Expanding In Today's Cattle Business
People get sick of hearing this, but don’t buy a bigger truck unless you’re already making money,” says Kevin Dhuyvetter, Kansas State University (KSU) agricultural economist
September 8, 2010
People get sick of hearing this, but don’t buy a bigger truck unless you’re already making money,” says Kevin Dhuyvetter, Kansas State University (KSU) agricultural economist. “Know you’re doing a better job than the average; if you’re not, don’t expand.”
Profitable or not, few producers are rushing to grow their herds. According to USDA, the July 1 inventories of beef cows and beef replacements heifers were 2% less last year.
There are plenty of reasons why (see “Expanding in Today’s Market – Part I” in August BEEF). Mostly, it boils down to profit. Though calf and feeder prices are higher, and input costs are lower than a year earlier, profit margins continue to be narrower than a horned frog’s eyelash.
Some tempted to expand
“If we keep seeing pressure on the cost side, we’ll have to see considerably higher cattle prices (for expansion). We’re not seeing a lot of heifer retention, and I think that has to do with the cost side,” says Larry Falconer, an agricultural economist with AgriLife Extension Service. Instead, he’s seen more expansion via retained ownership.
“It appears stocker margins will be good for the next several years, and stocker producers will have the opportunity to sell into higher markets,” Falconer explains.
Likewise, Darrell Mark, Univer-sity of Nebraska agricultural economist, says, “In the last few years, we’ve definitely seen more ranchers with available grass putting more stockers on grass in the summer as opposed to more pairs.
“It offers the advantage of being able to move in and out of the market on a yearly basis, which is beneficial when you’re uncertain of grass availability. Plus, there have been good margins for doing this in the last couple of years. This trend has been a result of higher corn prices in recent years – we’ve seen the trend toward placing heavier feeder calves in feedyards.”
However, Mark also says high prices for bred cows and heifers in Nebraska and surrounding states last spring could signal the beginnings of herd expansion there.
Mark explained that in July, “While average prices for replacement heifers have been in the $900-$1,200 range, it wasn’t uncommon to see prices of $1,500/head, especially for reputation stock. At that upper price range, I think you need to look closely at the costs of raising your own replacement heifers.”
Speaking of which, KSU’s Dhuyvetter points out there is no clear-cut heifer replacement strategy that’s profitable for everyone.
Four strategies
Consider an analysis of four, heifer-retention strategies conducted by John Lawrence, Iowa State University agricultural economist, in 2002. The strategies were:
• Retaining the same number of heifers each fall in order to maintain a steady herd size;
• Selling enough heifers each year – in addition to steers calves, cull cows and bulls – in order to maintain a steady cash flow year-to-year;