The benefits of retained ownership
By: Loretta Sorenson
Beef producers always have the option of capturing a greater percentage of the value of investment in calves through retained ownership. However, identifying the best option is a year-by-year process.
“Retained ownership isn’t easily defined, but can be described as a producer keeping calves for an extended period of time after weaning,” Lee Schulz, Assistant Professor, Iowa State University Department of Economics, says. “That length of time varies every year and for every producer.”
Among necessary retained ownership decisions for beef producers is whether or not they can optimize profits by feeding calves at home or shipping them to a feed yard.
“Feeding at home may add value to farm resources such as excess feedstuffs,” Schulz says. “It may not be as efficient as a commercial feed yard, but net farm income may increase through use of available resources. Many commercial feedlots have specialists whose sole objective is profitable cattle feeding. Pooling calves from multiple farms and grouping them efficiently allows for cost effective feeding.”
Schulz adds that producers need to consider both advantages and risks associated with retaining calves.
“A producer must take an operation’s income, risk level and time commitment all into consideration in regard to retained ownership,” Schulz says. “Eliminating the middle-man can potentially lower costs and increase profits as well as increase marketing flexibility. However, retained ownership means management requirements are increased, income is delayed and production costs increase, so it’s important that producers can manage all of that in their financial and labor budget.”
Schulz encourages producers to inform lenders of their plans and explain benefits of a retained ownership strategy.
“Lenders may be able to provide financing packages that free up part of the calf value and help finance feed costs, both of which can greatly ease cash flow binds,” Schulz says. “Iowa State University Extension and Outreach has enterprise budgets which can be used to evaluate several different retained ownership management options. The tools are Excel spreadsheets which can be downloaded and used on a personal computer.” (Ag Decision Maker website at www.extension.iastate.edu/agdm/livestock/html/b1-21.html)
Between 1995 and 2004 retained ownership alternatives added value to cow owners’ resources the majority of the time. In some individual years that return was more than triple the profit of selling at weaning.
“Successful cow owners adjust their program to changing market conditions,” Schulz says. “That’s how they achieve the greatest return on resources.”