Retained Ownership Revisited: Balancing Market Prices and Genetic Potential

Retained ownership is a marketing strategy that involves maintaining ownership of young cattle beyond calf weaning, a traditional marketing time for many producers. Numerous retained ownership strategies exist. It is extremely important for producers and their lenders to clearly understand the advantages and disadvantages of a specific retained ownership strategy in order to fully evaluate profit potential. The advantages and disadvantages of retained ownership have been discussed by several authors. Advantages include 1) compensation for superior genetics, 2) reduction in market inefficiencies, 3) increased quality control in beef, 4) reduction in market risk for frost or drought damaged crops and 5) reduction in profitability peaks and valleys associated with cattle cycles. Retained ownership of cattle is not without problems. Disadvantages include 1) increased risk of poor performance due to poor genetics, health problems or deteriorating environmental conditions, 2) increased market risk, 3) increased financing requirements and 4) potential tax problems. Nearly every economic analysis of retained ownership has shown an increase in profitability over traditional cow-calf operations. Data adapted from the Kansas Steer Futurity (Simms and Maddux, 1990) are displayed in Table 1. Average annual net returns per cow through weaning were $4.84 from 1974-1988. Negative returns averaging -$43.81 were observed for 8 of the 14 years. Average annual returns per cow for the feedlot phase of production were $27.13. Negative returns averaging -$35.56 were observed in 5 of the 14 years. Returns for the combined cow-calf and feedlot phases of production averaged $31.97. This represents a 6.6-fold increase in profitability as compared to marketing the calf crop at weaning. Losses averaging -$40.69 were observed in 6 of the 14 years. A 1990-91 South Dakota Retained Ownership Demonstration Program (Wagner et al., 1991) showed average profits of $38.75 and $16.69 for an accelerated finishing program and a traditional two-phased growing and finishing program, respectively. The variability in profitability between groups of cattle representing different genetic and management backgrounds was tremendous. Profitability ranged from -$56.57 to $131.36 per head and 7 of 51 groups of five steers in the accelerated pen lost money