The Stocker Industry
The Beef Industry
• Demand
• Marketing System
• Production
Cattle and Beef Markets
• Demand
– What gets produced
– How much gets produced
– Who gets it
Cattle and Beef Markets
• Marketing System
– Moves products from “Gate to Plate”
– Time, Place and Form functions
• Storage (When)
• Transportation (Where)
• Processing (What Changes)
Cattle and Beef Markets
• Production
– How things get produced
• What resources are used
Beef Production and
Marketing System
Retail
Institutional
Export
Wholesale
Slaughter/Fabrication
Feedlot
MARKETING
PRODUCTION
Stocker
Cow/Calf
JANUARY 1 TOTAL CATTLE INVENTORY
U.S., Annual
Mil. Head
140
130
120
110
100
90
80
2002 = 96.7 Million Head
-0.6 Percent
70
60
1942
1947
1952
1957
1962
1967
1972
1977
1982
1987
1992
1997
2002
C-N-01
02/11/02
U.S. Beef Cows By Region
Percent of U.S. Total, 2002
NORTHEAST
NORTHWEST NORTHERN
14.3
GREAT LAKES
4.1
ROCKIES NORTHERN
2.2
1.0
6.9
PLAINS
MIDWEST
12.1
SOUTHERN
APPALACHIAN
SOUTHWEST ROCKIES
7.1
EASTERN
GULF
3.9
SEABOARD
SOUTHERN
4.7
6.0
SOUTH
4.0
7.0
PLAINS
26.8
U.S. Total = 33,099,700 head
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Regional Share of Beef Cows,
January 1, 2002
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
Regional Cattle and Meat Flows
Cattle Flow
Meat Flow
Major Cattle Feeding States and Fed
Cattle Slaughtering Plants (Four Largest
Firms, 1998)
IBP
ConAgra
Excel
National Beef/Farmland
7 Major Cattle Feeding States
What is the Stocker
Industry?
The U.S. Stocker Industry
• A very important but poorly understood
sector of the beef industry
– geographically widespread
– diverse production systems
– hard to measure
Characteristics of Stocker
Production
• Animal Growth (versus fattening)
• Use of Forages (versus concentrates)
• Viable Enterprise
– Time Required
JANUARY 1 FEEDER CATTLE SUPPLIES
Residual, Outside Feedlots, U.S.
Mil. Head
50
45
40
35
30
25
1973
1976
1979
1982
1985
1988
1991
1994
1997
2000
C-N-30
02/11/02
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Regional Share of Feeder Supplies
Outside of Feedlots, Jan. 1, 2002
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
Southern Plains Feeder Share
30.0%
29.0%
28.0%
27.0%
26.0%
25.0%
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Diversity of Stocker
Production
• Grazing
– Summer
• Season Long/Early Intensive
• Native Range/Tame Pasture
• Crop Aftermath
– Winter
• Annual Cool Season
• Perennial Cool Season
Diversity of Stocker
Production
• Semi-confinement
– Put and Take
– Creep Feeding
– Dry Winter
• Confinement
– Harvested Forages
Regional Stocker Cattle
Production
Fall
Scattered
Mixed
Summer
Winter
January 1 Stocker Ratio,
2002
Washington
44.1%
Oregon
59.1%
U.S. Ave., 75.2 %
Montana
27.6%
N Dakota
63.1%
S Dakota
69.2%
Idaho
56.4% Wyoming
Iowa
42.1% Nebraska
96.0%
Utah
89.0%
75.5% Colorado
Kansas
Mo
88.7%
Ky
144.3% 78.6%
74.1%
New
Tn
Okla
Mexico
75.0% 71.7%
123.5%
Al
Ga
77.4%
Ar
69.3%
Texas
64.3%
74.1%
Florida
45.7%
January 1 Stocker Ratio,
2002
Washington
44.1%
Oregon
59.1%
U.S. Ave., 75.2 %
Montana
27.6%
N Dakota
63.1%
S Dakota
69.2%
Idaho
56.4% Wyoming
Iowa
42.1% Nebraska
96.0%
Utah
89.0%
75.5% Colorado
Kansas
Mo
88.7%
Ky
144.3% 78.6%
74.1%
New
Tn
Okla
Mexico
75.0% 71.7%
123.5%
Al
Ga
77.4%
Ar
69.3%
Texas
64.3%
74.1%
Florida
45.7%
in
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No
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Regional Stocker Ratio, January 1, 2002
120%
100%
80%
60%
40%
20%
0%
Unique Role of Winter
Stockers
• Fall demand for wheat stockers helps
offset seasonally large fall marketings of
calves
• Helps stabilize seasonal price patterns
Seasonal Price Pattern
1.06
1.04
1.02
4/500 LB
6/700 LB
7/800 LB
FED
1
0.98
0.96
0.94
JA
N
B
E
F MA
R
PR AY JUN JUL UG SEP CT OV EC
A M
A
O N D
What is the “Job” of the
Stocker Industry?
• Stocker gains are the cheapest beef
cattle gains
• Beef industry flexibility
• Feed industry balance
• Quality Improvement
The Production Role of
Stockers
• Utilize forages for cheap gain
• Increase feeder cattle weight/age
• Upgrade cattle quality
The Inventory Role of
Stockers
• Allocate feeder cattle supplies over time
– seasonally
– year-to-year
• Provide variation in cattle slaughter age
Size of the Stocker Industry
Cattle Inventory Compositon
120
Million Head
• On January 1,
Stockers = 20% of
cattle inventories
• On July 1, Stockers
= 8% of cattle
inventories
100
Calves
Stockers
COF
Bulls
Rep Hfrs
Cows
80
60
40
20
0
Jan 1
Jul 1
U.S. Average Stocker Ratio,
January 1, 2002
0.84
0.82
0.8
0.78
0.76
0.74
0.72
0.7
0.68
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
The Market-Balance Role of
Stockers
• Maintain economic balance between
livestock, grain and forage markets
– respond to economic shocks
U S ANNUAL CORN FEED USAGE
Crop Year
Bil. Bushels
6.5
6.0
5.5
5.0
4.5
4.0
3.5
3.0
2.5
2.0
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
G-NP-06
07/02/02
The Stocker Industry Is
The Beef Industry
“Shock Absorber”
How Does The
Stocker Industry
Accomplish All
These Things?
Stocker Economics:
Price Levels and Price Spreads
120
100
$/cwt.
• Profit potential of
stocker enterprise is
determined buy/sell
spreads
• High prices = Large
price spreads
• Low prices = Small
price spreads
80
60
40
20
0
'1991
750 lb
550 lb
'1996
650 lb
450 lb
Feeder and Fed Steer Prices,
1992-2001
120
110
100
90
80
70
60
50
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
425 lb
625 lb
775 lb
Fed
Value of Stocker Gain
March 1998
•
•
•
•
•
400-500 lb. steer price = $104.45
Beginning value = $470.03/head
700-800 lb. steer price = $75.81
Ending value = $568.58
Value of 300 lbs. gain = $98.55/head or
$0.328/pound
Value of Stocker Gain
July 1998
•
•
•
•
•
400-500 lb. steer price = $77.98
Beginning value = $350.91/head
700-800 lb. steer price = $70.01
Ending value = $525.08
Value of 300 lbs. gain = $174.17/head
or $0.581/pound
Sources of Profitability in the
Stocker Industry
• Selling Feed
– Returns to forage
• Management Services
– Upgrading cattle quality
• Speculation
– Holding cattle over time
The Stocker Industry
Dilemma
• When prices are rising:
$/Cwt
– Buy/Sell margins widen
– Trend is positive
130
120
110
100
90
80
70
60
50
40
4/500 lb
7/800 lb
Fed
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
– Buy/Sell margins narrow
– Trend is negative
1986
• When prices are falling:
Value of Gain
(Based on 200 lbs of Gain)
65
Cents/lb
60
55
50
45
40
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
375 LB
475 LB
575 LB
Stocker Industry
Adjustments
•
•
•
•
•
Change beginning weight
Intensity (rate of gain)
Length of time
Animal quality
Steers versus heifers
Steer Price/Weight Relationship:
Cyclical Effects
125
$ per Cwt.
115
AVG
+1 SD
-1 SD
2001
1999
1995
1996
105
95
85
75
65
55
375 425 475 525 575 625 675 725 775 825 875
Animal Weight
Steer Price/Weight Relationship:
Seasonal Effects
125
$ per Cwt.
115
AVG
+1 SD
-1 SD
MAR
OCT
105
95
85
75
65
55
375 425 475 525 575 625 675 725 775 825 875
Animal Weight
Stocker Budget Breakdown
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Mktg
Interest
Labor
Pasture
Death
Vet/Med
Purchase
High Prices
Low Prices
$/cwt
Stocker Breakeven Dynamics
100
90
80
70
60
50
40
30
20
10
0
Mktg
Interest
Labor
Pasture
Death
Vet/Med
Purchase
7
35
63
Days
91
550 Lb Base Index
Stocker Price and Breakeven
Over Time
1.20
1.15
1.10
1.05
1.00
0.95
0.90
0.85
0.80
7
28
49
70
91
112
133
Days
Breakeven
Price
Power (Price)
154
175
Major Factors Affecting
Stocker Profitability
•
•
•
•
Purchase Price
Time
Feed Cost
Animal Performance
Summary
• Stocker industry plays a vital role in the
cattle industry
• Southern Plains winter wheat pasture
grazing plays a unique role