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COVER STORY: Carving out a profit

YANKTON, S.D. -- How do cattlemen protect themselves financially in an era of rapidly fluctuating commodity and feed supplies? People are pessimistic and nervous about an uncertain economy.

YANKTON, S.D. -- How do cattlemen protect themselves financially in an era of rapidly fluctuating commodity and feed supplies? People are pessimistic and nervous about an uncertain economy.

Gail Sohler has owned for Stockmen's Livestock Market in Yankton, S.D., for 47 years and has made it stand out as a clean, professionally run facility, especially distinctive with its artwork that celebrates the livestock industry.

Tom Kuchta, assistant manager for Stockmen's Livestock Market in Yankton, has been with the company for 40 years. The company's trade area ranges up to 250 miles to 400 miles.

"We sell a lot of fat cattle by auction," Kuchta says. "It's things like that are growing. Twenty-five years ago, not many of the packers the auction, but now all the major packers are in the auction."

Kuchta expects a trend toward more futures protection for cattlemen.

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"Right now, the board in the summer months is in the low 80s, so it's hard to do anything on that right now, but your fall board is in the low 90s," Kuchta says, for cent-per-pound prices on market-ready cattle.

"Most of the lending agencies -- if you can't protect yourself -- they're not going to let you get into feeding cattle," he says.

Kuchta thinks 30 percent to 40 percent of today's feedlot operators are using futures to protect themselves -- maybe even 50 percent. The rest are "gamblers," he says, only half joking.

"They buy cattle every week and they sell cattle every week," Kuchta says.

A numbers game

Normally, the facility handles about 800 to 1,000 fat cattle every Wednesday. The biggest runs here on feeder cattle are after the first of the year. Last year, cattle sale numbers are higher than usual because the cattle are getting to be more than 1,500 pounds.

The packers won't bid on them in the country because they don't want to get fooled. Look 1,500 and into the plant looking 1,600, so they come through the yards.

Stockmen's major activity is with producers who come in with 15- and 20-foot trailer. They spread out their sales across a marketing year to protect themselves from volatility.

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In the fall and winter, most farmers who raise calves just keep them until after the first of the year, Kuchta says. They typically will add to their number, going farther west to buy some lighter calves -- out there, where ranchers have bigger strings of cattle and the local smaller producer some 400- to 500-pound calves to supplement their own numbers.

"Those ranchers out west, as soon as it starts to snow, they want to get rid of their calves," Kuchta says.

The local producers will buy 100 or a potload in a bunch and then keep calves in feedlots for nine months to a year and sell them at auction. To get those numbers, you have to go out west where the ranchers have herds of 500 to 600 cows.

This spring, cattle sale numbers are pretty normal.

"Right now, we've gotten pretty much current," Kuchta says. "We've cleaned up a lot our big, 1,500-pound to 1,600-pound cattle over the winter."

He says the winter feeding season brought gains of 4.5 pounds per day, while cattle normally would gain at 3.5 to 4 pounds.

"The conditions were just that good," Kuchta says. "We didn't have a lot of bad weather in our area, and the cattle just responded. It was a good feeding season for us."

Return of the packers

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In the past two years, Stockmen's Livestock has seen a return of packing company representatives in the arena gallery.

In the 1980s, the packing companies had shifted toward doing their own country visits to producers to find cattle -- bypassing the local markets to save the $10- to $12-per-head commission fee.

But they found that wasn't effective, he says. They would go to a farmer's place and find his cattle too big or not big enough for their use. In the country, farmers can be reluctant to agree to a sale price, thinking the price will go higher.

Kuchta says that the packers now have returned to the practice of letting the cattle come into a market like Stockmen's Livestock and allowing the auction to sort and sell cattle.

"Ones that aren't finished can go back to the country at a higher price," Kuchta says. "There are people who want to gamble and will take them back to the feedlot and make them fatter. That's why we have an edge over the country buyers. A lot of packer-buyers now don't want to go to a farm where there's 200 or 300. They want to go to a feedlot where there's 50,000 and they can see pen after pen."

In the past two or three years, the people have increased their use of corn byproducts. Some use distiller's grains and gluten as much as they can, depending on the size of the cattle.

The demand side for beef is another issue.

Beef will need to price itself correctly to retain its share of the consumer's market, or lose market share to competitors in times of a recession.

"I think everybody thinks we're in trouble for awhile, but we'll work our way out of it. We're going to have to watch our P's and Q's. People are short of money and they're eventually going to buy a cheaper product. Not that beef is high-priced, but chicken, poultry and fish are cheaper in comparison -- not as good, but when (consumers) have only so many dollars to spend for groceries, they'll buy something cheaper."

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