Market conditions and management plan options for re-stocking shared
On Nov. 8 during a Rural Resilience webinar, ShayLe Stewart, DTN livestock analyst and owner of Big Country Genetics Bull Sale, discusses considerations for producers after drought with current market conditions and livestock options for restocking and feeding forecasts.
Necessary questions
In order to first understand how to restock cattle, it’s important for producers to understand the current cattle market and ask objective questions, shares Stewart.
“Before producers can do anything, it’s imperative to ask the question ‘what does the market need, where does the market sit today and what is the long-term trajectory?’” says Stewart. “Producers have to answer these questions before worrying about restocking or rebuilding a cowherd. Before knowing what the cattle market needs, producers can’t present a product and be successful or profitable.”
Stewart notes, now is the time to talk about the feeder cattle market. As of late, the market has seen three-dollar gains where the fat cattle market has seen a seven dollar increase in the last two weeks.
Current U.S. cowherd
According to a January 2021 Beef Cow Report, the U.S. cowherd is down. The total number of beef cows is 31.2 million head, down one percent compared to a year ago.
Looking to the future, producers speculate a new report will show total beef cows will be decreased significantly. Stewart poses the question, “Where are these cows going?”
“Analysts know some ranchers have opted to put their cows in feedlots throughout the Midwest, but the evidence is clear: Cows and heifers are finding their way into slaughter and meat production chains at a staggering rate,” says Stewart.
During the webinar, Stewart shares data, noting, “Beef cow slaughter is the third highest level it has been in the last 20 years and heifer slaughter is the fourth highest in the last 15 years.”
As a result, Stewart says, “This means fewer cows are going to produce fewer calves to market and there are going to be fewer calf prospects for beef lots to feed.”
Eventually, Stewart notes this could mean fewer fat cattle throughout the Midwest for packers to compete over, though competition and fewer cattle in the market will drive prices higher.
Marketing plans
Understanding there will be fewer cows in the months to come and prices are going to be higher, producers can start a marketing and restocking plan. It is important to remember what works for one producer might not for another.
“Each operation is going to have different resources,” says Stewart. “The biggest point ranchers need to understand is an option for today’s drought might not be an option for tomorrow’s drought, as again, it all depends on the current cattle cycle.”
Understanding where an operation makes money is important when producers are considering to restock or destock.
Visible and invisible costs
Invisible and visible costs have the potential to leave a long-term impact on the beef cattle market when producers are looking to destock.
“When we talk about destocking – and re-entering the market – we must keep a long-term perspective because the economic impact of drought destocking typically affects ranches for the next seven to 10 years,” shares Stewart, noting invisible and visible costs are the cause for the impact to go unnoticed.
“Visible costs are the easy ones to talk about – they’re the obvious cost,” she explains. On the other hand, the invisible cost is restocking to replace lost females after destocking.
“Often it’s the invisible costs that end up outweighing the visible costs, “ Stewart says. “This is often what makes a good decision a costly, painful decision in the end.”
Producers need to understand the cost and how it will influence producer profitability in the current cattle cycle.
Stewart notes, “I don’t want cattle producers to get caught in the trap when the cattle market or cycle makes its peak by not having enough calves to market, and miss out on the profitability that is offered for a mere minute in the market.”
Situation variability
“Every situation is different and some ranchers are in tougher situations than others, but essentially when producers are put to the test, they should consider all options available,” notes Stewart.
Producers could place cattle on trucks, ship to feedlots or lease pasture from a neighbor. The possibilities are endless, notes Stewart.
She shares, “The largest negative cash flow impact of drought restocking is in the year following the drought.”
Restocking options
There are five common restocking options, shares Stewart.
The first option is restocking with heifer calves.
“Replacement heifers are less expensive to get into and producers are going to have less pounds per acre exposed across the operation as a whole,” Stewart notes. “Producers have to respect the ground and land, as well as the fact that the majority of the U.S. is in a drought and many can’t get new cattle.”
Heifers could be retained as replacements, sold as bred heifers or as fat cattle, Stewart explains. A disadvantage is the length of time it takes to keep heifers through their first calf.
The second option would be to restock with yearling steers.
“Producers obviously don’t have the advantage of keeping steers until later in their lifespan and running them as quality replacement animals,” Stewart says. “Producers can also capitalize on the fact that yearling steers – purchased in the fall or spring – can be marketed in the fall. This allows producers to have funds available in order to invest into cows later.”
The third option for cattle restocking is with bred heifers.
Stewart notes, “This option is one that typically stings a lot of producers because they have a good intention and mindset in their business plans.”
“Producers are rebuilding a strong, young cow base that will offer longevity,” says Stewart. “With bred heifers, producers run the risk of a fall out ratio where some won’t breed back, raise a calf, wean a desirable calf or the calf price isn’t as consistent.”
She notes there is potential for the demand to be high when buying heifers.
The fourth option would be to restock with young cows.
“A good group of young cows have the potential for a lot of merit – they are going to offer a set of uniform calves and typically will not be as expensive as bred heifers, but the competition to get into these cows in the West could be costly,” Stewart says. “Don’t be afraid to look in different states for cattle.”
Stewart quotes her grandfather, sharing, “You make your money the day you buy, not the day you sell.”
She continues, “When producers look at restocking, cherish these words. If good cows are purchased, and this group of cows will help a ranch in the long run, they are worth every penny.”
The last restocking option would be with short-term cows.
“This is a good, honest way to make a good amount of money in the cattle market, especially because it’s inexpensive on the front end,” Stewart says. “Cash flow is hard in this business, so if producers are wanting to dive into a group of cows, I think it’s always a good idea to look into short-term cows.”
She continues, “In this current market, producers might be careful because again, they’re going to have to restock. Producers are not building longevity into a cowherd, and with hay prices and drought crippling the West, ranchers are going to have to feed short-term cows.”
Bottom line
In conclusion Stewart shares, “It all comes down to the bottom line in understanding where cattle producers sit in the current cattle cycle. Secondly, there are visible costs and invisible expenses of destocking.”
“Seek advice from your peers and professionals,” she shares. “By helping ourselves and taking the time to have conversations, this is a win in the cattle market.”
Brittany Gunn is the editor at the Wyoming Livestock Roundup. Send comments to roundup@wylr.net.
