Cattle producers have been on defense for way too long, according to Lee Schulz. “This is the time to go on this offense in these markets.”

Schulz, a livestock economist for Iowa State University, told a group gathered at Husker Harvest Days that the next few years are going to be fun in the cattle market. “There’s tons of risk,” he said, “but with risk comes reward.”

Lee Schulz. Photo by Mindy Ward

He, along with Dan Thomson. a veterinarian and partner in Production Animal Consultation (PAC), shared two growth opportunities for current and those wanting to enter the cattle industry.

Expand now. Schulz pointed out that replacement heifer pricing is good now. “So, if I have the resources to do it, I think this is an opportunity to retain my own calves, or to go buy open heifers or bred heifers on the market.

He cautioned that a run in female prices over the next several years is going to be a big mismatch between what beef producers can afford to pay and what they actually have to pay. “So, if you have the resources, why don't we start it now,” he asked.

Skip buying land. When the beef herd does expand, it is likely to occur without an increase in land purchases. Thomson works with 20 veterinarians that cover 6 million cattle on feed, 1 million cow-calf pairs and 600,000 stockers. He said the answer may be confinement cow-calf operations.

“I’m pretty bullish on it just from the standpoint of a young person wanting to get into the industry,” he said. “It is a way to work with people in some kind of normal financing type platforms other than the amount of land mass you have.”

Dr. Dan Thomson. Photo by Mindy Ward

He noted that the confinement design is one that allows for less land and labor, which remains a pressure point for many cattle farmers.

To make these decisions in the future, farmers must prepare now by buckling down on finances.

Plan for the downturn in prices

Given current high prices for cattle, livestock economists warn producers that there will be a time when prices come down.

Schulz offered tactics to bulletproof cattle operations in the event prices take a dive.

Control costs. It’s not just necessarily feed costs, he explained. Look at where the cost potential increases are in the business—energy, transportation, labor--which are often more difficult to manage.

To mitigate those, he said to search for longer term contracts. Also, stock up inputs that are cheap to hedge against inflationary impacts.

Manage risk. Cattle producers like to participate on the upside. “When you look at where prices are and margins are currently in the markets, be it the feeder cattle futures market, Livestock Risk Protection Insurance, is offering us opportunities to offset a ton of that risk and really allow for profitable conditions going forward,” Schulz said.

Also consider feeder cattle put options, where it allows for setting a price for participation in the upside.

Schulz encouraged cattle producers to have a plan going into what he called a “really exciting period.”

“My concern is how the landing looks when we start to build up these cattle supplies,” he added. “That starts to pressure prices and what really happens throughout the various segments of the cattle industry. The hope is we’re all profitable for the next several years.”