REPOPULATION AFTER DROUGHT SPAWNS NEW RULES

by: Clifford Mitchell

Looking into the future has always been somewhat tricky in the beef business. Far sighted visions or crystal ball predictions stemming around what next year's calf crop is going to look like or where future prices will be are often put on hold by more immediate tasks at hand. Planning ahead can often be tied to the immediacy of Mother Nature. Severe drought has made it tough to think of the future when herds are being liquidated.

Planning ahead, with the current situation at hand, takes a true believer. Many positives surround the beef industry and as soon as producers receive some needed moisture, the wheels will start turning to repopulate drought stressed areas. A positive or glass “half full” outlook will help some operations pass the time.

“The positive thing is prices held up remarkably well for cows and feeder cattle. Most who were forced to sell retained equity,” says Dr. Derrell Peel, Extension Economist, Oklahoma State University.

“There are great opportunities ahead in the beef business for operators that held on to their equity,” says Chris Farley, TCU Ranch Management.

For some operations, the drought will be too much to handle. Age, other interests and a different banking system could change the role of some beef producers. A new level of management could also force changes to some operations.

“Some operations will not be back in the cow business, especially those that depend on off farm income. Replacement females will definitely be higher priced and it will be a challenge for some operators to get financing,” Farley says. “The climatologists, who are getting pretty good at what they do, are predicting less than average rainfall the next five years and we have to manage for that. Repopulate at a slower rate and let those pastures heal up.”

“There are a certain percentage of producers that may not re-enter the beef business. We have certainly heard this. Wildlife enterprises and high grain prices could make it difficult to keep some land dedicated to beef production,” Peel says. “The drought may change the way some producers do business. They will become land owners rather than beef producers. The land will stay in production, but it may be leased to another operation or younger ranchers looking for ways to enter the business. Capital requirements will be high and there will be more strings attached to financing.”

Changes to the business model will occur as ranches are repopulated. Different price levels for replacement females and availability could open new doors for some operations.

“Ranchers will be forced to repopulate at a different price level. Females will be extremely expensive and there will be a wide range in quality. We could see heifers sell at a premium to steers for several reasons,” Peel says. “The key going forward will be good prices. The value of gain is very high, which makes a stocker enterprise a good option for most operations. Don't build back to the same numbers and retain the calf crop to higher weight.”

“There are great opportunities for stocker operators to lease a couple pastures and run some yearlings. Producers will have more capital to buy calves for a short term gain period,” Farley says. “Retain ownership of the calf crop and have one quarter of your animal units in a growing phase through the winter and spring. This type of flexibility is a good thing to have when it comes to repopulating and managing forages.”

Intuitive ways to find profit will be at the top of the list for producers. High market prices do not guarantee profit. Producers that can manage the cost side and value resources correctly will sort themselves to the top. Controlling input costs or cost op production could also change the overall management philosophy.

“Today's corn prices make forage worth more and most producers are in the forage business. The advantage the beef industry has is when grain gets high, we can utilize other products. Most operators will have to re-evaluate the physical economic value of their resources,” Peel says. “Strong market prices won't translate into profit. The volatility and risk is in the input side of the equation. Profit will depend on more than marketing cattle because the supply situation indicates fairly strong market prices. Some producers will have to look at a change in their production system and think about value in a little different way.”

“Management skills will have to be honed because high calf prices don't necessarily make for better profits. It will be an educational thing for some producers to have a smaller cow herd,” Farley says. “Stocking rates have to match forage production and fewer numbers may actually mean more dollars at the end of the year. Managers are going to have to look for sustainability, which could mean less haying, less fertilizer and more stockpiling of forages.”

Second chances are hard to come by for most operations. The destocking of ranches throughout the region definitely brought new challenges to producers. The opportunity to rebuild with a better factory could help build in profit for the long haul.

“Introduce genetics that better fit the environment. Some cows can't wean enough pounds to pay for the forage they eat. Hopefully, ranchers can re-stock with better genetics,” Farley says. “Matching cow size to the forage base will dictate what type cow returns to the range. A cow that produces a four to five weight calf could be more successful in today's system, because that 650 pound balling calf may not fit with high grain prices.”

“Cattle that have been the most valuable the last few years may not work in the new system permanently affected by high corn prices. Producers may value cattle more that are less grain intensive and work better in a forage environment,” Peel says. “The calf fed evolved with cheap grain prices. As long as corn is high, it's going to place a premium on that yearling.”

Identifying enterprises that work in the production system will help define profit potential. Replacing the sheer volume of females lost due to the drought will require time. The principals of supply and demand are somewhat of a double-edged sword for producers.

“Drought recovery is a transitional process. Producers have to take care of the land and give pastures time to recover. Mediocre genetics, supply and price is the biggest challenge producer's face repopulating ranches,” Peel says. “It has to be a three to five year plan. We're not going to replace 600,000 to 800,000 cows in one year. The limited numbers of females and the high value of stockers make it an unrealistic approach to replace all those females in one year. Good prices will help the industry move forward.”

Relationships built in tough times could serve well for operators will resources to function with two operations. Allocating resources with a blend of leased and owned land could meet long term profitability goals. Economies of scale will have an unwritten advantage when it comes to operating in more than one location. Outfits must still control costs to “pencil in” a profit.

“Operations that can keep fixed costs in check, running two places have an advantage,” Farley says. “There are opportunities to find country and extra management to winter cattle. Keep the relationships forged when the drought hit and run cattle in both areas. This will help manage weather risks.”

For most operations, patience sometimes is a hard thing to master. As producers repopulate, a learning curve will be in place as the industry adjusts to a new set of rules. Keeping a tight grip on the elements an operation can control will help producers look ahead to the next step in the rebuilding process.

Adjusting to different factors will take time. Economics will dictate a change in the way most producers view production practices. Finding profit through different enterprises or by simply managing costs will help bring cattle back to the country. When adequate moisture returns, planning ahead will help producers become more prepared for the new beef industry that will operate on somewhat different terms than it does now. Rewriting the “cowboy manual” could help stabilize profits.

“Stock accordingly with the weight of cattle to available forage. Moderate cattle will fit most environments. We have evolved into heavy milking cows with increased mature size and we have to ask ourselves if this is the best fit. Efficient, fertile cows are where the cow herd is headed,” Farley says. “Manage with your head on a swivel. Define those easy keepers that bring home a calf every year and breed back. The industry is going to be different the next five years and we have to take advantage of the many opportunities that will be available.”

“Everything can change in an environment that is permanently affected by high grain prices. The industry faces many challenges with high feed cost and initial investment, for replacement females, being at the top when we repopulate,” Peel says. “The industry may have to undo some of the things we have done in the past. We may have to redefine what efficiency is with expensive corn. Bottom line it's a good time to be in the forage business. Higher valued forage should translate into more return to land, labor and management.”







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