Stocker And Feedlot Margins Are A Study In Contrasts

Stocker And Feedlot Margins Are A Study In Contrasts

Stocker operators and cattle feeders are experiencing very different market conditions.

Cattle feeders are in a fight to the death to see who survives the next couple of years, says Derrell Peel, Oklahoma State University extension economist.

Stocker operators, on the other hand, are posting good margins.

Peel says the two sectors provide quite a contrast.

While the stocker sector has opportunities for strong values from forage-based gains, the feedlot sector is under increasing pressure as the combination of limited feeder-cattle supplies, high feed prices and excess capacity are causing severe losses.

Stocker operators and cattle feeders are experiencing very different market conditions.

Stocker production and cattle feeding both are margin operations. The main determinant of economic potential is the difference, or gross margin, between the value of purchased cattle and the value of cattle sold.

Within that gross margin all other production costs must be paid. That includes feed, veterinary and medicine cost, death loss, labor and interest. The gross margin can be calculated as a value of gain for both stockers and feedlots.

In fact, value of gain is a useful way to compare various stocker and feedlot systems using different beginning and ending weights, Peel says.

Despite high stocker cattle prices, the value of gain suggests considerable opportunity for stocker production.

At current prices, the value of gain for added weight on feeder cattle is $1.10-$1.15 per pound for a wide range of beginning weights and amounts of gain. Current feeder futures prices allow a producer to lock in a value of gain at about this level, Peel says.

Cost of gain varies considerably for stocker programs but is generally well below the current value of gain, especially using summer grazing.

In contrast, feedlot margins are quite dismal. Feedlot value of gain at the current time is 70-85 cents per pound, he says. Because cost of gain is more than $1 per pound for most feedlots, the losses are severe.

Breakeven selling prices for feedlots are $130-$140 per hundredweight in the coming months. It will be at least another month or two before feedlot inventories decrease enough to support significantly higher feedlot prices, Peel says.

"Even then pushing fed prices up enough to cover breakevens will require higher wholesale and retail beef prices," Peel says. "In a world of high feed and feeder cattle prices and declining feeder availability, the squeeze on feedlots is likely to persist for many months. A record corn crop this year may ease the losses a bit but is not likely to change the overall situation."

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