What are your summer grazing costs? They will all likely be a little different than the prices I have used. If you want to plug in your own values, I have a very simple online calculator that can help you do this. It is located at http://cattlemarketanalysis.org/stocker.html. This calculator lets the user enter their own data and then shows an expected return. I have also built some risk into this calculator that varies rate of gain, some of the costs, and output price to show a distribution of expected returns.

If you can find grass and if you can find feeder cattle that you don’t have to break the bank to purchase, take a look at a stocker operation. The returns to grass this summer will likely exceed the returns you can find in a feedlot over the next few months. This may be true regardless of your location.