Retaining Ownership - Is It For You?
What is retained ownership? Retained ownership involves the participation in the next sector of the 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 stocker operator, you retain ownership in the feedlot phase.
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; however, 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. Then, you must analyze your costs of production to see if there are any areas you can cut costs without hurting production. The profitability of each animal is related to the performance and marketability of that animal.
When you have spent an adequate amount of time addressing the internal issues of the operation, such as costs and production, you should look at the external issues affecting retained ownership. We need to develop a better understanding of the various stages of the cattle cycle.
It is important that we understand the challenges and opportunities in each stage and their relationship to retained ownership profitability. There are generally four phases considered as the cattle cycle. The chart below, which I borrowed from CattleFax, does a good job indicating the profit trends for each sector of the cattle industry during each phase of the cycle.
You can see that generally during the down portion of the cycle, you might expect to have significant losses in the cow-calf sector and narrow to negative margins in the stocker and feedlot sectors. That is not to say there are not some profitable producers today, there are. But this is to point out when the cattle cycle is against you, it makes it imperative that you know what your costs of production are. In this manner you can lesson the risk you are taking in retaining ownership of your cattle.
Take every opportunity you can to make sure the odds are in your favor! Do your homework and make sure you have all of information you need in making this kind of decision. If I can help you take a look at your information and assist you making the decision of whether to retained ownership or not, please give me a call.