Ups and Downs
Diversification Helps Level Returns
By Becky Mills, Progressive Farmer/DTN Contributor
Adam Wilson likes stocker cattle. "We've had stockers in some form for close to 25 years now," he notes. There can be a whole lot more upside potential with stockers. Of course, in a bad year, there can be a lot more downside, too."
Thankfully, the good years come more often than the bad. Andrew Griffith, University of Tennessee (UT) ag economist, says, "Older research shows the stocker cattle business is more profitable than the cow/calf business in seven to eight out of 10 times. The expected return is going to outweigh the actual risk."
Griffith adds the wait isn't as long for a return with stockers. "The stocker business is very concise. You buy them, take care of their health and feed, and you market them in 120 to 150 days. With the cow/calf business, you have to breed the cow or heifer, wait nine months, then wait another seven or more months before marketing a calf."
Wilson likes that the stocker business is more fluid. "You can change the inventory, change the mix," he says. Still, the young cattle producer is also a strong proponent of diversification. It helps ease the pain of bad years and often improves cash-flow. Case in point: He's done some custom backgrounding for nine years. This helps limit his risks, but it is a high-pressure segment of the industry, because he wants to do as good a job with another producer's cattle as he does with his own.
Wilson handles as many as 260 custom head at a time. He backgrounds cattle for around 60 days, normally putting about 100 pounds on each head. His charge for custom backgrounding varies with what a customer wants. One customer, for example, may supply his own feed and meds, so Wilson charges only for hay and yardage. For another customer, he charges yardage, plus feed and meds, and a per-head fee to work the cattle.
In addition to custom backgrounding and a stocker operation, Wilson Farms has its own commercial cow/calf business with 90 head in a fall-calving group and 80 cows in a spring-calving group.
The spring calves...