It's that time of year in which cattle producers are trying to decide on holding calves, or buying calves, to stocker or feed this fall and winter --- if you have been able to produce any feed to consider such. Retained ownership last year was extremely profitable for most producers, but the situation this year is a little different ball game. With grain prices remaining low and beef production heading lower over the next year, light weight calf prices have perked up.

Stocker and feeding profits depend on two things - the cost of putting gain on cattle and the buy/ sell margin. The cost of gain will vary by grazing and feeding system but should run around $.40 to $.50/ lbs. of gain put on the cattle. Costs depend on what is included but everyone should include feed & pasture costs, interest forgone on holding cattle and expected death loss. Labor may or may not be a relevant cost depending on your labor alternatives. A good way to get a handle on your potential costs is to run your estimates through the computer budgets found in all county extension offices.

By subtracting the cost of gain from the expected selling price of the calves at the end of the stockering or feeding period, the price you can pay for calves (or would have to get for your calves if you currently own them) can be estimated. This can be compared to the current calf prices to see if stockering or feeding has a good profit chance.
 

Stocker Situation

With beef supplies headed lower, I expect 750 lb. feeder steers to be somewhere in the mid to upper $70/cwt. range by April of next year. This is approximately the price that could be locked in through the futures market for 50,000 lb. lots as of early August. Another way to get a handle on the likely price that cattle may bring next spring is to look at typical buy/sell margins - the price cattle sell for at heavier weights as a percentage of the purchase price. Graph 1 shows the buy/sell margin on Georgia Auctions for 700-800 lb. feeder steers in April as a percentage of the November 400-500 lb. steer price. Over the past 5 years, the April 700-800 lb. steer prices have averaged about 85% of the November 400-500 lb. steer price. So the current $87/cwt. price for 400-500 lb. steers would project about a $74/cwt. 700-800 lb. steer price in April (85% of $87/cwt.). You can get a computer program which will calculate historical buy sell margins for any weight and time period from your county agent or download the same from our web page- www.agecon.uga.edu

Table 1 shows potential steer and heifer stockering returns on temporary winter grazing along with supplemental feed. If the calves must be purchased, then the returns need to be reduced by about $8/hd. for procurement. The costs were calculated based on the assumptions outlined in Table 5. Because of the better heifer buy/sell margin (heifers return a higher percentage of their original purchase price), stockering heifer may be more profitable despite gaining about .05/lb./day less than steers.

Table 1. Potential Net Returns From Stockering Steers on Temporary Winter Grazing At Alternative Purchase and Sale Prices, 1999-2000.

Purchase Prices 450 lb. steer $/cwt.
Sale Price 750 lbs. Steer $/cwt.	$93	$90	$87	$84	$81
$69	$-62	$-48	$-34	$-20	$-6
$72	$-40	$-26	$-12	$2	$16
$75	$-18	$-3	$11	$25	$39
$78	$5	$19	$33	$47	$61
$81	$27	$41	$55	$69	$83

Table 2. Potential Net Returns From Stockering Heifers on Temporary Winter Grazing At Alternative Purchase and Sale Prices, 1999-2000.

Purchase Prices 450 lb. Heifer $/cwt.
Sale Price 730 lbs. Heifer $/cwt.	$83	$80	$77	$74	$71
$64	$-58	$-44	$-25	$-6	$25
$67	$-36	$-22	$-8	$22	$36
$70	$-14	$0	$15	$29	$43
$73	$8	$22	$36	$50	$64
$76	$30	$44	$58	$72	$86

A little cowboy math can be useful for those not wanting to pencil out a full budget. For instance, 300 Lbs of gain at $.53/lb. would cost about $160/head. We expect 750 lb. feeders early next spring to be mainly in the mid to upper $70/cwt. range. A 750 lb. feeder at $75/lb. would be worth about $560. By subtracting the $160 cost from the $560 expected sale price leaves $400 that could be paid for a 450 lb. calf or about .89/lb.

If you can sell your calves for more than the .89/lb. and these were your costs, then you would be better off selling your calves - or not buying calves to stocker if you have to pay more than $89/lb. for stocker calves. Since it appears better quality steers will be mostly in the mid to upper $80's this fall, the stocker decision at this point looks marginally profitable. However, a marginal profit on a winter crop such as stockering may beat alternatives such as wheat grown for grain.
 

Custom Finishing

Next spring, fed cattle prices are expected to be in the upper $60/cwt. or low $70/cwt. in cattle feeding country Again, beef supplies are expected to be about 4% lower next year as compared to this year. The reason for the expected beef supply decline is the reduced brood cow herd. Beef supplies could drop even further if folks start holding onto heifers rather than sending them to the feedlots. Cattle out of feedlots could be forward priced at about $68/cwt. as of early August. The buy/sell margin for 600 lb steers in Georgia vs. High Plains fed cattle prices (Graph 2) has averaged about 98 %. The buy/sell margin for 600 lb. heifers vs High Plains fed cattle has averaged about 107% (Graph 3). That is, heifers fed to slaughter (1100 lbs.) have averaged in April a price 7% higher than their Georgia purchase price in October at 600 lbs.

The cost for custom feeding cattle should be a little less than last year with somewhat lower feed cost. Assuming a $100/ton feed cost along with the other assumptions in Table 5, the net returns from custom finishing at various feeder prices and fed cattle prices are shown below. Just as with stockering, feeding heifers looks more profitable than steers despite about a 5% reduction in feed conversion and .20/lb. per day reduction in daily gain. At this point, cattle feeding looks attractive but also notice the wide range in returns if fed cattle prices vary just a little from expectations.

Table 3. Projected Net Returns From Custom Finishing Steers At Alternative Purchase and Sale Prices, 1999-2000.
 

Purchase Prices 600 lb. steer $/cwt.
Sale Price  1200 lb. Steer $/cwt.	$83	$80	$77	$74	$71
$62	$-100	$-81	$-62	$-43	$-24
$65	$-66	$-47	$-28	$-9	$28
$68	$-31	$-12	$6	$25	$77
$71	$3	$22	$41	$60	$79
$74	$38	$57	$76	$95	$114

Table 4. Projected Net Returns From Custom Finishing Heifers At Alternative Purchase and Sale Prices, 1999-2000.
 

Summary

Unlike last year, stockering and feeding looks to be marginally profitable. This means you need to put a sharp pencil to any decision to retain cattle (or purchase cattle) for either stockering or feeding. Consider your own cost estimates, not those of some economist or cattle feedlot manager. A computer decision tool to help calculate costs and returns from feeding or stockering is available in your county extension office. The price risk of stockering and feeding are great. If you can't take the risk, but do see a profit opportunity, consider using pricing alternatives such as futures, options or cash contracts.
 

Table 5. Estimated Stocker and Feeding Budget Summary, 1999-2000
 

Graph 1. Percentage of Original Oct. Purchase Price of a 400-500 lb. Steer a 700-800 lb. Steer Brought the Following April, Georgia 1989-1998
 
 

Graph 2. Percentage of the Original Oct. Purchase Price of a 500-600 lb. Steer in Georgia a 1200 lb. Slaughter Steer on the High Plains Brought the Following April, 1989-1998
 
 

Graph 3. Percentage of the Original Oct. Purchase Price of a 500-600 lb. Heifer in Georgia a 1100 lb. Slaughter Heifer on the High Plains Brought the Following April, 1989-1998
 
 

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