Beef cattle growing and backgrounding programs

Vet Clin Food Anim 19 (2003) 365–385

Beef cattle growing and backgrounding programs Derrell S. Peel, PhD Department of Agricultural Economics, Oklahoma State University, 519 Agricultural Hall, Stillwater, OK 74078, USA

Production of a slaughter-ready beef animal generally involves several production stages including cow–calf, growing, and finishing. The least understood of these are the wide variety of growing programs, referred to as stocker or backgrounding programs. Not all calves go through a separate growing program. In certain (mostly northern) regions, cattle are big enough that weaning calves may go directly to a feedlot and full-feed finishing programs. Most calves, however, go through some sort of postweaning growing program. These programs vary widely in structure and type. The stocker industry is probably the least understood industry sector and yet, as described below, it plays a vital role in helping the industry exploit its competitive advantage of utilizing forage resources and providing an economical means of adjusting the timing and volume of cattle and meat in a complex market environment [1].

What is the stocker industry? The stocker industry cannot be distinguished by a particular age, size, or class of cattle or by a particular type of production system. Even the terminology varies regionally, with the term stocker used more commonly in southern regions and the term backgrounding used farther north for similar programs. Stocker production encompasses a wide variety of production activities but with a common set of characteristics. The first characteristic of stocker production is an emphasis on animal growth (development of animal frame and muscle) rather than fattening. Stocker enterprises enhance animal weight, age, maturity, and in many cases, quality.

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Second, stocker enterprises usually emphasize forage-based rations that are often grazing-based systems but sometimes confinement or semiconfinement systems. These systems range from seasonal grazing enterprises to backgrounding programs using harvested forages. The emphasis on forage does not preclude limited use of supplemental concentrate feeds. On rare occasions, relative feed and forage values may encourage stocker production using relatively high proportions of concentrate feeds. Even when high proportions of concentrate feeds are used, the focus on animal growth distinguishes these programs from feedlot finishing. Finally, stocker production activities must be recognized as viable economic enterprises, separable from other activities. Generally, a minimal period of time is required for stocker production to be economically viable. Thus, stocker production must be distinguished from certain practices that are really part of other enterprises. For example, a 30- to 45-day weaning/ preconditioning program for calves would not usually stand alone as economically viable except as part of the cow–calf enterprise. Similarly, stocker and feedlot operations sometimes bring animals into receiving programs of short duration.1 Calf preconditioning and stocker or feedlot receiving programs usually emphasize health management and are an inseparable part of another activity.2 The stocker industry may be thought of as including any of a wide variety of postweaning growing programs that produce commercial feeder cattle. Stocker production activities are conducted by various producers with a diversity of motivations. Stockers may be a retained-ownership component of a cow–calf operation, a preliminary phase before a cattle feeding operation, or a separate commercial enterprise by a wheat producer or other individual. In each case, stocker production can and should be recognized and evaluated as a separate economic activity.

The size and geographic distribution of stocker production It is difficult to measure the stocker industry because it is not defined by a specific age or size of cattle. Functionally, stocker cattle are weaned calves not yet placed in feedlots but intended for sale as feeder cattle. The animal class distinctions historically used by the US Department of Agriculture (USDA) National Agricultural Statistics Service includes steers and heifers under 500 lb, steers over 500 lb, other heifers over 500 lb, and beef and dairy 1 Sometimes these receiving programs are referred to as backgrounding programs but should not be confused with stocker programs as defined here. 2 Further confusing the issue is that in some regions, especially the Southern Plains, there are custom receiving lots. These are a separate business enterprise where an operator receives a fee for providing health management services. The receiving lot does not take ownership of the cattle in the vast majority of cases. Thus, custom stocker cattle receiving is a business that is different from the stocker business.

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replacement heifers [2]. This data system reflects the general perception of the beef industry as consisting only of cow–calf production and feedlot production. Stocker cattle inventories at any point in time generally consist of weaned animals weighing from 300 to 600 lb and may include weaned calves and yearlings from a previous calf crop. This means that it is difficult to identify stocker cattle in the prevailing USDA data system. Using the reported USDA National Agricultural Statistics Service estimates of cattle inventories, it is possible to calculate an estimate of total supplies of feeder cattle outside of feedlots (Table 1) using the following relationship: Feeder inventory ¼ ðsteers and heifers \ 500 lb þ steers > 500 lb þ other heifers > 500 lbÞ
cattle on feed This definition includes all young animals, except for replacement heifers, not already in feedlots, but does not distinguish between weaned and suckling calves.3 Estimated feeder cattle supplies can be calculated on a national basis from the January 1 and July 1 cattle inventory reports and can be calculated for individual states only for January 1. Stocker numbers vary widely on a seasonal basis. In Table 1, estimated feeder supplies are further adjusted to reflect only weaned animals outside of feedlots. Although data are limited, it is assumed that 70% of the annual calf crop is born before July and 30% is born in the last half of the year. Based on these assumptions, stockers constituted an estimated 18% of total cattle inventories on January 1, 2002 but only about 12% of cattle inventories on July 1, 2002 (see Table 1). This estimate does not include beef and dairy replacement heifers. The seasonal and annual variation in stocker numbers varies considerably from year to year and is related to the cattle cycle (Fig. 1). The location of stocker production is similarly difficult to verify accurately. As seen in Fig. 2, cow–calf production is widespread across the United States. It is commonly recognized that the majority of cattle tend to move toward the center of the country for feedlot production and slaughter. It is not clear, however, how much of this movement occurs before the stocker phase and how much occurs after stocker production. One measure of net movement of stocker cattle between states is given by the estimated feeder supplies outside of feedlots on January 1 as a percentage of the calf crop of the previous year. This value, referred to as the stocker ratio, can be calculated for each state using the January 1 cattle inventory report. 3 In the broadest sense, the term feeder cattle refers to all young animals not in feedlots. Stocker cattle are thus a subset of the broader set of feeder cattle. In many instances, however, stocker and feeder cattle are distinguished functionally, in that stocker cattle are generally younger, lighter weight, and thinner animals suited for growing programs; feeders are generally older, heavier, more fleshy, and ready for placement in feedlots. One’s perspective also may affect terminology. A cow–calf producer sells calves, but a stocker producer buys stocker cattle, and in many cases, these are the same animals.

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Table 1 Estimated feeder and stocker supply, 2002

A B C D E F G H I

Animal Classa

January 1

July 1

Steers and heifers \500 lb Steers [500 lb Other heifers [500 lb Cattle on feed Estimated feeder supply (A + B + C
D) Estimated suckling calvesb Estimated stocker supply (E
F) All cattle and calves Stockers as percentage of all cattle (G  100/H)

15,773 16,800 10,057 13,756 28,874 11,484 17,390 96,704 18.0

29,500 14,500 7,900 12,326 39,574 26,880 12,694 105,200 12.1

a

All values in 1000 head. January estimated as 0.3  38,280 (2001 calf crop); July estimated as 0.7  38,400 (2002 calf crop). b

Fig. 3 provides an indication of feeder cattle dispersion, at least for one time of the year (January 1). The values for selected states in Fig. 3 are the estimated feeder cattle supplies as a percentage of the previous year’s calf crop in that state for the years 1991 to 2003. The value for the entire United States is about 78.5%, meaning that on average on January 1, 78.5% of the previous year’s calf crop is still available as feeder cattle. The value is less than 100 to account for calves already placed in feedlots, heifers held for replacements, and calf slaughter. The percentage value for each state provides an estimate of net cattle movements into or out of the state. In general, when the percentage for the state is greater than 78.5, it indicates that feeder cattle have moved into the state by January 1; when the percentage is less than 78.5, it indicates that feeder cattle have moved out of the state by January 1.

Fig. 1. January 1 feeder cattle supplies. United States residual, outside feedlots.

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Fig. 2. United States beef cows by region. Percentage of United States total, 2003.

Fig. 3 confirms that cattle tend to move to the middle of the country, and many do so immediately after weaning. The largest percentages are found in Central and Southern Plains states like Oklahoma and Kansas, whereas low percentages are found in states like Montana and Florida (Fig. 4). The numbers for January 1 indicate that nearly 30% of available United States feeder cattle supplies can be found in the states of Colorado, Kansas, and Oklahoma on that date each year (Fig. 5). If Nebraska is included, the total is nearly one third of all feeder supplies on January 1.

Fig. 3. January 1 stocker ratio in selected states, 1991 to 2003.

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Fig. 4. January 1 regional share of feeder supplies outside of feedlots, 1991 to 2003.

Stocker production and management Stocker production typically consists of taking calves at weaning and adding 200 to 400 lb of weight over 3 to 8 months before animals are placed in feedlots for finishing. If animals are not preconditioned before weaning, then stocker production will involve an intensive receiving period of health and nutritional management to ‘‘straighten out’’ animals before continuing with a grazing or confinement growing program [3–6]. Although some animals remain on the ranch of birth in a retained-ownership stocker program, the majority of animals become part of commercial stocker operations, often many miles from the place of origin of the cow–calf operation. Commercial stocker operations provide a combination of marketing system and production values. Marketing system functions include assembling animals into larger lots and sorting animals into groups of like

Fig. 5. Southern Plains feeder share.

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size and type, as well as relocating animals from places of cow–calf production usually to areas closer to final feedlot destination of the animals. Stocker operations provide production values by growing and maturing animals and by upgrading the quality of mismanaged animals to produce a higher quality feeder animal. In general, stocker operations provide a large proportion of the health and nutritional management of young lightweight animals that feedlots prefer to avoid when possible. In addition, stocker production provides animal management for practices often not done at the cow–calf level, such as dehorning, castration, vaccinations, and parasite treatments. Stocker forage systems Stocker production occurs year-round in various forage systems. Major forage systems are briefly described in Table 2. These forage systems present a wide variety of forage quality and availability at different times of the year [7]. Some regions described previously overlap where two or more forage systems can be combined to provide extended grazing seasons. In many cases, however, the forage systems available in any particular region are limited because of soil, climate, altitude, or local agricultural culture. There are very few locations where stocker grazing systems are available that offer high-quality forage year-round. Nutritional management of animals varies widely across these different systems due to highly variable quantities and qualities of forage production and variable degrees of management control of the grazing systems. Forage quantity and quality in many of the introduced forage systems can be influenced greatly by pasture management including fertilization, weed/ brush control, and perhaps irrigation [8–12]. In many native forage systems, however, range management is largely a question of managing stocking rates to influence the quantity of forage available [11]. Forage quality in many native forage systems is controlled largely by plant composition, soil type, and climate. Stocker systems in different regions present very different opportunities and challenges relative to seasonal patterns of cattle production and prices. In general, there are more opportunities for grazing in spring and summer months, but the availability of stocker cattle is usually the highest in the fall because most calves are born in the spring. This is the reason that coolseason forage systems, in general, and winter wheat grazing in the Southern Plains, in particular, play such a unique role in stocker production and feeder cattle prices in the fall of the year. Stocker confinement systems A relatively small percentage of stocker production may occur in confinement or semiconfined production systems. These are highly variable

DP: November–February GO: November–May

DP (harvest grain) GO (forage only)

Fall/winter/spring grazing Fall grazing

October–December

September–May

October–April

May–September

SLS

Winter grazing

March–May May–September

SLS: May–September IES: May–July DW: November–April May–September

Grazing interval

Spring grazing SLS

SLS

SLS; IES; DW

Grazing system

Abbreviations: DP, dual purpose; DW, dry-winter; GO, grazeout; IES, intensive early stocking; SLS, season-long stocking. a Often used in conjunction with fescue for extended grazing seasons. b Other cereals are also used, including oats, barley, triticale, and so forth. c Often used in conjunction with Bermuda grass for extended grazing seasons.

Introduced cool-season pasture: annual/perennial rye and wheat/rye mixb Introduced cool-season pasture: fescuec Crop aftermath, usually corn or sorghum stubble

Native annual cool-season grass Introduced warm-season pasture: Bermuda grassa Introduced warm-season pasture: old world bluestem Introduced cool-season pasture: winter wheat grazing

Scattered from central Oklahoma south and east to Florida Corn and sorghum production areas of eastern Colorado; Kansas; Nebraska; and Iowa

Kansas Flint Hills; Oklahoma Osage; central Oklahoma to northcentral Texas Texas and Oklahoma Panhandles; northeastern New Mexico; southeastern Colorado Northern California From Central Oklahoma south and east to Florida Western Oklahoma and northcentral Texas Southern Kansas; Oklahoma; northern Texas; west to Texas Panhandle and southeastern Colorado Scattered from Texas/Oklahoma Panhandle south and east to Florida

Native mixed and tallgrass prairie

Native short-grass prairie

Major stocker production areas

Forage type

Table 2 Major stocker grazing regions, systems, and forage types

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and widely dispersed and therefore are different to categorize. Confinement stocker production, however, is usually one of two general production systems: forage-based rations or limit-feeding programs. Because stocker production is generally driven economically by the need to use forage, harvested forages may be used in confinement. Although harvested forages are invariably more expensive than grazed forages, they may provide more control of forage quality and, thus, stocker productivity. Alfalfa hay is probably the most common forage used for confinement stocker production, but silage, green chop, or other harvested forages may also be used. Forage-based confinement backgrounding programs are more likely to be found in the northern part of the country. Despite their ruminant physiology, young stocker animals require little, if any, forage and can be grown efficiently on concentrate diets. It is usually a question of whether it is economical to do so; however, the need to grow rather than fatten animals in stocker production means that such systems must limit feed intake to optimize animal growth. This may be done with salt in self-feeding arrangements or directly by controlling feed availability to animals (limit feeding) [13]. In some instances, the outward appearance of such systems is identical to a feedlot and the only difference is that of the nutritional and health management of animals. A good example of this type of system is the placing of lightweight Holstein animals in feedlots for extended periods of growing before switching to full-finish rations.

Stocker gain and supplement use Stocker production is focused on growing animals. In general, animal gain in stocker production systems is regulated by the genetic growth potential for those animals. As a result, rates of gain in stocker systems are lower than for animal finishing systems. Moreover, as stocker production usually relies on forage-based rations, which vary widely in quality and availability, stocker gains are widely variable in different production systems and highly dependent on seasonal influences on forage quality. Younger and lighter animals have higher nutritional requirements than mature animals and, thus, are extremely dependent on the nutritional quality of various production systems. Stocker gains generally range from less than 1 lb/d to roughly 3 lb/d depending on forage quality, with the majority averaging between 1.5 and 2.5 lb/d. In most of the forage systems described previously, there will be periods of high-quality forage that fully meet the nutritional requirements of the stocker animal. In many cases, however, forage quality may decrease rapidly as plants mature, and nutritional deficiencies will result. In these instances, small amounts of supplement may be needed to improve nutritional balance and stimulate optimal use of grazed forage [6,14,15]. Thus, although stocker production does not generally rely on concentrate feeds to provide

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a majority of feed resources, these systems often rely on small amounts of supplement to improve nutrient balances, feed intake, and overall productivity. These supplemental needs vary by forage system. In the case of native mixed and tallgrass prairie, forage quality tends to be very high early in the grazing season from mid-May to early July [16]. Animal gains in the last half of the season-long grazing of this range type is often half of the early season rate of gain. For this reason, the intensive early stocking system was developed. Intensive early stocking involves roughly doubling stocking density in the first half of the grazing season and removing animals in mid-July before animal performance drops. This system has approximately the same stocking rate on a season-long basis but usually results in substantial increases in pounds of gain per acre. In some cases, animal rate of gain per day will decrease slightly in intensive early stocking compared with the average daily gain of animals in the first half of season-long grazing. Animal gains in season-long grazing of native mixed and tallgrass range may be maintained by providing supplement in the last half of the grazing season [6,16]. Generally, providing relatively small amounts of high-protein supplement (1–2 lb/d of 37%–40% protein) will stimulate energy use and feed intake of standing mature forage. In cases where standing forage is somewhat limited or in the case of very lightweight, young animals, a medium protein supplement with more energy (2–2.5 lb/d of 25%–30% protein) may work better. These same supplements may also be used on Old World Bluestem and mature Bermuda grass pastures if quality is relatively low [17–19]. Dry-wintering stockers on native mixed and tallgrass prairie is usually done only with an eye toward grazing the cattle the following summer. Lower rates of gain are tolerated during the winter when maintaining high levels of animal performance would be more expensive. Animal management in dry-winter stocker systems is directed at maintaining animal health and promoting a reasonable level of frame development, which will promote rapid and perhaps compensatory animal growth in the subsequent grazing period. Dry-wintered animals usually gain 0.5 to 1.0 lb/d during the winter. In many cases, a small amount of high-protein supplement is effective in promoting feed intake and energy use of dry standing forage [20–23]. Because native short-grass prairie tends to have very high quality for summer grazing even after the grass matures in late summer, little, if any, supplement is needed. In relatively rare cases where stockers are drywintered on short-grass prairie, protein supplement may be needed, although short-grass prairie tends to maintain higher quality than mixed or tallgrass prairie. Because quantity is more likely to be limiting in shortgrass prairie, dry-wintering may require a medium protein, higher energy supplement to optimize use of standing forage. Bermuda grass, maintained with good levels of fertility, will provide all nutritional requirements of stocker cattle through much of the summer. As the grass matures, nutritional quality decreases and protein supplement may

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be beneficial. In areas where fall rains are common, late summer fertilization of Bermuda grass can produce fall growth of relatively high quality, which can be stockpiled and used as standing forage, at least through December. Cool-season forages generally are of very high nutritive value but even then, very lightweight, young animals may benefit from a limited-energy supplement to improve animal adaptation to high-quality cool-season forage [24,25]. ‘‘Small-package’’ energy supplements, for example, made with wheat middlings, provide a good mechanism for delivering mineral supplements and ionophores for stockers grazing high-quality cool-season forage [26]. The cool-season annual forages typical of northern California are plagued by a very short period (60–70 days) of high-quality forage production and a sharp decline in nutritional quality at maturity. As noted in Table 2, tall fescue is sometimes used for stocker production, very often in conjunction with Bermuda grass to extend the grazing season in the spring and fall. A large percentage of fescue pastures are infected with endophyte, which reduces animal performance, especially when grazed in hot weather [10]. Endophyte-free fescue is available for new seeding but requires careful management to avoid reinfestation with endophyte.

Mineral nutrition Obviously, the exacting nutritional requirements of young, lightweight stocker cattle require careful attention to mineral supplementation [6]. Exact macro and trace mineral requirements will depend on a number of factors including animal size and maturity, location, soil type, and forage resources available to the animal. Specific regions are known to exhibit various mineral deficiencies or toxicities. Stocker producers should design a mineral supplementation program for specific stocker production and forage systems. In general, minerals can be offered free choice to animals, but in some cases, it may be desirable to incorporate minerals into a supplement pellet to better control individual animal intake.

Ionophores Ionophores have been shown to increase feed efficiency and gain in most stocker systems [6]. The challenge in ionophore use in stocker systems is delivering a consistent dose in cases where no supplement is being used. Ionophores can be included in a free-choice mineral mix feed (salt rationed), but individual animal intake will be more highly variable [27–29]. It has also been shown that an ionophore-containing supplement can be fed on alternate days with effective results [26]. This regimen may provide more control of animal intake while minimizing labor costs. In addition to improved productivity, monensin (Rumensin) has been shown to be effective in controlling bloat in animals grazing lush forage such as winter wheat [30].

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Implants There is a large body of literature supporting the benefits of anabolic steroid use in stocker cattle [31–34]. Across a wide range of studies, implants have been shown to increase average daily gain by 7% to 17% and feed efficiency by 4% to 12%. Although implants are almost universally economical to use, the precise response to implants is closely related to the nutritional level of the animal. In cases where low quantity or quality of the diet is severely limiting animal performance, the response to implants is reduced. In the case of stockers that are dry-wintered and then summer grazed, an implant during the winter with another during the summer produces little response above simply waiting until summer to implant [35]. Although implants are almost always profitable when evaluated in isolation, there is growing evidence that implant use may be related carcass characteristics. There may be a system-level issue of what level of implant use optimizes the quantity and quality of animal production across the industry; specifically, when and how implants should be used (if not at every production stage). In integrated animal production systems where animals are valued on a broader set of characteristics than simply price per pound, there may be reason to reevaluate implant use at the stocker level.

Health and receiving management Animal health and receiving management is one of the biggest challenges of the stocker industry and one of the biggest values provided by the stocker industry. Very often, stocker production involves the commingling and sorting of cattle from various sources. In many cases, stocker production involves highly stressed cattle that have been shipped long distances, handled repeatedly, and often run through one or more auctions. Likewise, stocker production often involves cattle that have been ‘‘mismanaged’’ at the cow– calf level; that is, they have not been castrated or dehorned and have not had any vaccinations or parasite treatments. Many stocker cattle are bought straight off the cow without any period of weaning or preconditioning. These factors, especially in combination, create a huge challenge for the initial receiving period and the subsequent health and nutritional management of stocker cattle [4,36–39]. It is also true that much of the value of stocker production is returns for providing the services of receiving, ‘‘straightening out,’’ and upgrading mismanaged cattle. These are services that feedlots do not like to provide and are willing to pay for. In some cases, commercial stocker producers also use custom receiving lots to provide the first 2 to 4 weeks of animal health and nutritional management. Not all stocker cattle are such a receiving challenge. In some cases, cow–calf preconditioning programs reduce health problems by weaning and vaccinating cattle before marketing and shipment to stocker production regions

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[6]. Of course, ranch-retained ownership of raised cattle avoids many of the risk factors associated with shipping stress and commingling cattle. Mortality and morbidity is an important cost in stocker production and is higher than for other beef cattle production sectors. Probably the long-run average death loss of stocker production is 2% to 3% per enterprise. This value, however, varies widely according to season, climate, region, and production system. Moreover, stocker death loss tends to come in ‘‘wrecks,’’ where bad weather, an extraordinarily stressed or stale set of cattle, or other unique circumstances result in death losses of 10% or more for a particular set of cattle. Stocker cattle are subject to various threats that cause relatively high death loss, including shipping-related respiratory diseases, other bacterial and viral infections, bloat, dust, parasites, predators, severe weather, accidents, and lightning, to name a few. Stocker cattle receiving programs for health and nutritional management vary widely according to circumstances. In most cases, animals are received for 2 to 4 weeks in a confinement or semiconfined environment that allows animals to have access to high-quality forage (hay) and supplement and that permits close observation to diagnose, treat, and segregate sick animals. Animals usually receive any needed processing immediately on arrival, including vaccinations, branding, dehorning, castrating, and parasite treatment. The vaccination program (and indeed the receiving program, in general) will depend on the type and age of animals and the location and should be developed with the assistance of a veterinarian. Long-haul and highly stressed cattle are usually mass medicated for shipping diseases rather than waiting to pull and treat individual animals. Animals may be mass medicated with antibiotics under specific circumstances such as receiving highly stressed cattle, very lightweight or young animals, or when animals must be received in bad weather [40,41]. Careful consideration of many factors is needed to determine the relative costs and benefits of mass medicating animals or using a pull-and-treat system of health management.

Economic roles of the stocker industry The stocker industry serves several economic roles in the cattle industry. The first of these is an important production role. The forage-based gains of stocker production are the least expensive in the industry and contribute to the cost competitiveness of the beef industry. Stocker production increases the weight and age of cattle, which increases their suitability for feedlot production. Also, in many cases, stocker production is where the quality of individual cattle and groups of feeder cattle are improved. A second important economic role of stocker production is the management of cattle inventories within and across years. One of the functions of the cattle marketing system is to spread calf production into

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Fig. 6. January 1 United States average stocker ratio.

a uniform flow of slaughter cattle through the year. The cyclic nature of the beef industry also creates the need for smoothing of cattle flows across years [1]. Fig. 6 shows that the January 1 stocker ratio varies significantly across years, ranging from 74% to more than 82% in different years because of cyclic and other effects. As indicated previously, the numbers of stocker cattle vary considerably at different times of the year. By changing the intensity of cattle production, the age of cattle at slaughter can be economically varied by 12 months or more. Most of this flexibility comes from the stocker sector. A final vital economic role of the stocker industry is in helping to maintain the economic balance between livestock, grain, and forage markets. Both grain and forage are subject to dramatic production variability from year to year. Weather-induced feed and forage supply shocks result in considerable market price rationing to equate feed demand to available supply. The greatest flexibility of livestock production to adjust to feed market shocks is in the ability of the cattle industry to substitute forage for grain. Thus, by changing the intensity of cattle production, the stocker industry facilitates the beef industry’s ability to absorb the majority of feed industry shocks [42]. Collectively, these roles suggest that the stocker industry acts as a significant shock absorber for the broader beef industry by providing much of the industry’s flexibility to deal with cyclic and seasonal variation and exogenous shocks. Beyond that, stocker production provides basic production value in the efficient use of forage, the growing of animals, and upgrading animal quality.

The economics of stocker production The stocker industry fulfills the economic roles described previously in response to price signals generated in the cattle industry. These signals are

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primarily exhibited in rather subtle price relationships between various classes of cattle bought and sold in stocker enterprises. Strategically, there are three general ways to make money with stocker cattle: value of gain, upgrading cattle quality, and speculation on market trends. Each of these is present to some extent in every stocker enterprise, but the relative importance of each may change under different market situations. Value of gain is the fundamental basis for stocker economic viability and is also the primary signal by which the market encourages switching between alternative stocker production activities. Value of gain recognizes that the primary source of profitability for stocker operations is returns to feed resources used in those activities. When the value of gain is high, stocker producers have an incentive to buy higher quality cattle with the best ability to add weight gain rapidly. Upgrading cattle quality is an attempt to emphasize return for services rendered (as opposed to value of gain). There are most always opportunities for stocker producers to make money by ‘‘fixing other people’s mistakes.’’ These include such things as castrating and dehorning animals, general improvement in health, and sorting cattle into more uniform groups [43–45]. At times when the value of gain is lower, the possibility of buying ‘‘bargain’’ cattle that require increased management is an alternative way to increase stocker returns. Under certain market conditions, there may be a logical basis for buying lower quality animals with less gain potential but that have a greater potential for quality upgrading. The fact that there is a time lag between animal purchases and sales means that there is a speculative risk (or opportunity) for general cattle price levels to change between the time of buying and selling. The cyclic nature of the cattle industry leads to pronounced up and down trends in prices over time (Fig. 7). Recognizing market trends at any point in time is an important management consideration (for risk management). Although producers cannot do much to change market trends, consideration of those trends may influence length of time and program intensity for stocker production. Although stocker enterprises vary considerably, it is still useful to consider a breakdown of a ‘‘typical’’ stocker budget. Table 3 shows the percentage of breakeven production costs for a generalized stocker budget. Stocker production is characterized by relatively high ‘‘up-front’’ costs including high purchase prices and relatively high costs for veterinary/ medicine and death loss. Although feed costs are the second largest component of stocker budgets, stocker production has relatively low feed costs (compared with feedlot production). The most important factor affecting stocker profitability is the relationship between purchase price and selling price. These values determine the overall value of gain for weight added in the stocker enterprise. For example, with a purchase price of $95/hundredweight (cwt) for a 450 lb steer calf and a selling price of $82/cwt for a 700 lb feeder steer, the average value of gain

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Fig. 7. Annual average cattle prices.

for the 250 lb of weight increase is about $0.59/lb.4 The value of gain for stocker cattle varies dramatically over time and between different classes of cattle. Cattle price levels not only fluctuate widely over time but also price relationships fluctuate cyclically, seasonally, and in response to market shocks. Generally, as cattle prices trend up, the spread between buy and sell prices also widens because prices for the lightweight animals increase faster than prices of heavier animals (see Fig. 7). The result is variation in stocker values of gain that not only changes the general profitability of stockers but also changes the relative attractiveness of different classes of stocker cattle. The long-run average value of gain is about $0.50/lb for most typical stocker situations and varies from $0.50 to $0.65/lb for a wide range of stocker cattle enterprises. Another important factor affecting stocker profitability is the length of time for the enterprise. Because stocker cattle have high initial costs and low variable costs, the breakeven selling price for cattle declines relatively quickly with additional time. The speed of decline is determined by animal performance. It is also true that normal market situations are such that cattle prices per unit of weight tend to decline as weight increases. In a typical situation, the rate of breakeven decline is faster than the market price decline per unit of weight, and the enterprise eventually becomes profitable. As an average over time, it takes about 90 to 100 days for a stocker enterprise to become profitable. The time can be lessened if the market price relationship is flatter, prices are trending up, or animal performance is cost-effectively enhanced. Conversely, downtrending prices

4 The value ‘‘in’’ is 4.5 cwt  $95 = $427.5 per head. The value ‘‘out’’ is 7 cwt  $82 = $574 per head. The average value of gain is the $146.50 difference in value divided by 250 lb of gain, or $0.59/lb.

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Table 3 Stocker budget breakdown Cost item

Percentage of breakeven production cost

Purchase price Vet/Medicine/Death loss Feed cost Labor/Equipment cost Interest Marketing

76.9 3.8 12.9 1.6 2.8 1.9

or poor animal performance can lengthen the time required for a profitable enterprise. A commercial stocker producer with complete flexibility to engage in alternative stocker enterprises will consider each of the following when choosing a particular stocker enterprise:      

Beginning weight Cattle quality Production intensity (rate of gain and feed sources) Length of time Selling weight Animal gender (steers versus heifers)

Combinations of the above factors lead to many possible stocker programs. The relative attractiveness of alternative stocker enterprises will vary according to cattle and feed market conditions at a particular time and location. Management ability and flexibility, seasonal forage availability, and other factors may limit the suitability of some alternatives for some producers.

The future of the stocker industry Some would argue that increasing animal sizes and improving animal quality may have decreased the need for a stocker industry. It is possible that part of the production value or role of the stocker has declined, but it is also likely that the role of the stocker industry in using forage and providing flexibility for the cattle industry has increased over time. The cattle and beef industry consists of both production and marketing activities. Marketing system functions of time, place, and form require considerations of how much and when to market. To change the quantity and timing of production, the beef industry changes the intensity of how the cattle are produced, principally by choosing among many stocker production alternatives. Thus, in the cattle industry, production and marketing are uniquely intertwined in a manner unmatched in other agricultural markets.

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The stocker industry is one of many diverse production and marketing activities that make up the United States beef industry. Arguably one of the most complex agricultural industries, beef production is characterized by multiple production sectors and marketing levels, extensive geographic diversity, and the disassembly of a complex commodity product into a vast array of retail consumer goods and by-products. Moreover, the industry faces long biologic production lags and complicated temporal dynamics. In each cattle cycle, the industry attempts to increase production when animal numbers are limited, which necessitates additional supply reduction to rebuild herds. Similarly, herd liquidation in the face of excess supply results in even more meat production as inventories are converted into meat. These cyclical inventory changes add to price volatility in cattle markets and the need for adjustments in animal flows. The stocker industry plays a key role in providing the beef industry the flexibility to meet these needs.

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