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Retained Ownership Generates A Marketing Alternative For Livestock Producers

by 5m Editor
2 August 2007, at 5:11am

US - The summer here in South Dakota, presses on. High temperatures and lack of rain have caused hardships on both grain farmers and livestock producers. Past articles have talked about several marketing opportunities, this issue we will explore retained ownership.

Most producers lose track of their animals once they are marketed, but retained ownership allows a producer to share in the feed records, carcass data, additional profit and also a portion of the loss if it occurs. This differs from custom feeding where producers merely select a feedlot, send their calves and pay the bills. Producers are then sent a check when they are slaughtered.

In a retained ownership scenario, producers sell their calves to the feedlot, but retain about 20 percent of the ownership. This means that a producer receives 80 percent of the price of the calves when they enter the lot and the additional 20 percent will be paid to them at slaughter, plus all data and a percentage of all the profits after the finishing bills are paid.

This format allows the producer to compete in other phases of cow/calf production without expending large amounts of money for facilities and labor. Over the last 30 years feedlots have averaged between $7.50 and $9 for every animal they handled. Feedlots have compensated by increasing capacity.

In the past few years, the cow/calf producer has been rewarded with at least $100 profit per cow/calf pair following 20 years of a $2 to $3 per unit average profit. The result is that the top 25 feeding companies now feed 46 percent of cattle. This percentage may increase to 50 percent or 55 percent by 2010.

Retained ownership offers an alternative to more common marketing methods. Livestock producers can participate in the backgrounding, stocker, feeder and fed cattle stages of raising their cattle.

This year roughage feeding, stalk grazing and pasture yearlings will help provide cheaper gain than the normal corn-fed programs. Utilization of this cheaper grain will make producers dollars of profit. However, there are several fundamentals producers must understand before they begin a retained ownership program:
  • Know production costs; establish breakdown for each stage of production to identify potential profit.
  • Evaluate resources; feed, labor and facility costs are the major drivers of profitability.
  • Evaluate genetics; producers must be confident their cattle will perform on the particular feeding, backgrounding or grazing program that is selected.
  • Define the market; set a timetable for marketing the animals.
  • Herd health program; fewer health problems and deaths will help producers' gains and increase profits.

The most important decision is the selection of a feedlot. Producers should always ask to see the close-outs on three groups of cattle.

This should give them an idea of the gains in the past and the cost of gain. It will also give the producer an idea of the marketing ability of the feedyard.

Last Year was the first year that more than 50 percent of slaughter calves were sold on a grid formula for establishing price. Hopefully this will help producers generate more dollars.

5m Editor