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Agricultural News


Higher Priced Corn Due to Ethanol Promotes Importance of Stocker Cattle Business Model- Dr. Derrell Peel Explains All

Mon, 27 Dec 2010 14:43:45 CST

Higher Priced Corn Due to Ethanol Promotes Importance of Stocker Cattle Business Model- Dr. Derrell Peel Explains All For much of the last 50 years, cheap fuel/cheap food policies in the U.S. resulted in an abundance of inexpensive feed grain for livestock production. One result of that was a beef industry, as we know it today, which deemphasized the forage role of beef cattle, particularly beyond the cow-calf production level. The industry, backed by two generations of research, made great strides in efficiency and productivity based on the objective of using the maximum amount of grain in increasingly intensive production systems. The industry has taken superb advantage of better genetics, better management and new technology (implants, ionophores, etc) against a backdrop of cheap grain to improve productivity and competitiveness of the beef industry.

Historically, the stocker industry has played a variety of roles in the beef industry. These include primary production roles of taking calves that are too small and too young and growing them into feeder cattle ready for feedlot finishing. The stocker industry also takes mismanaged calves and shapes them up by providing health and nutritional management along with adding weight and age. The stocker industry provides marketing value related to time and place. Stocker production simultaneously assembles widely dispersed, small lots of calves into larger, uniform lots of feeder cattle ready for feedlot placement. The stocker industry provides the industry with needed flexibility in timing animals by taking seasonally bunched calf production and spreading animals out into year-round feeder supplies. Finally, the stocker industry provides relatively inexpensive forage-based gains that help cheapen up the overall cost of beef production.

It is this last role that has been relatively less important much of the time in the modern history of the beef cattle industry. Cheap stocker gains are relatively less important when cheap feed grains ensure low-cost feedlot gains. Indeed, historical feed cattle price relationships confirm that the value of stocker gain was limited to an average of $0.50-$0.60/lb for many years because feedlot cost of gain was in the same range. Of course, stocker values of gain vary widely at times to reflect cattle cycles and a variety of short run feed and forage market conditions.

The world has now changed with respect to this history. Fundamentally higher (not to mention more variable) feed grain prices puts new emphasis on the forage-using capability of beef cattle. Relatively cheap forage-based stocker gains are now more important to limit the impact of higher grain prices on beef industry cost of production and competitiveness. Feedlots have economic incentives to minimize grain use, not just in the short run but as a long term change in the way of doing business. The primary means to use less grain at the feedlot level is to put more weight on cattle prior to feedlot placement. The fact that cattle can utilize forage and that most forage has relatively fewer competing uses means that effective utilization of forage are keys to long term beef industry competitiveness.

Permanently higher grain prices does not mean that the beef industry will stop using grain or finishing cattle in feedlots but does suggest a fundamental change to production practices that emphasize more forage use. It suggests a larger role for stocker production and a relatively smaller role for feedlot production in the future. It may also suggest new research questions. How can the beef industry produce high quality beef using the least amount of grain? Most research for many years has focused on using more rather than less grain. I don't think we know just how much the beef industry can adjust to using less grain because we have not been asking that question. Just as it took many years to reach the current level of feedlot efficiency and intensity, it will likely take many years and much research to push the limits of forage intensive production with new forage systems, changes in animal and forage management and the likelihood of new, perhaps not yet envisioned, technology.

The flexibility to adjust production systems due to the ruminant biology of the beef animal is the greatest advantage of the beef industry. However, change is difficult and costly. The kind of long run change suggested above implies a number of impacts including structural change for the industry as a whole and differential regional impacts that change, not only how, but where production takes place. Although the industry faces a number of challenges and such fundamental change is frightening for many in the industry, there is reason for optimism. Change inevitably results in new opportunities and the broader backdrop of domestic and global food demand suggests that the beef industry has a big potential role to feed a hungry world. Beef production with increased forage emphasis will be even more important in the future by contributing to food production while limiting demand for other agricultural resources increasingly demanded for other uses.

Our thanks to Oklahoma State University Extension Livestock Market Economist Dr. Derrell Peel for this look at the changing role of today's stocker cattle business.


   

 

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