Growers must consider stocker gains vs. wheat yield

By Jennifer M. Latzke

Stan Bevers, Professor and Extension Economist audio presentation

GRAZING OR YIELD? — Stan Bevers, professor and Extension economist with the Texas AgriLife Extension Service, Vernon, speaks to growers at the Amarillo stop on the Small Grain Solutions tour, March 23. Bevers challenged growers to carefully weigh their options of grazing stocker cattle on their wheat, rather than growing their wheat strictly for yield. (Journal photo by Jennifer M. Latzke.)

There are a few unshakable traditions and truths in the Texas Panhandle. Barbecue is served at all gatherings. The Palo Duro Canyon is still prettier than the Grand Canyon. And, wheat is grown for stocker cattle first, and a crop second.

However, at the recent Small Grain Solutions tour stop in Amarillo, Texas, one speaker challenged the traditional thinking about wheat/stocker operations.

Stan Bevers, professor and Extension economist with the Texas AgriLife Extension Service, Vernon, spoke about profit points for wheat/stocker cattle operations. He said in recent years the cost of inputs for wheat and cattle and the market prices for a wheat crop or cattle crop have changed how growers view their wheat crops.

“Growers are asking themselves how they can take this risk and spread it around,” Bevers said. “Should they focus on growing wheat alone, or should they graze the wheat? And, if they graze it, should they own the cattle and add that much more risk, or should they lease the wheat pasture?”

Wheat farmers, Bevers said, will first consider grain yield potential, while stockers consider that wheat yield secondary income. Of course, there is that Texas adage that “come April, a calf will handle a hail storm better than wheat will,” Bevers said.

For diversified wheat/stocker operations, producers must balance growing more forage for their cattle at the cheapest cost. Most do this by planting their wheat earlier in late August or early September. But, Bevers said, it is important to remember that wheat is a winter crop, and earlier planting isn’t always better if a producer is planning on yield after grazing.

Of course, this argument is moot if wheat is less than $4 per bushel, he added. Producers will be more diversified with a dual crop. But, as wheat prices rise above $4, you’ll see more producers either becoming wheat growers or stocker operators.

“In September of 2006, we saw ethanol kick off and the price of corn rose dramatically,” Bevers said. “And, wheat went with it. We may be back to a new plateau in wheat prices, at $8 per bushel. Now, when we graze our wheat and give up yield, we give up a lot more per acre.”

If wheat growers are considering leasing their wheat pasture for stocker cattle grazing, they should reconsider how their contracts are worded.

“The cost of gain in the feedlots has nothing to do with what the lease rate should be,” Bevers said. “Instead, you should compare what you will be giving up and your management changes due to grazing.” For example, to graze wheat, growers will have to change their planting dates. They’ll also see higher input costs covering fertilizer, heavier seeding, fuel, and interest, totaling about $22 per acre.

“Research has shown that you lose 5 to 6 bushels of yield due to grazing until March 1,” Bevers said. If wheat is $7 per bushel, that can add up to about $23 per acre. “So, because of changing management and loss of yield, a lease contract should overcome both the lost yield and the added input costs.” This may mean that lease rates may have to rise.

At the time of the tour, Bevers said the price of wheat was back below $5 per bushel, and input costs were back down from their recent highs. However, he cautioned that can change. Fertilizer might rise again, and wheat producers may be locked into higher wheat prices, or have CRC Insurance base prices of $8 per bushel.

“We are seeing RMA releasing some failed wheat acres to grazing under CRC,” Bevers said.

For those who want to continue the tradition of grazing their wheat acres, Bevers discussed the trends that will affect them in years to come.

One major trend in recent years has been declining cow inventories and declining numbers of large operators available to lease wheat pasture for their cattle. “We used to have a lot of competition for wheat pasture, but the big players are not out there to lease ground,” Bevers said. “We’re seeing more competition for fewer calves.”

The ethanol situation has a lot to do with this problem, Bevers said. With the U.S. Department of Agriculture reporting that the number of bushels sent to ethanol production is on the rise, it will impact the amount of corn available to feed cattle. That, in turn, will impact cattle gains, he said. Calf and feeder prices will have to adjust to the ethanol situation, Bevers said.

“Ethanol is here to stay as long as the Renewable Fuels Standards remain in place,” Bevers said. With the current administration strongly supporting renewable fuels, don’t look for change in the future, he added. “As long as there is a federal mandate to have 35 billion gallons of ethanol produced in the U.S. by 2020, and 15 of which must come from corn or grain sorghum, don’t look for it to change,” he said.

Grazers will have to decide what they can spend for all costs and still make a profit, he explained. If a grazer can keep the cost of gain down, he will make money. The cost of gain on wheat pasture is higher than most usually believe. If grazers can keep their COG below 70 cents per pound, they’ll do well, he said.

“Stocker operators need to manage the rollback,” he said. “Don’t just look at buying in the fall and then selling in the spring. Anything under $20 rollback should be considered favorable and $10 is great.” Bevers explained that if wheat growers are planning on grazing their acres and owning the stocker cattle they put out there, they must be ready to pounce on the market when it’s favorable. Over time, the price of 450- pound steers compared to May futures is lower in October than it is later in winter. “Find and act on the opportunities,” Bevers said. “May 2009 feeders at $118 per hundredweight should be obvious.”

In the end, it’s a management decision whether to be a wheat producer or a stocker operator. And, producers should look to their bottom lines rather than tradition for the answers specific to their business interests.

“I am not saying ‘no’ to cattle,” Bevers said.

“Cattle help us spread risks. We are not in an area that we can be a wheat producer alone. We still have to spread our risk.”