There are no sure bets in the cattle business, but listen to this: Mike Murphy, an analyst for Cattle-Fax  says members of that organization  have averaged $64 per head profit 23  out of the last 23 years by purchasing  cull cows in November, putting 1.5  lb. average daily gain on them for  95 days, then marketing them in  February. Likewise, a study conducted by Iowa State University ’s Iowa Beef  Center (IBC) in 2002-2003 pegged  the profit from feeding beef cull  cows —aiming for premium white fat  prices —at $52 to $89 per head.

Keep in mind, these are returns based on purchasing culls and feeding  them. Producers who keep and feed  their own cull cows can have even  more leverage.

Various research from such sources as the National Animal  Health Monitoring Service and  state Standardized Performance  Analysis programs indicate cull cows  typically account for 15-20%of a  cow-calf operation ’s annual revenue  on average. Consequently, cow-calf  producers exploiting the seasonal  buy-sell opportunities have found  a way to make their market cows  account for an even larger portion of  their annual receipts.

Upgrading as prices increase
Basically, cull feeding potential is so predictable because most cows in the industry are bred in the summer  for spring calves. Most producers  who find open cows in the fall ship  them, so prices are lowest then and  highest in the late spring when fewer  culls are on the market. Plus, unlike  feeder cattle prices, researchers at the  University of Arkansas point out that  cull  cow prices increase as weight  increases. Likewise, value increases as  fat increases —as measured by Body  Condition Score (BCS). So, producers  can buy or transfer ownership  between enterprises when prices are  lowest, knowing that usually price  per pound will also increase with  weight and body condition.

Spun differently, buy managing culls to gain weight and condition  there is also the opportunity to  improve slaughter grade. In basic  terms, slaughter cows fall into one  of four USDA Quality Grades based  on weight and lean meat yield. The  most valuable grade —Commercial — represents those with the highest  dressing percent and body condition.  The least valuable — anner —are  those with the lowest dressing percent and body condition (see  Table 1 - below).

“Most of the profit from feeding cull beef cows results from timely  purchase of thin, healthy cows with  the potential for large compensatory  gain and an increase in carcass grade.  Cull cows purchased at the low point  of the price cycle (annual) and sold  at the high point, in combination  with a well managed winter  feeding program, offers the greatest  potential for profit,” says University  of Arkansas (UA) researchers in a comprehensive fact sheet (FSA 3058).

“It ’s important to monitor costs and cow body condition in order to  manage the cull cow enterprise most  effectively.”

Details in the UA fact sheet include information about how cull  cow value is impacted by cow type,  pregnancy status, breed or breed  type, color, horn status, frame score,  muscle thickness, fill, Quality Grade,  hide brands, health, body weight and  age.

Gauging the potential
More specifically, researchers at Texas A&M University (TAMU) cite these considerations in evaluating the  potential for keeping or buying cull  cows to manage through the winter: ·“Adding weight to thin cows  before sale is particularly  valuable when cows are BCS 3  or lower at culling. High quality  forage can efficiently replenish  muscle mass on cows. However,  extremely old cows may not  gain as efficiently as younger  cows and should probably  be placed directly into the  marketing channel when culled.

For example, in a case study by Torrell et. al (Montana)20  percent of the cows placed on  feed were smooth-mouthed  cows that generated an average  loss of $2.93 per head, while  solid- outhed cows generated a  positive $64.73 per head.” ·“Market crippled cattle directly to  the packer if possible, without  going through the usual  marketing channels. Cows with  other blemishes, such as bad  eyes, should probably also be  sold directly to a packer.”

·“Sell cull cows before they become fat (BCS 8-9).Fat cows are discounted for low lean yield, regardless of their potential to classify as Breaking Utility.”

·“Sell cows outside of seasonal lows. Cull cow prices are normally lowest in October and November. If possible, consider marketing between February and September when slaughter rates are lower.”

·“Consider cull cows as a valuable asset, and handle them as such. Bruising is a major problem with cull cows.”

·“Always be cautious and concerned about withdrawal times when marketing cows that have been treated with any medication requiring a withdrawal period.”

In order to assess the economic potential of feeding cull cows, TAMU  researchers explain, “Feeding margin  is defined as the sale price of the  cattle (dollars per cwt.) less the cost  of gain (dollars per cwt.), multiplied  by the expected weight gain of the  cattle. The marketing margin is  calculated by subtracting the price  of the cattle (dollars per cwt.) when  the cattle would normally be sold  from the expected sales price (in the  future —dollars per cwt.), multiplied  by the starting weight of the cattle.  These two margins can be added  together to calculate a net margin to  determine the expected profitability.”

Expanding stocker options
Exploiting seasonal highs and lows in the cull cow market isn’t just for  cow-calf producers. Mike Murphy  made the comment that opened this  article to participants the Mid-South  Stocker Conference held earlier this  year.

Besides the profit predictability, Murphy says the enterprise bears  consideration by stockers because  the timing of it means there is still  time to purchase cattle for spring and  summer grass programs.

Moreover, it illustrates the type of diversity stocker operators and  backgrounders may need to consider  as operating costs and price volatility  increase.

As cyclical beef herd expansion takes place, profits will be tougher  to come by. In fact, Murphy also  pointed out that typically within  the first two years of a cyclical  transition —the part of the cycle the  industry is currently in —there comes  one of those gut-wrenching, back- breaking kinds of price wrecks that  are tough to endure.

The risk this time around could  be higher because prices are at  historic highs, as are the price  spreads between feeders and feds,  and between feeder cattle and  calves. That ’s before considering  the growing range of prices paid for  same-weight, same-class cattle.

At this stage of game Murphy believes stocker management strategies should include: focusing  on equity protection, managing  inventories through average buying,  looking for opportunities to manage  risk through the futures market, and  evaluating potential for retaining  ownership beyond the stocker  enterprise.

Whatever the enterprise and  whichever the segment, Murphy  emphasizes, “Return on equity is  how we should be measuring our  business.” When you do that, it ’s  amazing just how lucrative the cattle  business can be (Table 2 - below).