Cow-calf producers will have the leverage in the market over the next few years, especially if they can shift their marketing toward yearlings, rather than calves, says Tom Brink with J&F Oklahoma Holdings, Inc. J&F is the company that owns most of the cattle fed by Five Rivers Cattle Feeding, which operates 12 feedyards in seven states with a one-time capacity of 960,000 head. Those feedyards, Brink says, purchase an average of 35,000 feeder cattle and two million bushels of corn every week.

Overall, Brink says, projections for continued high beef prices and short supplies of feeder cattle make this is a good time to own beef cows, while acknowledging that high production costs create challenges. Producers need a competitive cost structure, the right genetics and efficient management to fully capitalize on high cattle values.

And while returns on weaned calves should remain strong, the stocker/backgrounder segment enters 2012 poised to continue a 10-year run of profitability. Since 2004, the value of weight added during the stocker phase ranged from about $0.80 to $1.20 per pound, while cost of gain averaged $0.50 to $0.60 per pound. Cost of gain has increased recently, but so have yearling prices. In last week’s National Feeder & Stocker Cattle Summary, prices for steers weighing 750 to 800 pounds mostly ranged from $140 to $148 per hundredweight.

High cost of gain in the feedyard, which will average over $100 per hundredweight in Five Rivers yards this year, will continue to shift feedyard demand toward yearlings and away from calves, Brink says. This tends to narrow the price spread between calves and yearlings.

At the same time, winter feeding and overall cost of gain for carrying calves over to yearlings appear favorable, at least in some areas. Stocker production will be limited in the drought-stricken Southern Plains region this year, but further north, producers with access to abundant hay or other forage along with various by-product feeds can keep feed costs in check.

Historically, Brink says, calves have represented about 15 to 20 percent of feedyard placements, while yearlings and long yearlings account for 45 to 55 percent and short yearlings represent the remainder. High feedyard cost of gain, coupled with good profits at the stocker level likely will shift those numbers in coming years. It would have happened this year, but the drought forced large numbers of calves into feedyards rather than grazing programs. During 2012 through 2014, Brink expects calf placements to drop by about 10 percentage points, while placements of heavier yearlings will increase proportionately.

Industry demographics reflect the trend toward managing more cattle through a stocker/backgrounder phase, Brink says. Since 2005, total U.S. cattle operations have declined by 5 percent, beef cow numbers are down 4 percent and the number of feedlots has dropped by 13 percent. But during the same period, the number of stocker operations has increased by about 7,500, or 16 percent.

From a cattle feeder’s standpoint, Brink says the trend toward more cattle moving through a stocker phase creates a challenge in maintaining cattle identity for branded-beef and other programs requiring source or process verification. A process that is fairly simple when calves ship directly from the ranch to the feedyard becomes more complex as cattle change ownership and location several times. As demand for verified cattle grows, cow-calf producers with the resources to retain their calves for sale as yearlings could be in a good position to participate in value-added supply chains.

As for yearling weights coming into the feedyard, Brink says in today’s market, steers weighing 700 to 825 pounds are ideal, 825 to 900 pounds are acceptable, 900 to 950 pounds are barely acceptable and those over 950 pounds are too heavy.

“As long as corn prices stay elevated and feedlot gain costs are high,” he says, “the ability to use forage for profitable stocker gains should continue. Don’t sell your calves too early or too light.”