Herd Rebuilding Slower in WyoWritten by John Ritten
By now I’m sure you’ve heard, the national herd is rebuilding. I figured I’d break that down to the state level.
How does Wyoming compare to the U.S. trend? Interestingly, we haven’t jumped on the rebuilding train quite like the rest of the nation according to the most recent numbers. I have to admit, I was a little surprised by that given the number of heifers that seemed to have been retained over the last couple of years.
The big surprise, at least to me, is, as a state, we haven’t recovered at all from the 2003 drought. Over the 20-year period prior to that event, we were in fact building numbers while the rest of the nation downsized. That drought had a pretty significant impact on our herd, and we’ve pretty much stabilized in its wake.
One reason we may not have rebuilt after that drought is that it took quite a while to rebound in terms of range condition.
According to USDA data, we didn’t really have good range conditions year until 2008. And, by then we had the spike in corn prices that put a lot of downward pressure on cattle prices. However, it is surprising to me that we didn’t see numbers ramp up after the last drought, as range conditions looked pretty good the last couple of years. Of course, high cattle prices during this period made selling heifers look rather attractive as opposed to holding them back and foregoing their value at the sale barn.
So, the big question is, are we going to jump on the rebuilding train now? With the dip in cattle prices, the opportunity cost of retaining heifers is lower than it has been, but many producers may also see that we have no guarantee of sustaining current price levels. So there’s still a risk that we are keeping back relatively expensive heifers only to have them produce calves in a few years that will be worth less than they're worth now.
How far and fast will prices continue to drop? I wish I knew, but the answer will ultimately determine if heifers retained now will be a wise or poor investment. I’m sure some people who bought heifers a few years back are rethinking that decision now. The Livestock Marketing Information Center (LMIC) has posted both actual prices over the last 15 years and their projections for cattle prices in the coming years, as seen in the chart at the left. The data is forecasted specifically for the Southern Plains, but we would expect a similar trend in national prices.
The best guess at this point is that 2016 prices should be near where we ended in 2015, with only a small dip towards the end of the year. While this isn’t as good of a situation as we had in 2014, these prices are still better than any year prior to 2014. LMIC also projects a slight decrease in annual cow costs, but with the drop in prices, they figure per-cow profitability will likely be down 30 percent or so this year when compared to last year, which is still the third best over the last 20 years.
Given current inventory, we appear to have room to grow our herd. It looks as though we left the majority of our range resources in pretty good shape last year. If we get a decent spring we should be able to handle a few more animals in our state. Granted, according to the most recent drought monitor, over 70 percent of our state is in the “abnormally dry” or “moderately dry” category, but according to the National Oceanic and Atmospheric Administration (NOAA) seasonal outlook, available at cpc.ncep.noaa.gov/products/predictions, the southeast portion of our state has a good chance at experiencing above normal precipitation over the next 90 days while the rest of the state looks likely to experience normal precipitation patterns.
It looks like if and how fast we expand will likely be more limited by confidence in the market than limited resources. If you think the market will continue downward, the smart money is to sell your heifer calves this year and start rebuilding when we hit the bottom. If you think the market will stabilize, then it may make some sense to rebuild now and take advantage of having more calves to sell over the coming years.
I think Steve Koontz down at Colorado State University said it best when referring to the cattle markets last fall when he said, “The outlook for 2016 is caution.”
I see four main things to keep an eye on when making rebuilding decisions.
First, spring precipitation is necessary, as we need rain at the right time to ensure proper forage supply. Corn crop progression will also be important, since a good corn crop will result in lower feed costs, allowing feeders to more aggressively bid for calves.
We have to also pay attention to domestic demand. Other meats are expected to see an increase in production, and consumers’ willingness to continue to pay high beef prices is important.
Finally, the global economy will remain a factor, as a continued strong dollar hurts exports, putting downward pressure on livestock prices.
I don’t envy your decision regarding rebuilding. And, while I doubt you’ll get many economists to tell you what you should do this year, rest assured, I’m sure there will be plenty of us telling you what you should have done in a few years.