Management Tool Helps Farmers Convert Pastures to Profits
Posted June 2000
Stocker production can help farmers convert pastures to profits, particularly if they have a surplus of grass but not a lot of facilities. Managing pasture, animals, costs, and markets plays a key role in determining the level of profit that farmers can expect, however.
Researchers with the Center for Integrated Agricultural Systems at the University of Wisconsin-Madison have developed a tool that farmers can use to determine whether their stocker management strategies will turn a profit.
“Producers who have a solid understanding of their production costs and rate of gain can use this simple management tool to determine what spring calf prices will make them money in the fall,” said Don Schuster, an economist with the Center for Integrated Agricultural Systems.
Wisconsin farmers have become increasingly interested in grazing stockers as an alternative to a feedlot system. These calves can be grazed continuously or in a management intensive rotational grazing system where the pasture is split into paddocks. The stockers are moved to a new paddock every two to four days.
Management intensive rotational grazing can increase profitability through more grass production, higher stocking rates, improved seasonal distribution of growth, increased beef production, and increased profits per acre. But, like any production system, financial success depends on good production and management skills.
Schuster worked with a team from the College of Agriculture and Life Sciences to develop a stocker budget. The team modeled financial returns to farmers grazing beef and Holstein stockers using management intensive rotational grazing. They then used this model to calculate costs and returns on a per head and per acre basis for the stocker and pasture enterprises. They also figured out the break-even points for both beef and Holstein stockers.
The enterprise budget assumes that both stocker types graze 200 days on a total of 100 acres. It assumes that poor quality land will be used for grazing, with rent at $60 per acre. Pasture yields are assumed at 4 tons per acre, which exceeds the stockers’ needs. Surplus forage is custom round baled, with the beef stocker operation providing less hay than the Holstein operation. The budget accounts for most production costs but assumes that farmers will already have basic equipment for fence construction and maintenance, and cutting and raking hay.
Using this enterprise budget, the team developed tables to help farmers calculate how much they can pay for calves in the spring and still make a profit in the fall.
“Using our tables with our assumptions, producers will find a predicted break-even purchase price for stockers. Profit is zero at the break even point, so farmers need to calculate and add a targeted profit,” Schuster said.
Based on the prices and costs assumed in the enterprise budget, the break-even rate of gain for beef and Holstein stockers was just under 1.5 pounds per day. The team found that each additional one-tenth of a pound of gain per day for both beef and Holstein stockers is worth about $13 net per head when they are sold. Extra costs incurred in increasing the rate of gain would have to be deducted from this projected increase in profits, however.
The price spread, or the difference between the price paid for the calves in spring and received for them in the fall, is also a key variable. Based on the team’s assumptions, every one-cent change in price spread for beef stockers is worth about $10 per head.
“This research shows that management intensive rotational grazing of stockers can yield profits ranging from $80 to $100 per head, with a management charge of $18 per acre included,” said Schuster. He warns that if costs turn out to be higher, rate of gain is lower, or the price spread is less than expected, these profits can rapidly disappear.
The financial success of a stocker operation depends on some factors that are largely outside of farmers’ control, like weather and price spread. Some farmers use hedging instruments like forward, futures, or options contracts to protect their prices. Others rely on years of marketing experience to know how and when to sell their cattle to receive the best prices.
By having some control over costs, rate of gain, and type of stockers, however, farmers can estimate their profits based on spring calf prices and fall feeder prices.
A free copy of this tool, including the enterprise budget and break-even purchase price tables, can be downloaded on the CIAS web site: www.cias.wisc.edu. For a printed copy, contact the Center for Integrated Agricultural Systems at (608) 262-5200 and ask for Research Brief #36.
Author: Cris Carusi