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Surviving Volatile Cattle Prices

By   /  April 22, 2019  /  No Comments

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When we first shared this article in October of 2016, John started with, “The cattle market is in the toilet. The future looks even worse. Calves bring only one-half of what they did a couple years back. Stocker margins are negative, feeders too.”

The graph below shows why he said that. Cattle prices had risen to incredible heights in 2014, but by the end of 2016, they had dropped precipitously. Since then, prices have been up and down.

Many said, “The American cattle industry is on its knees, broken and busted.” But if history is any kind of indicator, it appears we can look forward to frequent ups and downs in the market place.

biq-summer-2016-margins-chart_1

John answered the question many were asking then, “Is this the end?” and shared his thoughts on how to survive the ups and downs of the market that we will likely always see.

“Is this the end?” 

Well maybe, at least for some folks.

A better question might be this: who will survive this Armageddon, and how will they do it?

This spring I hosted a pasture tour for my local grazing group. Our meetings are often raucous events and the discussions are free-wheeling. The group is made up of many independent-thinking individuals and the questions are sometimes hard.

As we walked the fields looking at grass, fencing and water, I explained that my basic philosophy was to constantly work to lower both my overheads and my direct costs with the fundamental goal of achieving a zero-input ranching model: one that functions on sunshine, rain and management, with no outside inputs.

Imagine my surprise when this idea was met with skepticism, including one basic question: “Why?” As in, why, with all of the obvious production advantages offered by soil amendments, irrigation, cover cropping, protein supplements, why would I simply say “no” to inputs?

I have to admit, I was a bit taken aback. My belief in low input ranching has evolved over a long period of observation and study, and it has become so much a part of my mindset that I no longer even question whether inputs might be a good thing. I simply assume that inputs are counter-productive to my economic and ecological goals. My thinking about inputs has approached religious faith, it seems.

In response to the question of “why” regarding my belief in a low input model, I stammered around a bit, but finally came up with some thoughts about inputs and ranch economics:

First, grass grown with chemical or physical inputs must compete —economically speaking — with the grass I now produce with zero inputs. Sunshine and rain are free, which means I grow grass with zero direct costs. Zero is a pretty low cost structure, and difficult to beat.

Second, grass grown with chemical or physical inputs must also compete with the value or cost of grass I can purchase from my neighbors. In other words, if I can rent pasture for $10 or $20 per AUM, input-produced grass must be able to beat that price to be attractive. I doubt that is possible.

farm_zed_2-1-940x528Finally, I occasionally find myself thinking about Armageddon. Not necessarily the Biblical event, but what if our industry or our country was faced with a severe collapse? Perhaps some economic, ecological or political upheaval where supply, transportation and marketing would become much more difficult. What sort of production system would still function in that sort of future? My conclusion: a system that functions independently of politics or policy, that mimics natural processes, that produces and markets locally. I find myself wanting to pursue and promote a model that might just work, even in the most difficult of futures, in times much worse than these.

I’m not the only one thinking about this. I recently came across an article where the author (a forward thinking rancher-philosopher) pondered a future where we would have to operate in much the same way as our grandfathers did: no chemical fertilizer, herbicides, wormers or drugs. Very little equipment or hay and very well-adapted cattle.

Maybe that’s our collective future, maybe not. In any case, today’s market trouble may not be the onset of total Armageddon, but it will certainly be difficult for many folks in the industry. Ranchers who have built an economic model based on $1,500 weaner calves will probably find it difficult to adapt to the current reality of $700 calves. And for any business that cannot or will not adapt to that new reality, a tiny little Armageddon awaits.

I’m generally optimistic. In the end, I believe calves can be profitably produced, even in the current market. Clearly, that will require a focus on tightly controlling production costs. For me, that means taking a hard stand against inputs and doing a better job of managing grass resources. I will need the right kind of cattle and the right mindset. I will need to produce pounds of beef with very, very little in the way of input costs.

And that is how I plan to survive Armageddon, or the current market, whichever is worse.

Thoughts on this from October of 2016

Dean Choat:

I don’t disagree with what you are saying, but what if land costs are higher? Right now I would love to find pasture as low as $50 per AUM. Your $10 to $20 per AUM would be a dream where I live (northeast Nebraska). The higher land costs seem to force us to use inputs to create enough return to overcome the initial cost of land.

John Marble’s response to Dean:

Thanks Dean.

At the risk of sounding flippant, I do not believe it is my job to overcome high land costs. Where I live most pasture land sells for $10,000 to $20,000 per cow unit. I do not believe there is any way for me to overcome that kind of cost. Closer to home, I would ask you to consider the model you are currently struggling with: if an AUM costs $50 and it were possible to run outside with no feed or other costs, your annual grazing costs alone would be $600 per cow per year. This seems like a very difficult model, maybe impossible.

My job is to find situations where my cattle can graze at a profit. I may not be able to compete with avocado growers or ethanol croppers or hemp farmers for the most desirable land. I believe the advantage that cattle present us with is the ability to use undesirable, low-value land to produce red meat on the hoof.

As agriculture becomes more competitive (and also has to compete with other industries for land), I believe ranchers will need to adapt, becoming scavengers who roam the countryside looking for cheap forage and land that cannot be used by other producers.

Not very romantic, but the fact is, $1.00 calves will not pay much rent or mortgage.

Finally, I would advise using an extremely sharp pencil to analyze the true economic outcome of using chemical or physical inputs to make a ranch budget work. Increased production is different from increased margin.

Sincerely,
John Marble

Tell your On Pasture Community how you made it through the 2016 low point, and what you’re doing to survive the ongoing ups and downs.

natglc-logo-1Thanks to the National Grazing Lands Coalition for making this article possible. Click on over to see the great work they do for all of us. Thank them for supporting On Pasture by liking their facebook page.

 

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About the author

John Marble grew up on a terribly conventional ranch with a large family where each kid had their own tractor. Surviving that, he now owns a small grazing and marketing operation that focuses on producing value through managed grazing. He oversees a diverse ranching operation, renting and owning cattle and grasslands while managing timber, wildlife habitat and human relationships. His multi-species approach includes meat goats, pointing dogs and barn cats. He has a life-long interest in ecology, trying to understand how plants, animals, soils and humans fit together. John spends his late-night hours working on fiction, writing about worlds much less strange than this one.

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