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					The Oklahoma Stocker
      Industry

      Derrell S. Peel
 Oklahoma State University
      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

NORTHWEST NORTHERN                       NORTHEAST
                     14.3  GREAT LAKES
   4.1     ROCKIES NORTHERN   2.2            1.0
               6.9
                   PLAINS
                            MIDWEST
            SOUTHERN        12.1
                                  APPALACHIAN
 SOUTHWEST ROCKIES                   7.1    EASTERN
                            GULF
              3.9                           SEABOARD
       4.7         SOUTHERN 6.0     SOUTH        4.0
                   PLAINS               7.0
                      26.8
U.S. Total = 33,099,700 head
  N
    or
      th




                  0.0%
                         5.0%
                                10.0%
                                        15.0%
                                                20.0%
                                                        25.0%
                                                                30.0%
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                                                                              January 1, 2002




   Se a n
      ab
  N oar
    or d
       th
          ea
             st
                                                                        Regional Share of Beef Cows,
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
  N
    or
      th




                                 10.0%
                                         15.0%
                                                 20.0%
                                                         25.0%
                                                                 30.0%




                   0.0%
                          5.0%
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   Se ian
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  N ar
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          ea
              st
                                                                         Outside of Feedlots, Jan. 1, 2002
                                                                         Regional Share of Feeder Supplies
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%        Montana
                          27.6%     N Dakota
           Oregon                    63.1%
           59.1%    Idaho           S Dakota
                    56.4% Wyoming    69.2%
                             42.1% Nebraska    Iowa
                                               96.0%
                       Utah           89.0%
                      75.5% Colorado
                              88.7%    Kansas    Mo          Ky
                                       144.3% 78.6%
                            New                          74.1%
                                          Okla               Tn
                            Mexico               75.0% 71.7%
                             77.4%       123.5%           Al    Ga
                                                  Ar
                                     Texas                      69.3%
                                      74.1%              64.3%
U.S. Ave., 75.2 %
                                                                        Florida
                                                                         45.7%
                January 1 Stocker Ratio,
                         2002
          Washington
            44.1%        Montana
                          27.6%     N Dakota
           Oregon                    63.1%
           59.1%    Idaho           S Dakota
                    56.4% Wyoming    69.2%
                             42.1% Nebraska    Iowa
                                               96.0%
                       Utah           89.0%
                      75.5% Colorado
                              88.7%    Kansas    Mo          Ky
                                       144.3% 78.6%
                            New                          74.1%
                                          Okla               Tn
                            Mexico               75.0% 71.7%
                             77.4%       123.5%           Al    Ga
                                                  Ar
                                     Texas                      69.3%
                                      74.1%              64.3%
U.S. Ave., 75.2 %
                                                                        Florida
                                                                         45.7%
                      0%
                           20%
                                 40%
                                       60%
                                             80%
                                                   100%
                                                          120%
   No
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                                                                 Regional Stocker Ratio, January 1, 2002
     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
  1
                                    7/800 LB
0.98                                FED
0.96
0.94


               V
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             UG
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            SE



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           N
  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
• On January 1,
  Stockers = 20% of                    120

  cattle inventories                   100                                 Calves




                        Million Head
                                       80                                  Stockers
• On July 1, Stockers                  60
                                                                           COF
                                                                           Bulls
  = 8% of cattle                       40                                  Rep Hfrs
  inventories                          20                                  Cows
                                        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
• Profit potential of              120
  stocker enterprise is            100
  determined buy/sell              80




                          $/cwt.
  spreads                          60
                                   40
• High prices = Large
                                   20
  price spreads
                                    0
• Low prices = Small                     '1991     '1996
  price spreads                           750 lb   650 lb
                                          550 lb   450 lb
      Feeder and Fed Steer Prices,
              1992-2001
120
110
100
                                                      425 lb
90                                                    625 lb
80                                                    775 lb
                                                      Fed
70
60
50
  1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
      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:
  – Buy/Sell margins widen       130
                                 120
                                 110
  – Trend is positive            100




                         $/Cwt
                                  90
                                  80
                                  70
                                  60

• When prices are falling:        50
                                  40




                                       1986
                                              1987
                                                     1988
                                                             1989
                                                                    1990
                                                                           1991
                                                                                  1992
                                                                                         1993
                                                                                                1994
                                                                                                       1995
                                                                                                              1996
                                                                                                                     1997
                                                                                                                            1998
                                                                                                                                   1999
  – Buy/Sell margins narrow                                 4/500 lb          7/800 lb           Fed


  – Trend is negative
                          Value of Gain
                 (Based on 200 lbs of Gain)
           65

           60
Cents/lb




           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
             115                                                 AVG
             105                                                 +1 SD
$ per Cwt.




              95                                                 -1 SD
                                                                 2001
              85
                                                                 1999
              75                                                 1995
              65                                                 1996
              55
                   375 425 475 525 575 625 675 725 775 825 875
                                  Animal Weight
             Steer Price/Weight Relationship:
                     Seasonal Effects
             125
             115
             105                                                 AVG
$ per Cwt.




              95                                                 +1 SD
                                                                 -1 SD
              85
                                                                 MAR
              75                                                 OCT
              65
              55
                   375 425 475 525 575 625 675 725 775 825 875
                                  Animal Weight
Stocker Budget Breakdown

100%
 90%
 80%                              Mktg
 70%                              Interest
 60%                              Labor
 50%                              Pasture
 40%
                                  Death
 30%
                                  Vet/Med
 20%
                                  Purchase
 10%
  0%
       High Prices   Low Prices
Stocker Breakeven Dynamics
         100
          90
          80
          70                             Mktg
          60                             Interest
 $/cwt




          50                             Labor
          40                             Pasture
          30                             Death
          20                             Vet/Med
          10                             Purchase
           0
               7   35          63   91
                        Days
       Stocker Price and Breakeven
                Over Time
                    1.20
                    1.15
550 Lb Base Index




                    1.10
                    1.05
                    1.00
                    0.95
                    0.90
                    0.85
                    0.80
                           7   28    49    70    91     112   133       154   175
                                                Days
                                    Breakeven   Price   Power (Price)
      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
• Stocker production is especially
  important in Oklahoma

				
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