– Dr. Andrew Griffith, Assistant Professor, Livestock Marketing Specialist, Department of Agricultural and Resource Economics, University of Tennessee
Can we “afford” to stocker calves this year?
How can a person afford to pay $???? for an animal and expect to make a profit? This was a question posed relative to stocker producers purchasing calves in the current market without much of a promise that they will be worth more down the road.
Though the margin is thin, there is a small profit in growing these cattle. The bigger question is how can a producer risk that much money and continue to expect the same return they expected when the purchase price was half of what it is today.
For example, if a person purchased a calf for $1,000 and then expected to profit $100 on that investment then there was a 10 percent return on the initial investment (ignoring other input costs). That same producer is now paying $2,000 for that animal and they have an expected profit of $100, which is only a 5 percent return on the initial investment. This does not make good business sense. Some will ask what are their alternatives as if there are none, but a person could stop buying and invest that money in something that has more than a 5 percent return.