Economics: October 2001

What is retained ownership? It involves participation in the next sector of cattle production. In other words, if you are a cow-calf producer, you retain ownership in your cattle through the stocker phase, and if you are a stocker operator, you retain ownership in the feedlot phase of production.

So, do you retain ownership in your cattle or not? The old adage I've heard for several years is that if you have good cattle, the longer you own them, the better off you will be. Generally, that is true. But there can be obstacles to making retained ownership work for you. First, you must analyze whether you are raising the kind of cattle that fit your environment and that produce a satisfactory product for the consumer. Then, you must analyze your costs of production to see if you can cut costs anywhere without hurting production. Each animal's profitability is directly related to its performance and marketability.

When you have spent an adequate amount of time addressing the internal issues of the operation, such as costs and production, you must then look at the external issues affecting retained ownership. We need to develop a better understanding of the various stages of the cattle cycle. We must understand the challenges and opportunities in each stage and their relationship to retained ownership profitability.

There are generally four phases considered to be the cattle cycle.

During the "up" portion of the cycle, which we are in now, you might expect to have significant profits in the cow-calf sector and narrow to moderate margins in the stocker and feedlot sectors. Most cow-calf producers should be profitable in 2001. If your cow-calf operation is not going to be profitable in 2001, it is imperative that you know what your costs of production will be when retaining ownership.

If you are considering retaining ownership to the stocker or feedlot phase, make sure you calculate your break-evens and add a profit margin that will meet your financial goals.

Also, look for signs of movement in the next couple of years to the downward transition in the market by monitoring the up cycle for reduced cow slaughter, increased cow numbers, and increased heifer retention. For the future, you can lessen the risk you are taking in retaining ownership in your cattle by being aware of these trends. Take every opportunity you can to make sure the odds of profitability are in your favor. Do your homework and make sure you have all the information you need to make this kind of decision.