There has been quite a price change in the livestock world in the last two years. There has never been a time in recent history that cattle prices crashed as quickly as they did in the fall of 2015. Historically high prices were being paid for anything that looked like a cow. The new normal for 2014 and part of 2015 was rocket fuel prices never seen before in history.
Tons of folks threw caution to the wind and wanted to get in on the action of the super high cattle prices. I read an editorial during this feverish price action from a respected cattleman that predicted, “Prices would never go back down!” I kept the article for that quote, because this was the mentality during this phase of the cattle cycle.
People just lost their common sense, completely bonkers. This guy had been in the cattle business his entire life, he got sucked in with the vacuum and hype that was running rampant. I’m sure most of you have heard it before but it is true, “There has never been a rock thrown high enough, that eventually it comes crashing back to earth.”
When you are dealing with commodities they always move up and down, period. It comes back to the mob mentality with humans, we certainly don’t want to miss out on what the rest of the mob is doing. We had local sale barns where black 2 day old bottle calves were selling for $700. Four hundred pound un-weaned calves were bringing $1400 right off the cow teat.
The bank lenders certainly add to the hype by giving loans when cattle prices are at their highest and refusing to give loans when cattle prices are low. When I was younger and just getting started in the cattle business, I experienced this situation with the banker. I got a loan from the banker when prices were high. I was wanting some of that high cattle price action!
It was not a pleasant ending for me. I remember going to make my yearly payment to the banker that winter. He exclaimed, “We had a pretty good year, how much do you need for next year?” I replied, “You had a good year, I didn’t think it was so hot.” I barely made enough to make the interest payment. There was nothing left in my pocket to live on.
The recent crazy prices wer the result of several scenario’s coming together at once. First were the droughts of 2011-2013 that severely impacted the major cattle growing states. Cow numbers were at historic lows due to whole ranches having to destock. Pasture land was at historic lows due to high grain prices several years earlier. Millions of acres of pastureland wer plowed up and put back in crop. Then in 2014 crop prices plummeted, making cheaper livestock feed available. Export markets for beef took off as well. So you add it all together, low cattle numbers, minimal pasture, low grain prices for feedlots, good export numbers and the rest was history.
The really astronomical part of this whole historic price peak in cattle was the fact that most of the really high cost producers were either barely breaking even or losing money. It’s hard to imagine that folks could lose money at those prices, but imagine what their balance sheet looks like with today’s cattle prices at half of what they were. Predictions are coming in that 20-25% of the cattleman today will go out of business in the next couple years if prices stay where they are today. That is a pretty somber trend that we sure don’t need. It would be nice to have more livestock operations out on the land instead of less.
Three Changes You Can Make
Send Iron Down the Road
Well we can do something about our costs of running a livestock operation if we focus on things that make an impact on our bottom line. First we need to eliminate waste or idle things that we do not need. The first thing on that list is iron. If it is iron and not used every couple days, sell it. Scrap metal prices are $145/ton, which have rebounded quite nicely since last fall at $50/ton. Get the unused iron off your farm and put the money in the bank, buy some livestock, reduce your debt load, etc. All that unused metal is simply rusting away.
Send Cows That Aren’t Working For You Down the Road
Go out and take an inspection of your cow herd. Look for any thin cows that are struggling in the winter conditions. Any cows that gave you a dink calf last year should go. Bad udders? Temperamental cows? Anything that stands out, sell it.
Sell the grain bucket cows. These are the cows that need some grain every day to make it through the winter to spring grass. Beef cattle should never be fed grain if you want any money left in your pocket at the end of the year. These grain bucket cows do not have a large enough fermentation vat to hold the proper amount of forage for their body size. After several months of winter they look like they have been on a starvation diet with all their ribs showing. This is just wrong, cows should not look like this.
I was talking to a really conscientious beef extension fellow the other day. His job is to help folks out with suggestions and methods of improving their beef cattle operations. He is aggravated daily by watching these young guys struggling brutally to try and make the bills on their beef operations with giant cows.
These giant grain bucket cows are killing their bottom line, no chance of ever making a dime. They all dream of one day quitting their full time job in town to become a full time beef cattleman. He said it is depressing working with them, because they refuse to change anything. The all believe bigger is better. You can drag a horse to the water tank, but you can’t make them drink. You must be able to break outside the mold of what everybody else is doing to make money in today’s environment.
Choose Cows That Can Work For You
You need cows that can stay fat on your winter stockpiled grass without any supplementation. There are such cows out there that can make you a good living. They work for you instead of you working for them. These cows will have big guts to hold massive amounts of forage. A lot of the cows today have what we would call “pencil guts on them.” They weigh 1200-1500 pounds and require too much forage for simple daily body maintenance just to stay warm.
Your biggest savings in the beef cattle business is allowing the cattle to feed themselves every day of the year. This forage is grown in the pasture and the cows eat it right where it is growing. No hay period. Once you start carrying hay to livestock, your money is leaving your pocket at a rapid pace. This does require good grazing management of your pasture resources.
The best place to start is with the right size cows for eating your grass, not grain in a feed bunk. These cows will be in the range of 950 to 1100 pounds or so. Do not think that you can starve a profit out of a big old cow, it will not work. Keep your medium size cows fat on grass and they will winter just fine without any supplement. At the end of the day your profit is built in a cow/calf operation when you eliminate costly inputs and still get a nice calf born from the cow eating only grass.
Every overhead that you eliminate goes directly to your bottom line. When the cost of gain is based on your grass that is grown in your pasture and harvested by the cow, this insulates you from market price drops. Work on eliminating these costly inputs that are robbing you of a happy profitable lifestyle on your grazing operation. Grazing cattle is a blast when you can make money with your livestock operation no matter what the cattle prices do.
Ian Mitchell Innes, my old friend from Africa that helps us with our annual mob grazing school, always tells me, “Greg it doesn’t matter what you get for your cattle, it matters what you have invested in producing that animal.” Pretty sage advice from someone that has not only survived South Africa policies but thrived by focusing on his pastures and removing the animals that don’t work. We have to be the predator in our herds today, just get rid of the ones that don’t work.