It is impossible to go through a drought unscathed. All you can do is try to minimize the damage.
I attended a drought mitigation workshop this week. It didn’t take long to figure out why it was called “drought mitigation” ‒ it is almost impossible for a rancher to go through a drought unscathed. The key is to mitigate the damage and emerge with the land resource in a state where it is not damaged and where the financial condition of the operation is such that it is positioned to take advantage of the opportunities to come.
That’s easy to comprehend but extremely difficult to do when you’re trying to hold a lifetime of genetic progress intact. The really difficult part of this scenario is that we are already at a low in the cattle cycle, numbers are extremely tight, and once the rain returns, the demand for females is going to be tremendous.
The drought is extremely severe in my portion of Eastern Colorado. For perspective, Colorado endured the second driest January to June in the last 118 years and this year is the hottest in that same time frame.
And it’s not just Colorado. National statistics show the same thing ‒ it’s amazing how many agricultural states are seeing this year rank in the top 10 for drought and heat over that time frame. Nearly 80% of the nation’s cowherd is located in areas that are classified as being in moderate to extreme drought. Corn prices have soared as result of the drought and hay prices are already exceeding previous records.
Fortunately, most of the Northern Plains is coming off a relatively wet three-year period. As a result, cattle have been largely subsisting off the grass grown in previous years. Yet in many areas, that reserve is just about gone, and additional liquidation is just beginning. Calf prices have already declined in value by $200/head or more since the spring. An economic simulation model showed that, prior to the drought, profits of $150/head were possible. Plug in the drought numbers and the model shows the margin has declined to a negative $250/head on average.
Obviously, everyone wants to avoid the scenario that we saw play out for ranchers affected by the severe drought in Texas and Oklahoma last year. Many producers started the spring with cows valued at $1,400/head or more, they put $600 of feed in them, sold them for $1,100, and are now trying to buy the same cows back at $2,000/cow. It doesn’t take a mathematician to understand those numbers don’t add up.
Conference speakers stressed that acting early, rather than waiting, pays dividends; and that the middle of a drought is about the worst time to start making plans. Another certainty about drought is that it is riddled with uncertainty. Well after the optimum decision point, there is still an opportunity for it to rain and salvage a grazing season.
Cattlemen who spoke at the conference not only had implemented sophisticated grazing systems and managed range conditions so they had more reserves to rely on, but they had developed in-depth drought management plans, with trigger dates and conditions that determined their next steps.
One of those ranchers was from Nebraska, and his ranch was well below normal precipitation on June 4. But he knew how much production he would be short and the following day, he liquidated cows to reflect that. He had Plan A, Plan B, and Plan C, depending on the severity and the situation; and with a plan in place, he was managing proactively vs. being dictated to by Mother Nature.