My View From The Country

This Year’s Drought Is High-Stakes Poker

As the industry faces the prospect of another drought year, there are going to be some big winners and losers. But that’s the essence of the game when Mother Nature deals her hand.

Making the right decision early enough is always the key in a drought. Being proactive rather than reactive and having a plan is great advice. Yet, it still seems to me that there are two sides to the drought equation.

The first is making a decision at the correct time; a good drought plan can help greatly in this regard. The second is making the right decision, which remains an imperfect science.

In my part of the world, which is in the unenviable position of entering into the third year of a drought, producers have done what they could to mitigate the effects. Certainly, some are like me, and have made some mistakes along the way that have either cost them dollars or will make recovery longer. And I’m guessing there are some who have done just about everything right up to this point.

A Closer Look: The Difficulty With Drought

Regardless of which category they fit into, however, the options are becoming limited as the drought continues. Mother Nature will either break the cycle or something dramatic will have to occur.

An oft-repeated phrase throughout this process has been that “you can’t feed your way out of a drought.” I understand that logic, but the decision is a whole lot simpler if you could plan to buy back from a market similar to the one you sold into, or if you believed you could purchase similar quality genetics at similar premium or discount levels.

It seems obvious to me that any continued liquidation this spring will find producers forced to build back their herds in a dramatically higher market. The recent closing by Cargill of its Plainview, TX, packing plant is a testament to the fact that supplies are tight, and that we will see unprecedented price levels for breeding females when the rains finally return.

Couple that with the fact that genetics from both an adaptability and value standpoint are becoming increasingly valuable, and it becomes clear that external expansion when moisture returns may be unfeasible – expanding from within may be too slow and too late to take advantage of the unprecedented profit opportunities that are expected to accompany the next 4-5 years as well. This means that despite all of the well-intentioned drought mitigation strategies that have been implemented, producers are still facing a final poker hand where all their chips will be forced to the table.

The plays in this high-stakes game seem to be:

  • Find a way to keep the cows and be positioned for a great future if the rain comes.
  • Keep the cows, endure another year of drought, and lose one’s equity.
  • Sell the cows now, preserve one’s equity, and be precluded from participating in the golden era of cow production.

Feedlot pen space is already being reserved by some producers who have decided to go all in, while others have made the decision to liquidate. The remainder are still waiting to make that final decision; they are short-stacked and are deciding to push all in with a pair of twos, or wait for the next hand, knowing they will be forced to go all in regardless of what they are dealt. Sadly, when you are the short stack, bluffing is no longer an option.

My prayer would be that every person gets a two on the flop, or that the next hand deals pocket aces (with some much needed moisture). Short of that, I guess it’s always exciting when you get multiple players pushing all their chips to the middle. There are going to be some big winners and losers, but that’s the essence of the game when Mother Nature deals her hand.

Discuss this Blog Entry 6

Anonymous (not verified)
on Jan 25, 2013

In the past year I have had optimistic buyers call me and tell me that they have decided it is time to "get back into the cattle business", so they would like to buy "some cows ready to drop calves" for $800. I ask them why anyone would want to sell a bred cow for $800 when meat price is over$1100 and the calf in six months will be worth over $800. I am usually met with silence. The old game of getting in and out has become--well, maybe it is over during this period of economic turmoil and dollar devaluation.

Spencer Key (not verified)
on Jan 25, 2013

I sold my almost all of my herd in the fall of 2010, just as the prices were getting high (for that period of time). The final stragglers went to the sale in January 2011. I was pleased with the prices I got for the cows and calves, and knew that it would be costly getting back in. Most of my herd was older and I was out of grass. Rains came the next month and filled all my stock tanks. Having rested my pastures for a year, I had quite a bit of grass compared to my neighbors and decided to restock last month. The prices I paid were at the low end of what I was expecting. Not many others were stocking up, so the prices were low. I only re-stocked at 70%, waiting to see if the rains do come.

Ted H. Smith (not verified)
on Jan 25, 2013

I was a youngster during the drought of the 1950's but have been reminded of the lessons learned there for the last five decades. My dad who died last year but never forgot those very tough times or the sacrifices they made to survive them. They governed his decision making for a life-time.

After seven years of burning pear and slowly selling the family heard, his father-in-law offered to sell him the cows, lease him the land, and finance the deal. He took the gamble. It started raining and the first calf crop paid the entire debt. Now, I suppose it is my turn to step up to the plate. We've been through other dry times in the last sixty years and will surly see more down the road.

The primary difference is my dad was in the prime of his life when he did it, I'm sixty years old. The will to stay hooked is still there but the body may not be up to the task. We'll see what happens.

Don walters (not verified)
on Jan 25, 2013

I downsized during the drought last year..Dunno if I can do it again this year if the drought continues.
Im 60 also and going it solo...lots of work

W.E. (not verified)
on Feb 26, 2013

Troy Marshall of Drovers Cattle Network says:

Hmmm ". . . we will see unprecedented price levels for breeding females when the rains finally return."A pair of us are working in this herd--one full time and one part time, both in our sixties, with occasional help from high school students and friends. With the following seven factors in mind, any thoughts out there as to which (crops or cattle) might be the better gamble in a year that many predict will bring another "exceptional" drought? 1) Our cow herd is high quality, registered, and very well adapted here after nearly fifty years of high-pressure selection. We produce many herd bulls that can out-produce A.I. sires here in this climate on our grass. 2) The land around here has been very good when carefully fertilized, flat to gently rolling, so our cattle must compete with crops for profitability. They have done so by becoming very low input animals. The cows have remained in good condition this winter on hay without any purchased supplements other than mineral, even through some pretty harsh winter weather. 3) Much of the row cropped land around here has lost a great deal of its organic matter, and we have been using pastures and cattle to restore some acreage. 4) We had very little good pasture left after last year's drought, but a larger than ever cow herd that made it through the winter with the help of land that was in crop residues last fall, fenced with single-wire electric fences during October after harvest. The crop residues nearly doubled the space for our herd, but the herd will have to be trimmed to fit available pasture space unless we do something drastically different this year. 5) Corn prices are still high, but so are corn expenses, and the crop made a disastrous ten to twenty bushels per acre around here last year. 6) Most of our pasture land is already set up in cells for management-intensive grazing. We can access some additional unfenced land that has been in a row-crop-only rotation of corn / wheat / soybeans for over thirty years. 7) We have developed a very good local market for beef over the past ten years thanks to big changes in our customers’ demands for all-natural beef. The kicker is that local slaughterhouses are booked way past capacity, and it is a big hassle to get our beef processed. (The best one books a year in advance.) Any advice will be carefully weighed and greatly appreciated.

on Feb 26, 2013

This article, and Troy Marshall's opinion pieces, appear on the BEEF website not Drover's Cattle Network.

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As a fulltime rancher, opinion contribur Troy Marshall brings a unique perspective on how consumer and political trends affect livestock production.

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Troy Marshall

Troy Marshall is a multi-generational rancher who grew up in Wheatland, WY, and obtained an Equine Science/Animal Science degree from Colorado State University where he competed on both the livestock...

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