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The Grazier's Gazette

When riding a bull (market) be prepared for the fall

Market ticker chart
No bull market lasts forever, and beef has had an excellent ride. Are you ready for what could come next?

I learned long ago to not try to outguess the cattle market but I don't consider it a guess to say that the market for all classes of cattle will be significantly lower in the not too distant future. We have been riding a bull market for so long that some think the cattle cycle is dead.

It is not dead but it was badly bent by a perfect storm of factors that have distorted the market over the last decade. Wide spread drought, Atkins diet, government mandated fuel alcohol from grain, illogical government fiscal policies, mad cow disease, and improved economies in developing countries have all contributed to very high prices in 2014.

These prices, however, are not as high as the calves I sold for $1.00 a pound in the fall of 1973; the dollar at that time was as big as a saddle blanket. Those same calves were worth $.29 in the spring of 1974 and lots of people were badly hurt. I didn't set out to spread doom and gloom but rather to issue a caution. If you are in the livestock business, you must expect hard times to follow the flush times.

The current good times have lasted so long that I am afraid many people will be unprepared for what is coming. We have responded to long term good prices by increasing what we are willing to spend on production inputs; I have seen estimates of the cost to keep a brood cow of up to $850 a year. With this level of expense, even a modest down turn in the market will start the red ink flowing.

Consistent profits
To be consistently profitable, we must learn to replace money with management. For a cattle operation, good management starts with having animals able to efficiently convert cheap forage into valuable products with minimal inputs. If cattle must have grain or other energy supplements to perform, they are not capable of this task.

I know that I sound like a broken record but we have bred cattle that are too big, too lean and give too much milk to be efficient grazers. We have allowed the feedlot tail to wag the cattle industry dog. Cattle production has always (over time) been a low margin business but properly managed livestock operations have excellent records of wealth creation in the long term. For many people, livestock and wildlife have been the tools to provide the cash flow necessary to obtain and hold land. Land value appreciation is the source of the saying, "Ranchers live poor and die rich".

Since land value is so important in wealth creation, it is only logical that management should attempt to produce the maximum sustainable profit per acre so that more land can be paid for and held. The focus of much of animal agriculture today is instead to maximize production per head of stock.

Profitability, particularly sustainable profitability, receives little attention from research scientists. Higher weaning weights, feedlot gains and carcass yields are much sexier than mere profits (unless they are your profits). As long as research projects are funded by people selling inputs, we will be well informed about the production increases possible with these inputs. With rare exception, these increases in production are accompanied by increases in the cost of production.

In the struggle for profitability, the important fact is not the amount of money taken in but rather the difference between what is taken in and what is spent. Any expense that must be incurred time and again should be a red flag signaling an opportunity to improve management. Real progress toward profitability comes not from reducing the cost of a production practice but rather from eliminating the need for that practice. A number of problems: poor winter feed, parasite infestations, disease outbreaks, high death losses can be greatly reduced or eliminated by the adoption of four practices:

  • Get the production schedule in sync with nature
  • Use livestock genetically adapted to the local environment and management practices
  • Manage so as to reduce stress on animals at all times
  • Gain control over where, when, and how much your stock grazes

These are powerful tools that improve rather than degrade the resource base and once implemented, greatly reduce labor and the needs for inputs of all kinds. I will discuss each of these practices in future columns; in the meantime more information is available on my website, waltdavisranch.com. 

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