A Profitable End

Tighter Stocker Market Creates Profit Challenges

Missouri stocker Tim Saunders likes to feed out calves with a body and bone structure that can carry significant weight. His focus is on maximizing profit opportunity, no matter what type of cattle he buys. (DTN/Progressive Farmer photo by Jim Patrico)

Every stocker has a different recipe for what it takes to make a profit. For Tim Saunders, it's a laser-point focus on three things he knows he can manage: purchase price, cost of gain and maximizing carcass value.

Saunders, based at Rea, Mo., said it's not genetics or a particular breed that makes him successful. Rather, it's the ability to select stocker cattle that appear to have the potential to net a return when they're ready for the market.

"I have always been that person who approaches things differently," Saunders said. "The first cattle I ever finished were Longhorn cross. In the beef industry, almost any breed finishes better than a Longhorn."

Saunders said when he purchased that set of cattle, he was confident he could maximize the carcass potential and manage them to a profitable end. He remembers making money on those cattle, but it was so long ago, he can't say how much. Today, his approach to buying cattle is still a little unorthodox, and it still works.

TAKE A GOOD LOOK

He doesn't buy animals by looking at EPDs (expected progeny differences) or bloodlines. He uses the time-proven tool of phenotypic appearance to judge whether a calf has performance potential.

Saunders specifically looks for calves that have the body and bone structure necessary to carry significant weight. Most of his feedlot calves weigh between 400 and 600 pounds when they come in. He avoids dairy breeds and aims to buy calves that are about 6 months of age.

Cattle coming into the feedyard are grouped into pens, where they are treated as needed with vaccinations, dehorning, castration or growth-hormone implants. For the first three weeks, these groups remain together. Once they begin gaining and Saunders can project each animal's growth potential, cattle are sorted and regrouped with animals on similar growth and development tracks.

"We use blank ear tags and write treatment information on them as we process the cattle," Saunders said. "If an animal needs more than two treatments to recover from something, we move them to our hospital sick pen, which is located away from the rest of the feedyard. The animal stays in that pen till they recover. We have a 5-acre grass tract for those needing an extended recovery time."

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Because Saunders doesn't operate on a typical "all-in, all-out" system, the profit margin on each lot of cattle is different. Overall profit ranges from $50 to $100 per animal, based on markets and inputs. Saunders uses volume purchases to help manage feed prices.

"Because it varies so much from year to year, I don't focus on specific input cost per head," Saunders explained. The end goal is balance.

Health management, for example, is higher for these animals than it would be for premium calves, but the discounted purchase price makes up for that. Typically, it takes eight to 12 months to finish cattle. Saunders doesn't weigh them to evaluate market readiness but assesses them based on appearance.

Color doesn't concern this operator, either. And he doesn't pass up animals lacking basic health care, such as vaccinations and dewormings. He sees treating those animals as part of his upgrading process.

"Purchase price is an important factor in my strategy," Saunders said. "The kind of cattle I look for are usually found in small lots, and I buy and sell cattle just about every week. That allows me and my buyers to stay in close touch with market conditions. I learned a long time ago that I don't know everything there is to know about beef production, so the local veterinarian and a nutritionist are part of my beef production team."

EARLY PERFORMANCE PUSH

Most calves come to Saunders' feedlot right after weaning, and they learn to eat at his feedbunks. All calves start out on a full ration program developed by Saunders' nutritionist. This typically includes wet corn gluten, dry rolled corn and ground hay. When it's available, corn earlage will also be incorporated into the feed.

"My feedlot program is fairly aggressive," Saunders said. "With every animal, we're pushing for early performance. Most animals will be sold when we estimate that they are ready to produce a quality carcass that falls within a range of packer guidelines. We aim to avoid selling animals that are extremely above or below packers' minimum or maximum weights."

As calves develop, Saunders sorts and groups them according to how quickly they're gaining weight and reaching market readiness. He doesn't set goals to sell a specific number of animals on any date.

Saunders' cattle sold well on the grid in 2010, the latest available data. Harvest weight averaged 1,100 pounds, with 86% grading Choice and Prime.

"I'm still running well over 80% Choice and Prime," Saunders said. "I haven't bumped 86% for a while. I strive for quality, but I know not every consumer is looking for Prime beef."

Managing cost of gain is a key part of Saunders' strategy. University of Missouri Extension beef specialist Jim Humphrey said Saunders' approach to securing feed resources has been as innovative as his method for selecting feedlot animals.

"Tim owns the trucks he uses to haul feed," Humphrey said. "He was an early user of ethanol byproducts, incorporating them into his feed ration more than 10 years ago when they were still a very new feed option. He doesn't study genetic traits or EPDs, but Tim does a lot of research on feed resources and how they impact his cost of gain. He's always exploring feed alternatives and seeking input from industry experts. When he finds something that fits his production plan, he makes use of it."

Saunders was one of the first beef producers in the area to set up a hoop barn to store feed, purchasing resources when prices were at seasonal lows. He also raises most of his own silage.

"Tim owns a silage bagger and has used liquid feed products for several years," Humphrey said. "He recently built another hoop barn to help with working and holding cattle, as well as incorporating an office in the structure. I believe what distinguishes Tim from many other cattle producers is his cost consciousness. He spends a lot of time crunching the numbers."

A TIGHT REIN

Because he doesn't buy high-end genetics, Saunders has maintained profit margins even with high calf prices. Lower grain prices will help 2015 profits, but he won't stop reviewing and refining his current approach to doing business.

"I don't look at my records so much on a per-head basis as I do with overall purchase prices, feed costs and cost of gain. I don't look at feed costs and cattle market information every day, but I do review those figures a couple of times each week," he said.

The cattleman relies on what he calls an "efficient conversion" by managing purchase price, cost of gain and maximizing carcass profits.

"I can't afford to overpay or overfeed," he said.

"My system wasn't as efficient when corn was at $8.50 a bushel, but there was still profit potential. Everyone in the beef industry is trying to find a way to profitably fit into the industry. I'm no different."

(AG/CZ)

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