It might be even tougher to make the wrong decision marketing calves this year than last, if such a thing is possible. Supplies are that tight, and prices are that good.
In fact, Derrell Peel, Oklahoma State University Extension livestock marketing specialist, explains, “We may see some heifer retention in the second half of the year that won't show up in the July inventory report, but essentially the 2008 calf crop will probably be no larger than the one in 2007.”
That means calf supplies promise to remain tight at least through 2009, and even tighter if and when producers retain more heifers for expansion. It's this same supply fundamental relative to cattle feeding and beef-packing capacity that cushioned what could have been horrendous economic blows from BSE going on four years ago and rocketing feed prices most recently.
It's not that the cattle cycle has gone away; it's that enough factors - and large enough ones - have stalled the expansion phase of the cycle and extended the price crest. First, it was drought through the gut of the country, followed by continued drought in some parts and blizzards in the West. Now, even in areas where moisture and forage have returned, it will take some time to get back on an even keel.
“Cow slaughter has remained larger than I thought it would this year,” Peel says. “That tells me producers are being cautious about expanding, even in areas that would support it.”
Drought effects continue
According to the Livestock Marketing Information Center, “Unless weather conditions improve, severely dry conditions in the Southeast and West regions of the U.S. will further contribute to beef cow slaughter numbers this summer. However, on a national basis, total cow slaughter is expected to decline in the second half of the year.”
Notwithstanding normal market volatility, selling calves makes sense this fall.
Peel says the incentive also exists, for the first time in several years, to hold calves to heavier weights as cattle feeders seek more cattle at heavier placement weights. After all, even if the predicted gargantuan corn crop becomes reality, it's not like corn prices will plummet.
As well, Peel says there may still be time to retain heifers without winding up on the wrong economic side of them.
“Last year really bought us strong calf prices in 2008, and this year the numbers are buying them for 2009. So, if your herd numbers are down, I think there's still some time to hold heifers back,” Peel says.
With the market pretty well taking care of itself if you're a cow-calf producer, Peel believes now's the time to focus more on the production side.
“‘Am I selling my forage to the best advantage?’ That's what it's all about,” Peel says. This year, numbers and prices mean that advantage could be growing the cow herd, selling more cows and running more stockers, or even marketing hay rather than using it yourself.
As always, production possibilities abound, everything from shoring up feed, energy and fertilizer expenditures, to making sure cows are paying their way on the heels of tremendous environmental stress.
For instance, Peel says cows in Oklahoma emerged from drought last year; now, there's been so much unseasonable moisture that wonderments are increasing about the chances of molds and fungi impairing reproduction. So, preg-checking earlier this year in those areas makes sense.
Peel cautions producers to consider a moderate rather than all-or-nothing approach to trimming production costs.
Whatever the strategy, there's no question how much more effective management is worth. Kris Ringwall, North Dakota State University Extension beef specialist, says producers participating in that state's Farm and Ranch Business Management Program have averaged a $128.51 net return for seven years. But the difference between the lowest 20% and highest 20% has averaged $237.69/cow during that same time. Basis 150 cows, that's $249,574.50 for the top managers vs. the poorest ones.
The same holds true in other data sets. Cattle-Fax, for example, reported this winter that the top third of its members averaged $166.37/cow in 2000-05, compared to $47.62 for the lowest one-third. Basis 150 cows, that $118.75/cow difference equates to $89,062.50.
“With cattle numbers at 50-year lows, we can't produce ourselves into lower prices any time soon,” Peel says.
In other words, the most amazing run of cow-calf profitability in our lifetimes will continue to mask sloppy management for a while yet, but taking care of management today could help solve future market challenges.