Cattle economics impacted by variation in precipitation from season to seasonWritten by Natasha Wheeler
Laramie – “‘Optimal’ is long-term profitability, or the value of the ranch in perpetuity,” explained John Ritten, University of Wyoming assistant professor in the Department of Agriculture and Applied Economics.
At the Wyoming Association of Conservation Districts, Wyoming Section of the Society for Range Management and Wyoming Weed and Pest Council “Partners in Resource Excellence” convention on Nov. 2-5, Ritten outlined various cattle production scenarios in Wyoming related to the variation of precipitation across growing seasons.
Stocker operations can make annual stocking decisions based on predicted rainfall, but cow/calf operations are built on a different investment.
“Cow/calf pairs are not a liquid asset. I can buy and sell cows, but I won’t make money doing that. I lose money whenever I sell a cow before she has had five or six calves,” he noted.
Therefore, variation in precipitation from season to season will be addressed differently, depending on the business model.
“In a stocker operation, I make an annual stocking decision, so there are no long-term costs from calves that I no longer own because I sold the cow,” he said.
Using adaptive management, a producer can buy calves in the spring that match the available forages predicted for the upcoming season. These estimates can be based on historical averages, upcoming forecasts and forage conditions from the previous season.
“Adaptive stocking is flexible business. It’s better for my pocket book, but it’s also better for the range,” he added, comparing this model to a fixed stocking rate from year to year.
The stocker model is the most liquid in terms of assets in cattle production, but most producers in Wyoming do not operate this way, he said.
“Eighty-two percent of Wyoming ranches have self-identified as cow/calf operations,” Ritten stated.
Buying back cows is expensive, and retaining cows is expensive compared to sale barn prices.
“Matching forage demand and supply is not profitable in the long term, although sometimes we are forced to do it,” he noted.
In drought years, producers may liquidate stock or feed hay, but Ritten maintains that additional strategies also exist. Adding yearlings to the business model or changing management to early weaning or late calving may reduce the immediate impact of drought years.
“During a drought, we are the least profitable,” he remarked. “During the drought, we’re no better off than our neighbors. It’s the two, three, four or five years after a drought that we do better.”.
Assuming a 35-year average for an individual’s ownership of a ranch, profitability over the long term may prove to be a better strategy than decisions based only on one year’s weather.
“We need to respond to weather, and that makes sense. The thing is, during the drought, a lot of our strategies don’t seem to be that important,” noted Ritten.
Like many production strategies, the long-term benefits are not always evident right away.
For example, Ritten commented, “For the first couple of years after we switch our grazing strategy, we may not see a lot of improvement.”
He emphasized ability to be flexible in the business operation and accounting for the possibility of extreme variations in growing-season precipitation.
“This is common sense. Variable precipitation really impacts cattle futures, especially in Wyoming,” he said.