Brooks: Expanding the herd may require thinking outside the boxWritten by Gayle Smith
As drought conditions continue to improve and cattle prices strengthen, ranchers are starting to consider expanding their herds. Producers are recognizing returns like they have never experienced and need to find ways to invest that profit.
According to Ag Economist Kate Brooks with the University of Nebraska, ranchers should put a pencil to the numbers to determine the best way to rebuild their cowherds.
“I have bankers calling all the time wondering whether to loan money to ranchers to restock their herds,” she explained. “Bankers are seeing where calf prices have gone, but they are questioning how long it will last. That makes them question whether to loan money. They want to make sure producers are profitable and not overspending on heifers, especially if they are young producers trying to get into the business.”
Bankers are trying to determine which model to use, she continued.
Ranchers and bankers have opposing views on what the salvage value should be on a purchased heifer because of the uncertainty in the market.
Rebuilding the herd, even to pre-drought levels, will take several years.
“We have to work with biological constraints,” Brooks said. “Cows aren’t like sheep or hogs. Most of the time they only have one offspring at a time.”
Feeding these extra cattle may also take some innovative thinking.
“Feed costs have come down, but pasture prices have not,” Brooks explained.
Most of the U.S. has seen an increase of 11.1 percent in pasture value.
“That’s good if we want to sell pasture, but not if we want to buy it,” she noted.
Many areas continue to lose pasture to cropland and urbanization. In some instances, pastures were torn up to plant corn when corn prices hit record highs.
Producers considering replanting those acres back to grass will have to determine the return of corn per acre versus their cow/calf return.
In the meantime, cash rental rates for pasture continue to climb above trend levels, Brooks said.
“The drought has had an impact on the amount of pasture and acreage available for grazing. As we continue to grow and build our herd, we need to think about the cost of production and feed costs and see if there are other alternatives to build our herd. Don’t be afraid to be resourceful,” she encouraged.
“Look at the economic benefits in using different types of systems by thinking outside the box to raise a cow/calf herd,” she continued. “We have to ask if the way our grandfather and great-grandfather did it is still the most economical way.”
If ranchers have cropland available, they may want to consider planting cover crops to graze during certain times of the year. Not only does this give pastureland a much-needed rest, but it can also be a cheaper way to maintain a cow.
Producers should also seek out corn stalks and other crop residues and rent them for grazing, if they can.
Ranchers will also have to determine the best way of expanding the herd, whether it is purchasing heifers, retaining their own heifers or purchasing bred cows or pairs.
“Look at the resources available,” Brooks said. “Is there excess pasture available? Do we have the capital resources available? Do we have the knowledge and management skills needed? If we are retaining our own heifers, do we have quality genetics?”
The agricultural economist said it is important to prepare a budget to help determine if it is better to purchase or retain heifers. Producers should also consider the price it will cost to purchase bred cows, heifers or pairs versus the cost of what their own heifers could have been sold and fed for.
“The relationship between those is very important,” she noted.
Doing some penciling out of the numbers herself, Brooks said if feed costs can be kept low enough, she thinks it could be more economical for ranchers to raise their own heifers.
Ranchers can get some assistance determining these numbers by using the cow purchase calculator available at beef.unl.edu.
“This tool can help us understand how long a purchased heifer can live in the herd based on the current age of cows,” she said. “It will also help determine how profitable she would be by looking at the revenue over the life of that animal, which is very important.”
Brooks told producers to also be on the lookout for other ways to add to their profitability.
“Can we expand our breeding stock? Could we retain the heifers we currently have and raise them? Could we purchase our neighbor’s? If we have extra feed available, are their other alternatives? Can we start holding our calves longer? Can we start a stock operation? Are there other enterprises we could start that would actually be economical for us? Those are all good questions to consider,” she said.