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