Cattle Management Decisions in Times of Uncertainty

Curt Lacy
Extension Agricultural and Applied Economics

This document as a Microsoft Word file... uncertainty.doc (33 Kb)

The recent discovery of BSE in a Washington dairy herd has certainly changed the short-term price outlook for Georgia cattlemen.  This will make it especially difficult for those producers who choose to market their cattle right after the first of the year for tax management or other purposes.  Because beef, fed, and feeder cattle prices are all expected to suffer in the very near-term many cattlemen may be wondering what to do.

Producers need to realize that this is (hopefully) a short-term problem and given the current supply situation, should see prices return to more favorable levels before too long. Below is a list of things cattlemen should do in the near-term.

1. Do not panic.  Currently, this is the only case we know of and information is sketchy at best.  If it turns out that this is an isolated case as occurred in Canada last year, markets should recover and prices improve.  The temptation for many producers will be to try to sell everything before “everybody else does”.  If everyone tries to sell then prices will decline even faster and many producers will experience severe "unnecessary" losses.
2. Consider retaining ownership through the stockering or finishing phase.  Because calf cost is often 75-85 percent of the cost of retaining ownership, breakeven sales prices for either stockering or custom feeding will be automatically reduced due to lower initial weaned or feeder calf prices.  If prices recover within the next few months, producers will have saved or even made several dollars from holding cattle until the storm has passed.  Several retained ownership scenarios are discussed at the end of this article.
3. Talk to their lender.  If a producer is dependent on cattle sales for a payment that is due very soon he should contact his lender and discuss the current situation.  See if the lender is willing to waive or reduce any late payment fees for a few months until prices improve.
4. Learn about the risk management alternatives available to them.  Even though it is probably too late for any risk management program for the immediate future, producers have an incredible incentive to learn about the application of risk management tools that are available to them.  Armed with this knowledge, they may be more inclined to use this information when prices improve.
   

Stockering and Custom Finishing Example and Considerations

Assume a producer has a group of 550 pound calves to sell in January.  Also assume that as a result of the current market conditions, the calves are now worth $70/Cwt.  At $0.50 per day feeding cost and an average daily gain (ADG) of 1.50 lbs./day, the calves could be stockered for 120 days and sold in early April for a breakeven of $61/Cwt.  This price includes the current value of the calf as well as the cost of feeding.  A range of necessary breakeven prices for various weights and cost per day of feeding is shown in Table 1.

Because of the uncertainty of near-term prices, cattlemen may be interested to know about breakeven sales prices at various current calf prices. These results are shown in Table 2.  For instance, if prices are $60/Cwt., and a producer can stocker a calf for $0.75 per day for 120 days, he will need to receive about $58/Cwt. to breakeven on the stockering phase.

Finally, growers with heavy calves will be forced to consider custom finishing as opposed to stockering. To help them see what their breakeven fed cattle price will be, Table 3 was developed.  The prices presented in this table are the breakeven fed cattle prices at various weights and costs of gain.  As an example, if total cost of gain is $65/Cwt., feeder cattle weighing 750 pounds in January will need to bring almost $62/Cwt. as fed cattle to breakeven.  If you are interested in retaining ownership through the finishing phase, consider consigning your calves in the Georgia Beef Challenge.

Table 1.  Breakeven price needed to stocker a calf 120 days at various costs and performance levels.

Based on 550 pound steer valued at $70/Cwt.

Table 2.  Breakeven price needed to stocker a calf 120 days at various 550 pound sales prices and performance levels.

Table 3.  Breakeven fed cattle price needed for various weights costs of gain.

Summary

        This is a very difficult time for all cattle producers.  It is at this juncture that cattlemen should make rational and informed decisions.  There are numerous tools and resources available through the University of Georgia Cooperative Extension Service.  Producers with questions or seeking assistance with making decisions should contact their local county extension office.