Farm Talk

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February 25, 2014

Herd building requires cost strategy

Parsons, Kansas — Forty-five years ago at the very first Monett, Mo., Beef Cattlemen’s Conference, MU Livestock Specialist Eldon Cole’s presentation was entitled, “Can you afford to spend more than $300 for a herd bull?”

Last week’s 2014 edition of the popular event dealt with dramatically bigger dollar figures but the goal has remained the same: “It’s all about helping cattlemen become more profitable,” Cole emphasized.

And with more record prices ahead, that sounds like an easy chore — but maybe not for everyone.

“There will be people who will lose money despite the high prices,” MU Ag Business Specialist Wesley Tucker predicted.“ There is always more (profitability) variation from farm to farm than there is year to year.”

Even with high cattle prices, producers should exercise vigilant cost control, Tucker said, pointing out that the biggest variable impacting profitability is feed cost.

“I work with people who spend $300 a year to feed a cow and some who spend $1200,” he noted, adding that sky-high cattle prices can be quickly out-paced by high input costs.

Tucker suggested the primary challenge for most cattlemen is successfully dealing with fescue’s feast-to-famine annual growth curve. Contending that, historically, inexpensive fertilizer and big round balers provided cattlemen with the opportunity to have more cows, Tucker said many beef producers have based their stocking rate on spring grass.

He suggested they consider building more flexibility into their systems — reducing cow numbers and opportunistically grazing calves longer when the forage supply allows it, for example.

Tucker’s other recommendations included limiting reliance on harvested forages while optimizing the quality for hay that is baled. He also said some producers might want to consider control grazing in fall and winter with techniques such as strip grazing.

As for expanding the cowherd in the present economic climate, he had one final bit of advice: “If you’re going to expand, make sure your costs are low enough and you have the right genetics,” he recommended.

University of Missouri Ag Economist Scott Brown specifically addressed the question of herd rebuilding.

“If now is not the time then I don’t know when it would be,” Brown said, noting record price expectations and high cow return numbers.

Asserting herd expansion decisions will matter a lot more four or five years down the road, the econo mist said producers looking to increase cow numbers need a risk management strategy in hand.

“And, you’d better be as efficient as you can,” Brown added.

He is projecting a return of about $250 per cow for the next couple of years followed by somewhat lower returns in 2016, 2017 and 2018 with expansion likely taking place at a slower rate than in previous cycles.

“I’m very optimistic but there are risks to all of the positives,” Brown explained.

Primarily, factors that could derail good prices include weather, domestic demand and exports. Weather, he pointed out, also has a big impact on feed costs while exports — although looking very strong right now — are affected by the global economy as well as factors such as the BSE scare of a decade past.

Domestic demand, however, can have the most dramatic effect, he said.

“Reduced demand is the most catastrophic scenario, in my opinion,” Brown said. “I don’t expect demand to drop like it did in the ‘90s but it is very important and it’s something to watch.”

Brown expects cowherd expansion to take place slowly.

“I think we’ll see a fairly modest increase in cows,” he explained. “Heifers are worth a lot of money and that’s hard to turn down — that may slow expansion somewhat. Another thing is that a lot of forage acres moved to corn when grain prices were high and I think it’s unlikely we’ll see many of those acres come back.

“If you do decide to keep heifers, though, remember you’re investing in the calves they’ll be producing four, five, eight years out when returns will likely be lower.”

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