Vet’s voice by Dr. Dave Barz: Risk and return
October 20, 2014
The harvest is moving rapidly. The silage and earlage are chopped. The combines are rapidly removing the soybeans and some corn is being harvested and it is down to 17-18 percent moisture. The weather has been great except for a little wind. I've seen some bean straw baled. At this rate it won't be long until harvest is over. The grain prices are not great and with our increased costs of production, many grain producers may be operating on the wrong side of the profit ledger. The cow-calf man in our area has been a lone bright spot in the profit scenario.
The national cow herd has been depleted by several years of draught, bad weather, and high feed costs. I am sure the age of the average cow calf producer has increased and many owners see no need to increase their cow numbers. The high feed prices from the increased grain prices have also resulted in the breaking of a lot of grassland and an increase in the rent prices for grass in our area. It is easy to study these statements and decide there is no reason to increase cow herd size.
What about the market price increases due to the shortfall in numbers and thereby the shortage of beef? Demand has been great and the world has now developed a taste for beef and has the dollars to pay for it. Everyone asks, "How long will it last?" and none of us know the answer. Unless something outlandish happens which has little to do with supply and demand, the market should stay strong until we are able to produce more beef than the market can sell. Recently we have seen a real change in slaughter weights. We see steers slaughtered at 1,700 pounds with very little discount. At Mitchell Livestock Market many of the cows are purchased by feedlots and fed to increase weight. Even steers at 1,250 pounds which would have been slaughtered several years ago go back to the feedlot. It appears if you can put it on for 75 cents a pound and sell for $1.50 per pound, it is a profitable scenario. Many producers in our area are trying to purchase cows both to calve and/or to feed.
For the past three to four years we have heard the argument about prices and they can't get any higher. I don't know if prices will increase or if we have plateaued our prices on a new level, but I do know that in this period "Risk-takers" have generated good income. Many years ago our forefathers took a risk and bet everything that they could to make a good life for their families in South Dakota. Some did fail, but if you are still on a homestead, your family survived. Subsequent generations have been taught to minimize risk and not gamble with the family birthright. We are strong conservatives and worked hard to preserve our lifestyle. The younger generations have a totally different outlook on risk and returns. Rather than working on twenty year improvement program, they want to see results immediately and they are willing to take that risk (young and old).
I have risk taker producers who have done extremely well in the last several years. Those who have purchased heifers and cows have seen great profits. One producer built a feedlot for developing and breeding heifers and expects a $500 profit per head this year. Confinement feeding facilities are being constructed throughout our practice area. The lending institutions are interested in investing in the future of beef production.
Risk is always involved in agriculture operations. There are many scenarios which will allow you to minimize risk while capitalizing on the profits available in the beef industry at this time. Consult with your veterinarian, nutritionalist, extension specialist and lending supervisor to highlight management and population changes which can benefit your herd. Always remember our primary goal is to produce as much high quality protein as possible with our beef herds.