A few thoughts by John Nalivka– on cow-calf margins | TSLN.com

A few thoughts by John Nalivka– on cow-calf margins

By John Nalivka

Rather than discussing margins against cash costs in terms of an estimated or projected dollars per head, the discussion may be more productive when viewed from the standpoint of how much did cow-calf returns gain or lose against the previous year. A comparison to the 2014 benchmark may be an even better comparison. That was a banner year for the industry and for most cattlemen it represents how the bottom line should be every year and that statement is not meant to be criticism. Most businesses often view record profits as the benchmark.

Projecting margins for any sector of agriculture can be a challenge. First, we talk about averages. In reality, there are no average producers. Circumstances vary across all farms and ranches and those circumstances, to a large extent, define the operation’s economics and financial picture. Having said that, decisions on production are largely made based on those financial circumstances, unless of course the ownership is for outside investment with little consideration toward current financial performance as an ongoing business.

In total, those individual decisions create the financial picture for the industry and form much of the basis for industry outlook. But rather than discussing my estimate of how much cow-calf operations are making or losing, let’s think percentage change. My estimates indicate that for 2015 – 2019, cow-calf cash margins have fallen an average of 60% since the 2014 record. Including my estimate of a 90% drop for 2020 against 2014, this leaves the 2015 – 2020 average down 65% from 2014. The problem for this year is that calf prices for this time of year when are the lowest since 2011. However, we also have to take into account that a substantial number of calves were sold on the summer videos at higher prices for delivery during 4th quarter leading to better results.

The industry has likely turned the corner toward higher prices 2021. Consequently, barring any significant weather issues and holding the line on costs of production, I expect next year’s financial situation will be notably improved.

In the context of margins, I would reiterate the premise from my last article – now is as good a time as any to begin the conversation of taking a different approach to pricing cattle in today’s beef industry. Backed by good industry-wide discussion and sound analysis, I think the results could be very productive. The time is now.