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Position Yourself For The Great Opportunity

This week I attended a conference meant to specifically look at heifer development. There was a tremendous amount of good information presented, with some of the nation’s most successful and innovative operations sharing their philosophies.

The takeaway message for me went well beyond the latest research indicating that it is possible to make more total dollars by developing heifers on a lower-cost, forage-based nutritional program rather than a traditional dry-lot program. Or, that we may actually improve a whole host of economically relevant traits throughout the lifetime of the cow.

For me, the number-one message was simply that there’s likely never been a time for more optimism in the cattle business! Virtually all the speakers – whether they were economists or producers – agreed that these market conditions simply have never existed before – or at least, not to the extent they exist today – and that there are tremendous opportunities available to those producers positioned to take advantage of them.

Those conditions are: tight supplies that will grow tighter, and good demand that is expected to continue to grow, at least on the export side. Several speakers referred to today’s situation as being essentially a once-in-a-lifetime event.

Of course, no one wants to benefit off the hardships of others, but the drought that’s caused such massive liquidation in Texas and Oklahoma is potentially a game changer. Even if the drought breaks in 2012, it likely means we will not feel the effects of any expansion until 2017. Thus, we are looking at new record prices for all classes of cattle; and, depending on how things align from a demand standpoint, we could see prices no one has ever dreamed of.

With all the good news out there from a price standpoint , there is still going to be a lot of emphasis on efficiency and lowering one’s cost of production, as inputs (especially corn) are rising rapidly in price. We’re also at a whole new trading level for corn, thanks to ethanol subsidies, which not only have played an integral role in the shrinking of our industry, but force the risk in the corn markets to remain on the upside going forward.

While you are hearing market analysts talking about price levels we have never heard of – like $130+ fed cattle, they are also talking about the possibility of $10/bu. corn! That means that to lower one’s cost of production will entail reducing the use of corn and the use of alternative feed byproducts we may have never considered before. For those areas with access to ethanol byproducts, it will likely mean using them; feedlots are already formulating rations to eliminate corn as much as possible.

It’s almost critical from an industry standpoint that we begin expanding the herd. Otherwise, we risk losing critical infrastructure and market share that we are unlikely to get back. Cattle will continue to spend more time outside of feedyards and we will likely see dramatic alterations in everything from pricing structures and genetics to management schemes.

It will take focused effort for producers to not only mitigate risk, but also to position their operations for future success. New ways of developing cattle, increased use of proven technologies from artificial insemination to crossbreeding, and more demanding management and marketing schemes are likely, according to these experts.

We’re looking at a window that currently appears will last five years or more, and offers record profit opportunities. But it will demand that producers look critically at nearly every aspect of their genetic, management and marketing programs. We’re not only looking to break all price records, but posed to shatter a lot of traditional paradigms about our business in the process.

We will not only reshape our definitions of efficiency, but our definitions of quality, as we are challenged to increase value in our operations and the industry as a whole. Producers will not only need to seek out the latest information to help them, but also other producers with whom they can collaborate.

The experts agree it’s almost impossible to overestimate the changes occurring in our industry. People will have to evaluate the strengths and weaknesses of their competitors and think of ways that they can fill the voids created. Record prices and record profitability will be coupled with record risk. It will demand, more than ever before, that managers make the right decisions in positioning their operations for the rapidly changing future.