CASE STUDY: Profitable marketing and business practices on a South Texas ranch

In this case study, historic production and financial records of the cow-calf, stocker, and feedlot enterprises of a South Texas ranch for the years 2001 through 2008 were analyzed. Most of the raised calves were sold at weaning. Depending on precipitation and forage, native stocker cattle were bought during the fall and spring and marketed the following spring and summer. The ranch also managed a feedlot operation, buying feeder cattle and selling finished cattle to a local packer. Annual and cumulative profit or loss on a per animal basis was calculated for each enterprise. For comparison, a retained ownership scenario was developed using the accumulated costs and returns from representative cattle of ranch origin retained through the stocker and finishing phase. When compared with retained ownership, the historic production and marketing plan resulted in greater (P < 0.01) per animal equivalent annual ($300 versus $8) and cumulative ($2,397 versus $62) net income. By strategically using arbitrage, ranch-raised calves were sold on average for 2.8% more per kilogram than purchased stocker calves. The 340-kg stocker calves were sold for 4.0% more per kilogram than purchased feeder calves. Fed cattle were sold almost equal with the market, at a discount of less than 1.0% over the 8-yr average. When compared with retained ownership, the historic production and marketing plan resulted in greater (P < 0.01) asset turnover ratio (37 versus 16%). Arbitrage allowed the ranch to fully use all of the value nuances in the cattle market to its advantage. In addition, increasing asset turnover ratio provided a method to take a relatively low profit margin business and create additional wealth.