Dillon M. Feuz: The economic prospects of a summer stocker operation
March 23, 2012
Feeder cattle prices have been amazingly strong this winter and starting into this spring. For individuals who have fed calves through the winter, current feeder cattle prices may be fairly attractive to sell those calves. What are the prospects for positive returns of keeping those calves and placing them on grass for the summer? For those of you with plentiful grass on hand, can you afford to buy feeder cattle at the present prices and still show a positive return to your stocker operation? Let’s look at the current market situation and see if we can answer these questions.
Green grass is starting to appear in some areas, but pasture turnout is probably still a month away for most of you. 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 about $80-85 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 per day if they are pastured for 120 days, that is just over 200 pounds for the summer and I assume that they gain 1.65 pounds per day if they are pastured for 150 days, or 250 pounds. I looked at placement weights of 550-750 pounds.
The results were that you should be able to see a positive return to most summer stocker operations. 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 in mid-March for August Feeder Cattle and the historical Nebraska basis for that weight of steer, the expected fall sale price would be $153 per hundredweight. My projected break-even price for those steers would be about $142 per hundredweight. Returns for the lighter weight 550 pound steers placed on grass were -$7 and $9 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. Break-even sale price would be $162.50 per hundredweight for the 760 pound steer and would be $158 for the 800 pound steer. Returns to the 650 pound steers placed on grass were from $62 to $75 per for the 120 and 150 day grazing season, respectively.
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 $80 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 then 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.
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 on-line calculator that can help you do this. It is located at: http://cattlemarketanalysis.org/stocker.html. This calculator lets you, the user, enter your own data and then shows you 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 you 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. Most of my projections for placing cattle in a feedlot at the present time are showing negative expected returns. Relatively high grain costs and therefore high cost of gain in the feedlot relative to the cost of gain on summer pasture is favoring adding weight to cattle before placing them in the feedlot.