Extension by Dallas MountWritten by Dallas Mount
Every time you open a paper or an email you are getting another opinion on drought management. I hope you’re not sick of reading about options and can endure one more. It certainly is the most pressing issue on the plate of Wyoming producers in my opinion.
Last week during State Fair, I had the opportunity to present at the Cattlemen’s Conference. Thank you to Farm Credit and the Wyoming Livestock Roundup for hosting this event. I especially enjoyed hearing from Burke Teichert who shared some keys to ranching success.
During my presentation I asked the crowd how many were experiencing drought on their ranch. Almost every hand went up. Next, I asked how many would classify this as the worst drought of their lifetimes. I’d guess three-quarters of the hands stayed up. Lastly, I asked how many had destocked the ranch 10 percent or more. Very few hands stayed up. This is alarming to me! Perhaps I should have asked a follow up of, “How many of you think it’s none of my business,” and we would have gotten a larger number of hands. If the feedback from the gathering is correct and from the information I receive visiting with people, I don’t think many producers have destocked the ranch very much at all. I’m not here to tell you that destocking is the correct drought strategy for you, but I would like to challenge you with what the numbers I’m putting together are telling me.
If your ranch is in the moderate to higher profit grouping of cow-calf producers, then after your cows pay all opportunity costs, cash costs and overhead they are adding about $50 to $75 per cow to the business. Let’s assume keeping the cows this year will require purchasing two tons of hay per cow in addition to what you would normally feed and that hay will cost $250 per ton delivered. Therefore you will be investing $500 per cow to keep that cow into next year. If it rains next year and prices remain relatively strong, you should be able to match returns from the previous years. It will therefore take this cow six to 10 years to pay off what you invested in her this year to keep her in your herd. I’m not sure I know any cows that would be likely to pay this back. Perhaps your situation is different. Perhaps you have a highly profitable cow herd, a source of cheap feed, your ranch is not profit motivated, or your crystal ball is clearer than mine and you know cows will be worth $500 more next year than they are this year.
Again, I’m not trying to tell you what is the right strategy for your ranch, but if I were on the board of directors for your ranch business, I would challenge you if the plan is to feed through this drought.
Now to the opportunities part: I challenged you a few weeks ago to ask the question, “What opportunities does this drought provide?” I think if you undertake significant destocking, and it rains next spring, you will be in a good position. Rates for custom grazing cattle are at an all-time high. I don’t see this market going down soon. As long as corn stays high, there is money to be made here for the next few years. The value of gain for calves or yearlings is high and likely to stay high for the foreseeable future. As the grain markets are predicted to stay high for some time there will be huge opportunities for forage based operations to profit from adding gain to cattle. I challenge you to evaluate the various enterprises on your ranch and analyze the net return per AUM invested. My numbers are telling me there are opportunities in stockers.
Whatever your ranch decides is the right course of action to survive this year’s drought, I hope you give it careful consideration on the economic and human implications that course will have for the next several years. As many of us remember from the droughts of 2002 and 2004, the impact is not necessarily heaviest in the year of the drought, but for the next several years to come.