By Lorie Woodward Cantu
Editor's Note: This is the 11th installment in a 12-part series on stocker cattle management. This series has been created in partnership with Chris McClure, Gold Standard Labs (bvd-pi.com), a lab services company based in Hereford that specializes in BVD-PI testing and blood pregnancy tests; and Danna Schwenk and Karla Whitmore, CattleXpert Management Software (cattlexpert.com), a software company based in Elkhorn, Neb., that specializes in feedlot and stocker management applications.
Stocker operations offer producers the chance to build a business customized to their skill set, to their interests, and to their land and their facilities.
"The thing about the stocker business is that it can take so many different shapes — and still work," says Dennis Keeton, who with his son operates Keeton Cattle in Ivanhoe. "Once people figure out what they like to do, what they're good at and how much pressure they can take, they can build a business that makes sense for them. The stocker business is only limited by your imagination and what the market dictates."
Some people find their niche with lightweight cattle at high risk for health problems. Others find their niche working with heavier, healthier cattle that need the last push to hit the 800-pound weight sought by feedlots. Some prefer steers, while others favor heifers and others like a mixed bag.
Some producers grow out cattle on straight forage, while others use a mix of feed and forage. Stocker operations can be a year-round enterprise or seasonal. A single operator can have several thousand head scattered over several states, while another may concentrate on a single truckload lot.
Stocker operators also have some flexibility in the ownership of the cattle. Some producers own all the cattle they grow out, while others work on a consignment basis growing out cattle for other people. Of course, there are those whose operations contain both owned and consigned cattle.
Many people who manage consigned cattle got their start in the business by retaining ownership of their own cattle, gaining experience and building a track record.
Dr. Joe Paschal, professor and Texas AgriLife Extension livestock specialist based in Corpus Christi, says, "Most clients will care more about what operators do than how they do it." In other words, most clients are going to be more concerned about an operator's ability to deliver the expected gain for the expected cost than his particular management practices, he says.
To that end, it is important for operators who are soliciting clients for a consignment backgrounding operation to have production records demonstrating their past success.
Why should I work with you?
"You have to be able to prove that you can do what say you can do," Paschal, who has run stockers on consignment as an enterprise on his Tecolote Creek Ranch, says. "Ultimately, it will be a demonstrated track record that answers the question, 'Why should I work with you?'"
Operators, who start on a small scale and run their own cattle, also have a chance to discover what management strategies work best for them in their situation.
"Before operators take on the responsibility of running someone else's cattle, they need to have 'field-tested' their health and nutrition programs," Paschal says.
Operators also need to have a clear idea of what they are offering, so that they can find cattle and consignment clients that work within that scenario. For instance, providing 60 days of grazing on excess forage in a native pasture is vastly different than providing 120 days of grazing on winter wheat.
"It's important to ask yourself how many cattle can your land and labor sustain? When do you want the cattle in and when do you want the cattle out? The answers to these questions might change who you do business with," Paschal says.
One year, Paschal ran a truckload of stockers on grass for Client A and it worked out well for both of them. The next year, Client A came back and wanted Paschal to run 2 truckloads for him. Two truckloads would have put too much stress on Paschal's range, so he turned down Client A and found another client who was interested in running a single truckload.
"I would have made more money upfront running the larger number of cattle, but it would have been at the risk of damaging my country," Paschal says. "The trade-off wasn't worth it to me." And as it worked out, the weather turned dry that year, and if the ranch had been stocked twice as heavily, it's likely that the cattle wouldn't have gained as expected.
Managing expectations — both yours and the client's — is as integral as managing the cattle.
To keep financial expectations realistic and profitable, Paschal suggested that operators put together an operating budget including labor, feed, medicine, depreciation and incidentals to determine the true cost of gain before they ever agree to take consignment cattle. This will allow operators to figure out how much they need to charge to make a profit and see whether they are competitive with the other operators in the area.
"It's not always a good idea simply to agree to the going rate," Paschal says, speaking from experience. When he first started growing out cattle for other people, he accepted the going rate of 35 cents per pound. Fortunately, he says, he managed to make money.
"The next year, though, I put a pencil to it before we got started and felt much better the whole time because I knew exactly where I stood and I came out of that deal even better," he says.
From a business standpoint, having a clear idea of what the cattle should gain and what that gain will cost is imperative, he says. It is a common industry practice for clients to pay on the gain.
"Many people really like this arrangement because it provides a strong incentive for operators to be good managers," Paschal says. "Everything from the cleanliness of the pens and handling practices to the suitability of the ration and the availability of shelter will have an effect on how quickly cattle gain, so it behooves managers to really pay attention to the details."
Depending on the agreement, some clients will pay a monthly fee, perhaps half of the anticipated monthly gain, to help operators cash flow the production process.
"If the cattle don't hit the target weights at the end of the grow-out period, the operator could be writing a check to pay back the difference," Paschal says. "Operators have to be able to deliver what they promise."
By the same token, clients' expectations have to be managed so they are satisfied with the results. The best way to do that is by clear, regular communication from the beginning.
"As an operator, you really have to know who you are dealing with," Paschal says. "People with experience in the stocker and feeder business come into this arrangement understanding the risks and the variables. People who don't have that background may not, so they need an honest explanation of what they can expect before you ever begin. Surprises aren't fun in business relationships."
In the first month, when problems are most likely, Paschal suggests a weekly report either by e-mail, text or phone. After the cattle get straightened out, the time between briefings can increase as long as the client is comfortable with the information flow and there is nothing unexpected going on with the cattle. If there are problems, the client needs to know as soon as the problems are discovered.
"Those calves represent the clients' money, and the clients deserve to know what is going on," Paschal says. "If a calf dies, the client needs a phone call that day delivering the news."
By taking on consignment cattle, operators are no longer just working for themselves. For some people it worth the extra effort, while for others it's not, Paschal says.
"Deciding whether or not to take on consignment cattle is just like any other decision in the stocker business; operators have to consider the ramifications for their land and their lives, and then put pencil to it to see if it's worth it," he says.
A Peek into Keeton Cattle
Dennis Keeton has always been a stocker operator. He is the third generation to run cattle on the family's ranch located in Fannin County near Ivanhoe, about 90 miles northeast of Dallas.
"I've never done anything else," Keeton says. "The stocker business gives me the opportunity to generate more income off of the acreage we have than anything else."
The average annual rainfall in Fannin County exceeds 40 inches and the land is well-suited for growing all types of forage. In a normal year, it is possible to grow wheat, oats, grass and even corn for silage without irrigation, he says.
"In a lot of places, you just have to live with what you've got," Dennis says. "We're fortunate that conditions allow us to grow plenty of forage and maximize what our country will carry."
Keeton and his son, Gibbs, operate on family land as well as some leased pasture. Gibbs, who continued to own and manage cattle while he was attending Texas A&M University, came back to the ranch after he graduated in 2004. Keeton's daughter, Kristie Kristufek, and her husband Rob, also partner with Keeton Cattle on sets of steers throughout the year. The Keetons own every head they run.
"In the past, I ran cattle on consignment to have cash flow as we were growing equity to buy our own cattle," Keeton says. "Once I obtained enough equity to finance our own cattle, that's the route we chose, because we felt like we could make more money on our own cattle."
Through the years, the Keetons found their niche: high-risk cattle purchased from the auction market.
"Our entire program is set up to keep cattle alive," Keeton says. "We think we've gotten pretty good at it, but we still have unexpected things happen and we have to be ready to deal with them. Not everybody has the inclination to spend the kind of time with a set of cattle that we do, but it works for us." To help with the workload, the Keetons have two employees, one who works full-time and another who works part-time.
When Keeton was just starting in the business, he bought cattle in the fall to graze on winter wheat pastures and then bought cattle in the late spring to grow out on summer grass.
"In this situation, I was always hoping that Mother Nature came through on the moisture," he says. "When it rained, it worked really well, but when it didn't rain, it didn't work at all."
Over time, the program evolved. Today, the Keetons buy and sell cattle year-round. Their goal is to market between 5 truckloads to 11 truckloads of 800-weight steers each month. As soon as a truckload leaves the facility, the Keetons instruct their order buyer, who is located in South Texas, to purchase a replacement truckload.
"One of the ways we manage risk is staying 'sold up,'" Keeton says. "We invest the money we make back into the operation, so we can run more cattle." In the past 5 years, they have focused on increasing their capacity and now run between 4,500 and 5,500 head annually.
"As lending requirements have changed, it's become even more important to focus on your equity to ensure that you have what it takes to operate at your desired volume," he says. "It takes a lot more money than it used to in order to keep your inventory up." Just 5 years ago, paying $600 for a 500-weight calf seemed expensive, but today that same calf may cost $900, he says.
The Keetons have built their business on growing out steers that come in weighing between 500 pounds and 540 pounds. Once they have stabilized the steers' health, the Keetons turn their attention to the gain. In the winter, they rely on a mixture of wheat, oats and ryegrass for winter grazing and crabgrass for summer grazing. They also grow corn silage and supplement the forage with feed.
"About 10 or 12 years ago, we began adding feed as way to ensure consistent weight gain, thereby minimizing risk," Keeton, who works with a consulting nutritionist, says. "If your cattle are hitting their target weight at the target date, the deal usually works out." The family's goal is for the steers to gain 2.25 to 2.5 pounds a day for no more than 140 days.
"For us a window of 120 days to 140 days works best," he says. "By keeping the time frame short, we lessen the likelihood that factors beyond our control like the weather, the market or world events will change drastically."
"Stocker Cattle: Give Stocker Cattle a Good Background" is from the November 2012 issue of The Cattleman magazine.