Bred heifers, grass, risk protection all key to herd rebuild

About 75% of the nation’s cowherd is located in areas experiencing drought conditions and that is significant, according to one economist, when the nation is also attempting to build herd numbers back up from the lowest in generations. Retaining heifers, he said, may not be the best strategy.

Dave Weaber, senior protein analyst at Terrain Ag said the price signals are present but, unfortunately and as no surprise to so many, so are exceptional drought conditions.

Screenshot

“If we had grass, herds would be growing,” Weaber said at the recent annual Colorado Cattlemen’s Association meeting. “Grass is the thing holding us back. When we look at what’s going on from a price standpoint, where we are in the cycle, we have another two or three years of higher calf prices, or at least high calf prices.”

RETAINING HEIFERS

Weaber said the average producer is making about $1,000 per head which would typically tempt producers back into full herd rebuild mode, but the lack of grass is halting that. He said the current forecast indicates a change in moisture patterns in fall and into winter. Hopefully, he said, it’ll come early enough that some producers will take the chance and retain heifers.

For those considering retention, he said there is an advantage to purchasing a heifer bred this summer rather than keeping a heifer calf.

“There’s some of those starting to move,” he said. “Western Colorado is in dry enough conditions, guys who bred heifers late spring and early this summer, in two to three weeks from now, might have heifers on the market. Advantage to them? Prevent a further escalation of heifer prices when that growth does start, and you get a calf a year sooner.”

He said another advantage is eliminating the need to maintain heifer calves in a separate pasture than bred cows, allowing producers more flexibility in rotating pastures with limited grass.

Weaber said producers interested in riding the wave of high prices with the intention of unloading females before prices decrease may want to choose a 4- to 7-year-old cow that has enough youthfulness to produce through the peak prices.

“She’s still going to cost $4 to 5,000, but you know she’s a solid producer and there’s some opportunity there to capture high cull cow values which an average cow is still bringing $2,500 going to slaughter,” he said. “There’s still enough ground beef demand that there’s what I call trade-in value. They’re still high and they will be on those cows.”

Weaber said cow slaughter numbers are down about 20% over the five-year average, which is positive, but without adding heifers to herds, the nation’s cowherd will not be able to grow.

“It’s stabilizing the cowherd,” he said. “It’s not growing the cowherd. We need to put heifers in the mix to do that.

RISK MANAGEMENT

He anticipates two or three years of continued high prices. The flip side to that, he said, is cyclically, as calf prices rise, as do cow costs at the ranch level.

“We get used to the high prices and we let costs catch up,” he said. “As prices erode, we get caught sooner than we think because the break-even on calves is getting away from us. I continue to preach to people, they’ve got to know cow cost, and cost per hundredweight on calves. In risk management programs, the trend is your friend right now with calf prices still going up. I’m probably still a buyer of some LRP (Livestock Risk Protection) or some type of price protection, but on a limited number of the herd. It’s not an all or nothing kind of decision for risk management, especially at the cow level.”

Weaber said a heifer calf retained this fall will ride the price cycle to the bottom. Protecting dollars through LRP or an options strategy is going to be key, and it makes knowing your break-even numbers more important.

“When you sign up for an LRP or combination program, you’re also signing up for a marketing program,” he said. “You’ve got to have all those other things put together before you do that and know what you’re signing up for in terms what kind of risk protection it really is. That protects you from maybe curtailing yourself on not getting the right revenue volume done.”

Weaber said the new program that opened July 1 carries new changes in flexibility for drought and disaster on the new crop year. On fed and feeder cattle, he said the basis will be increased and he said it could add $5 per hundred in the summer months. There will also be LRP protection on unborn calves of cattle up to 900 pounds

“I like to think of that base level of protection kind of like pickup insurance,” he said. “We don’t want to use it, but if we have to, it’s there. You don’t have to do all of it. Figure out what the ranch needs to survive until next year and cover that dollar amount, don’t think about it on a per head perspective so much. I think we have three to five years of high calf prices unless we have some sort of black swan event, which is where your protection comes into play. As we get closer and closer to that peak, I want to see more and more protection on those high prices, so when we do roll over, we’re not caught short with high calf break even costs and lower revenue coming, Manage that on both sides.”