Profitability in Retained Ownership

Only about 10% of cow-calf producers retain ownership in the feedlot on their weaned calves, that’s according to a study by University of Tennessee researchers.  

Why?

Disadvantages to retained ownership include:

• delayed income,
• possible financing demands and
• increased risk from poor performance.

However, study after study indicates profitability increases as producers own calves after weaning. Benefits associated with retained ownership help explain why.

Retained ownership advantages include: 

• more informed breeding decisions,
• valuable genetic information,
• risk mitigation strategies, and
• marketing flexibility.

Ted Blackstock, owner of Blackstock Ranch in Owyhee County, Idaho would add “reduction in marketing stress and stewing about sale price all year” to the advantages list, as well.

Genetics

As a commercial cattle rancher, Blackstock has been retaining ownership on calves in the feedlot since 2005. He decided on this route because, he says, he was tired of the stress associated with choosing the best marketing channel for his weaned calves. He had sold on the video and through the sale barn, but he just didn’t feel he was getting consistently paid for his excellent genetics and meticulous calf management.

“You can tell a cattle buyer what you’ve got in them, and if that’s what they’re looking for, they might give you a premium, and they might not,” he says.

Blackstock manages spring and fall calving herds. He prefers to background his calves until they are between 850 pounds (lb.)- 950 lb. Once they’ve reached weight, they go to H3 Feeders in Hermiston, Ore., or Simplot Land and Livestock in Pasco, Wash., for finishing.

By retaining his calves to the packing plant, Blackstock gets several data sets of valuable information on them. Numbers like feed conversion, sickness rates and grading percentages for each pen are the metrics he uses to gauge cattle performance. He says his cattle have always graded 97% Choice or better, better being 17%-20% Prime. He also watches his feed conversion numbers closely. As long as his cattle stay below or right around the 7 lb. of feed to 1 lb. of gain (7:1) mark, he feels comfortable with their performance.

Monitoring performance from the end point has allowed Blackstock to tighten his bull selection criteria.

“We’ve stepped up and paid a little more for bulls because we buy our bulls to raise good females. Mainly what we’re looking at is what is going to make our cow herd better,” he says.

Thanks to expected progeny differences, he knows exactly how much milk he wants his cows to have, and he can monitor frame score to keep everything in the moderate range.

“Steers are almost a byproduct,” he jokes.

For Blackstock getting data back on calves has made breeding decisions and genetic selection less abstract. He now knows he must keep cattle performance in the median between cow type and calf grade/feed conversion. As long as those are met, he can relax and enjoy being a rancher.

JW Wood, manager of Boise Valley Feeders, a custom cattle feedlot owned by Agri Beef, says most of his customers opt to retain ownership because, like Blackstock, they’ll use the feedout information in management decisions.

“They apply that information back into their decision making at the ranch, whether it’s genetic decisions or how they wean or what vaccines they might give at certain times of the year…And of course, they like analyzing carcass data.”

Risk

Retaining calves is a way for Blackstock to manage risk, especially for things beyond his control. For instance, due to a cold, dry spring, his yearlings came off grass about 50 lb. lighter than expected.

While that came as a shock, Blackstock says it’s still not a loss to his bottom line.

“It doesn’t really matter how big they are because I’m going to the feedlot with them. I don’t have to worry about what they come off the grass at. Of course, I’ll make long-term decisions of whether it’s working or not,” he clarifies. But, “they’ve still got the frame, so when they go to the feedlot and start feeding them corn, they’re going to pile on the weight faster than they would have if they were fat.”

Weighing conditions seem to be more favorable down the line, too.

“We used to sell them on the video and sell them in the auction barn, and I just never was really happy about weighing conditions — trying to get them weighed just right and it seemed like anything could go wrong and it would cost us,” he remembers.

Now, he says, he doesn’t worry so much about the price of cattle. His job is to get them as big as he can and send them to feedlot.

While retaining ownership has become a way to manage risk for Blackstock, Wood says that’s not always the case for some ranchers.

“It’s hard to pass up profitability if you’re getting rid of them right away vs. owning them for another day,” he says.

However, Wood tries his best to ensure customers that their cattle are treated like his own.

The feedyard has large and small pens to fit any-size operation. There is a consulting veterinarian and nutritionist, who work to get new calves on track and keep resident calves healthy. The yard will take “an unweaned calf, a steer off of grass, a big heavy thing out of a grow yard. We’re happy to do what the customer needs,” says Wood.

Additionally, he dedicates time to keeping an open channel of communication with his customers. He wants them to feel comfortable enough to call with questions, and he keeps them informed of shipping dates or health challenges the cattle might have.

Wood hopes this great attention to detail helps customers feel better about the risk of feeding calves.

While up front it may seem risky to retain ownership, the data compiled by Minfeng Tang et. al., 2016, in Identifying Factors that Impact Returns to Retained Ownership of Cattle say, “Returns to retained ownership were positive in nine of the 11 years analyzed, with an average return of $47.80 per head.”

Tang and colleagues followed 2,265 steers and 688 heifers from 39 operations in Tennessee from 2005-2015 in 11 different feedlots.

All cattle were harvested and sold on a grid-based price. During the study, steers were profitable eight years of 11, averaging $43.62 per head. Heifers were profitable nine years out of 10; they averaged $61.56 per head.

According to Tang’s research, “Overall, retained ownership profits to heifers were higher than steers on average. Cattle placed on feed in winter were most profitable, while cattle placed on feed in summer were least profitable. Days on feed had a positive effect on retained ownership profits. Desirable cattle feedlot performance (i.e. lower feed-to-gain ratio and higher average daily gain) increased retained ownership profits. Dressing percentage and placement weight positively affected retained ownership profits, while the number of individual health treatments and corn price negatively impacted retained ownership profits.”

Numbers such as these beg the question: In a 10-year span, how many of those years is it profitable to sell at weaning?

Marketing

At Boise Valley Feeders, custom-fed cattle have the option to qualify for Agri Beef’s branded beef programs like Double R Ranch, as seen in restaurants and grocery store chains. Depending on the quality grade, cattle can qualify for different levels of the branded program. Currently the feedyard isn’t certified for natural-fed beef or hormone-free, says Wood. But because custom-fed cattle are the priority at the feedlot that option could certainly be looked into, if a rancher was interested.

When Blackstock first began retaining ownership on his cattle, he was selling meat on the commodity market. Eventually, he transitioned to Painted Hills Natural Beef, which sells mostly on the West Coast.

“We wanted to see where our meat was going and raise it for a purpose that way,” says Blackstock of the switch. “They are a non-antibiotic, no hormones or anything, but everything is vaccinated. I pretty well raised them that way anyway, so it wasn’t a hard transition.”

Being able to choose the program that best fits his cattle has actually allowed Blackstock the flexibility to dial in exactly cattle performance in the lot and at the plant.

“Branded Choice cattle bring just the same premium as commercial Prime,” he notes. “A 24¢ bonus is what Tyson gives you for a Prime, and that’s what we get for our Choice natural cattle.”

Virtually all of his cattle grade Choice or better so the change has been a good one for the rancher.

“I guess I’ve never regretted finishing them,” he says. “They’ve always paid me back.”

To Finish Your Cattle, Know Your Cattle

“It’s not for the weak of heart. You’ve got to have a strong constitution and a friendly banker if you’re going to feed cattle at any volume,” chuckles Robert Birklid, a Charolais breeder and owner of R Lazy B Ranch near Fargo, N.D.

That being said, Birklid has been finishing his own home-raised cattle and some of his customer’s cattle for the past 12 years. He isn’t planning on stopping anytime soon. He’s hooked, and it’s training him to be a better cattleman.

Birklid says retaining ownership through finishing helps him discover the good, the bad and the ugly about his cattle; thus, helping him make better breeding decisions on the bull side of things.

“The bulls that I was selling these guys, I wanted to know what they were doing for them. I wanted to gather some feeding and carcass data to help promote my own bull program,” he explains.

“I’ve learned more about feeding cattle, or the business of feeding cattle, as I have about my own breeding program.”

Birklid’s advice to those considering retaining ownership through the feedlot phase is to do it for more than one year.

“We don’t always make money at it. Sometimes it works out really well, and sometimes we would have been better off selling as feeder cattle,” he says.

But hanging in there for more than one trial run, especially if you know your cattle and how they can perform, may make it all worth it.

Recently Birklid sold some finished cattle to a packer. The cattle performed well on the rail, and the packer came back wanting more. Birklid was able to negotiate a better price on the subsequent loads because the packer knew the cattle.

Additionally, Birklid says feed efficiency is paramount to the bottom line and using the Charolais breed is key.

“The biggest expense you’ll have finishing cattle is the feed, so feed efficiency is a big deal, and the Charolais breed is well noted for that. Certain bloodlines are better than others,” he emphasizes.

Of course, carcass quality: ribeye area, less back fat and muscling all play a role in the outcome of a finished beef.  

According to Birklid, most likely the biggest driver to the whole scheme is attention to detail. 

“It doesn’t matter what business you’re in, if you’re running your own business, you’ve got to pay attention to the little details,” he notes.

Says Birklid, those little details start at birth and end at harvest. Mother Nature is a wildcard, but we’ve got to do everything we can within the parameters of the things we can control to ensure a healthy calf and a well-finished animal.

Paige Nelson is a cattlewoman and freelance writer from Rigby, Idaho. Reprinted with permission from the Charolais Journal.