Extension Drought by MountWritten by Dallas Mount
As we continue to travel around the state and discuss drought management options with livestock producers, one of the questions I always ask is, “How severe is this drought?” By a show of hands, most of the groups we gather have a majority of the participants reporting that this is the worst drought they have experienced in their lifetimes of ranching. I know many of you reduced your herds this spring as it became evident that the year was going to be a dry one, but most of the ranchers I encounter are still wrestling with the decision to I buy feed for the livestock that are left or continue further depopulation of the herd. I’ll try and lay out some concepts to help you make that decision.
As with all major decisions on the ranch, the answer for you will depend on several factors. One major factor is the long-term goals for your operation. Are you determined to continue to be a cow-calf producer? Are you solely profit focused? What is your resource base? All these factors will affect your decision. For the sake of this article I will assume profit is a major driver of your decision making and that most of you are cow-calf producers.
Here are some major factors I would challenge you to consider in this decision:
• What is the current market, and what is the long-term market outlook?
• How much will it cost you to get to next spring?
• How profitable is your cow-calf operation?
The easy answer is that if we are at a long-term market low, then it may make more sense to feed through a drought, and if we are at a long-term market high, then it makes more sense to sell. But, in the moment it is much more difficult to make those decisions. If we had a crystal ball and could return to early June the decision to depopulate a major portion of the herd might have been a bit easier than the markets we are facing today.
However, when we look at where we are now compared to historic prices, the markets are still very strong. It is almost a sure bet that we will be looking at shortages of beef supply in the coming few years that would support high prices, but beyond that who knows. If you sell now it will likely be at least two years until you are able to buy back in at lower prices, but who really knows?
How much will it cost you to get to next spring?
If you decide to feed through the drought, how much will it cost you in additional dollars per cow? How many years of profit per cow will it take you to recapture that investment? If you fed an additional two tons of hay valued at $250 per ton, then that is $500 per cow you have invested in addition to your “normal” costs. The second part of this answer comes from the next question.
How profitable is your cow/calf business?
After your cows pay market rate for the grass they eat, pay opportunity cost on the money invested in them and pay all other variable and fixed costs, how profitable are they? Are your cows making $25 per cow, $50 per cow or $100 per cow? From the ranches I’ve worked with, I would suggest the average is somewhere around $50 per cow. Some are worth much less while others are much more.
If your cows are highly profitable and your goal is to remain a cow/calf producer, then perhaps you can afford make a significant investment in keeping your cows. It may only take your cows two years to pay back this investment. If your cows are on the lower profit-end you may not be able to invest the profit for the next decade in feeding your cows this one year. Chances are we will face another drought sometime in the next few years again.
This is not an easy decision. You will need to consider things beyond the balance sheet of the ranch in making this. Perhaps the most important part is to include all the major stakeholders in the decision-making process and keep the effect of this decision on the people involved as the center of focus.