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.