I recently had a visit with a 20+ year veteran of the livestock premix business. He told me his customers seem to be just as profitable, or more so, when feed costs are high. I’m sure that statement would open up a lot of argument, but there may be some interesting perspectives before jumping to any conclusions. One of which may be that fine tuning and optimizing nutrition for the best return on investment would make sense when profit opportunities are highest (high market value of cattle) or when managing overall high input costs.
I also remember a conversation in the middle part of the past decade with a well-known stocker operator in the Eastern U.S. that said, “Yes, these cattle are costing more money right now, but they will make me more money because the gain is worth more.” It makes sense that dollar for dollar, right now looks to be a good time for stocker cattle investments. There is always risk, perhaps more now than ever, with high price volatility, but nobody can predict the future. Many marketing analysts have demonstrated that the stocker market has been profitable more than 20 years out of the past 25.
When stocker cattle were selling for $85 per cwt, a supplement program costing ~8 cents per animal per day resulting in 0.25 lbs of additional gain netted a return of 13 cents. Given today’s higher market, assuming cattle at $135 per cwt, the same supplement program that may now cost ~12 cents per head per day would net a return of 21 cents. Hmmm – I guess what worked back then works even better now? The total dollar return per head is better today, thanks to higher valued cattle. Supplementation still works and is even better now.
With feedlot cost of gain at or near record highs, it makes sense to add as much gain as possible on lower cost pasture grazing programs. Thus, there seems to be a lot more interest in the traditional yearling or stocker cattle market. Some areas of the U.S. are dry and some are wet but nevertheless, those areas with grass available should provide a good stocker cattle opportunity.
It’s probably not news that hay prices are climbing in many areas due to several factors (high demand, drought in the southern plains, and supply). With high cereal grain prices, hay and pasture supplies are not likely to increase anytime soon. In fact, pasture rental rates are under upward pressure as well.
A good supplement program not only improves gain performance but can do so without adding any significant cost of gain on pasture. Assuming pasture rental rates at roughly $20 per animal per month (highly variable depending on locale and grass type for stocker cattle) with an average daily gain of 2 lbs without a supplement, cost of gain on pasture would be ~ 33 cents per pound. By adding 12 cents per day in supplement cost and achieving 2.25 lbs of daily gain, the cost of gain changes only to ~ 35 cents. With even higher pasture rents (or lower baseline gain performance), the spread narrows and actually becomes positive.
Yes, the investment paid for stocker programs is a large one. I often wonder if lenders and borrowers overlook the additional income a good stocker supplement program can provide. After all, the additional dollars needed to purchase supplement is a real cost, but the return on those dollars is money well spent – even better spent in today’s market!