Retained Ownership of Livestock and Risk: Overview
• The risks associated with retained ownership of livestock
• Retained ownership risk management
Retained Ownership of Livestock and Risk
• Retained ownership may or may not provide income diversification – Ranch and custom background
– Ranch and custom finish
• Can a producer capture and retain the value of weight gain?– The primary concern is determining
if market conditions exist to provide value
– Are the producer (and cattle) in a position to capture that value?
Retained Ownership of Livestock and Risk: Risks
• Suppose value is generated:– How much added risk is generated?
– Is the expected value enough to offset that risk?
– Are there ways to manage the added risk effectively?
Retained Ownership of Livestock and Risk: Added Risk
• Added Risks include:– Morbidity and Mortality
– Cost of Gain
– Price Variability
– Timeliness in Marketing
– Market Access
Retained Ownership of Livestock and Risk: Morbidity and Mortality
• Morbidity and Mortality research show that:– Commingled pens of cattle had a
6.7% increase in morbidity
– Placements at higher weights had lower morbidity
– Lower morbidity increased average daily gains
– Montana feeder cattle gained 0.2 pounds per day more than those from five other states
– Montana feeder cattle had end-values of $31.50 - $35.70 per head over those from other states
Retained Ownership of Livestock and Risk: Morbidity and Mortality (cont.)
Retained Ownership of Livestock and Risk: Morbidity and Mortality (cont.)
Retained Ownership of Livestock and Risk: Morbidity and Mortality (cont.)
Retained Ownership of Livestock and Risk: Cost of Gain
• Feed costs
• Weather
• Managerial expertise
• Cattle performance
Retained Ownership of Livestock and Risk: Timeliness in Marketing
• Do you, as a producer, have your cattle at a feed motel?
• Who controls the marketing decisions?
• Are cattle sorted for optimal performance?
Retained Ownership of Livestock and Risk: Market Access
• Do buyers visit the lot and consider show lists daily?
• Does more than one buyer frequent the lot?
• What type of cattle are they buying?
• Does the lot have a marketing agreement or strategic alliance?
Retained Ownership of Livestock and Risk: Costs Involved
• Financial Issues
• Interest cost of further carrying cattle
• Cash flow issues
• Enough cash equity to handle downside risks
Retained Ownership of Livestock and Risk: Joint Ownership
• Advantages of Joint Ownership– Better cattle management
– Risk sharing
• Disadvantages– Sharing of profits
– Sharing of control
Retained Ownership of Livestock and Risk: Summary
• Management risks associated with retained ownership of livestock