Transcript Costs and Profitability Outlook for 2006

Livestock Management and
Marketing Considerations in
Dealing With Drought
Dr. Curt Lacy and Dr. John McKissick
Extension Economists-Livestock
University of Georgia
Three Biggest Mistakes Cattlemen
Make During a Drought
1.
2.
3.
Do nothing hoping it rains or that additional
land can be rented or hay purchased.
Early weaning AND marketing calves hoping
that cows won’t have to be liquidated.
Once culling begins, saving young cows (less
than 4 yrs) instead of more productive (4-7
yrs) cows.
Adapted from Gill and Pinchak. “Destocking Strategies During
Drought” . TX A&M University.
Livestock Management & Marketing
Considerations in a Drought
The Basics
1.
2.
Most cattlemen have a finite amount of money to put
into an operation.
Money comes from 3 places:
1.
2.
3.
3.
4.
Cash on hand
Sales of assets (feed inventories, cows, equipment, real estate)
Borrowed capital
Assets-Liabilities = Equity
EQUITY IS OUR MOST
IMPORTANT FINANCIAL ASSET
Livestock Management & Marketing
Considerations in a Drought
Suggested Operating Procedure (SOP)
for Cattlemen in a Drought
1.
2.
3.
4.
Wean early (60 doa+)
Segregate and feed animals by nutritional
needs
Cull cows
Precondition/stocker calves
BE LOOKING FOR WAYS TO CUT COSTS
Livestock Management & Marketing
Considerations in a Drought
Marketing Order
1.
2.
3.
4.
5.
6.
7.
Open cows (old)
Open cows (young)
Unprofitable cows
Replacement heifers
Current calf crop
Marginally profitable cows
3-7 year old cows
Livestock Management & Marketing
Considerations in a Drought
Short-Term Profitability (Cash-flow)
Net Cash Flow = Revenue – Expense – Payments
Net Cash Flow = Calf Sales + Cow Sales – Feed Costs – Other Costs – Pmts
Where calf sales or cow sales = Wt. X Price
Drought Math
400# calf X $1.15/# = $460
1,100 pound cow x $0.48/# = $528
Cost per day = $1.00/day for calf gaining 2#/day
Cost per day = $1.40/day for dry cow to maintain weight
Livestock Management & Marketing
Considerations in a Drought
Cost-cutting Guidelines
1.
2.
3.
4.
5.
There is a difference in cutting costs and
cutting corners.
Focus on $/Cwt. not $/cow or total $$.
Identify the largest costs in the operation
that can be changed.
Identify ways to reduce these costs.
Don’t cut the important things (nutrition,
health, genetics).
Livestock Management & Marketing
Considerations in a Drought
Cull Unprofitable Cows
Annual Cow Profit  Calf Value - Total Cow Cost
Annual Cow Profit  (Calf Weight x Calf Price) - Total Cow Cost
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Yeah Buts:
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Must be able to match cows and calves
Based on average cow cost
Borderline young cows may get a pass
Livestock Management & Marketing
Considerations in a Drought
Marketing Strategies
for Cows and Calves
What Determines Cow Value
1.
2.
Percent Lean Meat Yield
Live weight
Livestock Management & Marketing
Considerations in a Drought
Marketing Classifications of Cull
Cows
Classification
Lean
Percentage of
Trimmings
Body
Condition
Score
Premium
(Discount)
2002-2006
Cutter/Canner
85%+
1-3
($3.50/Cwt.)
Boning Utility
80-85%
4-6
Base
Less than 80%
7+
($2.00/Cwt.)
Breaking Utility
Livestock Management & Marketing
Considerations in a Drought
Cull Cow Marketing
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Southern Plains, 1997-2006
Before October 1
What
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SEASONAL PRICE INDEX -- UTILITY COWS
When
1.10
Cows in good flesh (BCS
4+)
Cows without obvious
defects
How
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Index
1.15
1.05
1.00
0.95
0.90
0.85
0.80
Jan
Mar
May
Avg. Index
Local market
Direct????
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Jul
Live weight
Carcass basis
Livestock Management & Marketing
Considerations in a Drought
Sep
Nov
Increasing Income
Calf Crop
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Short-term backgrounding/creep feeding
Retained ownership
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Stockering
Custom-finishing
Forward price part of your production
Livestock Management & Marketing
Considerations in a Drought
What is the Market Offering TodayFutures Based Price Projections
$110.00
$100.00
$95.00
$90.00
$85.00
500# calf
650# Feeder
750# Feeder
Livestock Management & Marketing
Considerations in a Drought
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$80.00
F
$/Cwt.
$105.00
Live Cattle
What is the Market Offering TodayFutures Based Price Projections
$750.00
$700.00
$/head
$650.00
$600.00
$550.00
$500.00
$450.00
$400.00
Feb
Mar
500# calf
Apr
May
Jun
650# Feeder
Jul
Aug
750# Feeder
Livestock Management & Marketing
Considerations in a Drought
Sep
Oct
Nov
Live Cattle
Livestock Management & Marketing
Considerations in a Drought
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$1,300.00
$1,250.00
$1,200.00
$1,150.00
$1,100.00
$1,050.00
$1,000.00
$950.00
$900.00
$850.00
$800.00
F
$/head
What You Can Sell for Today-Futures
Based Price Projections
Forward Pricing Part of Your
Production
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Producers with 50,000# or more can use
futures.
Can use video auctions either through local
markets or other to forward price calves up
to 90 days.
Forward cash contract with order buyers
and feedyards.
Livestock Management & Marketing
Considerations in a Drought
Computer Decision-Aids
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Alternative Feedstuffs Calculator
Marketing Alternatives Calculator
Budgets
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Cow-calf
Stockering
Custom Finishing
Livestock Management & Marketing
Considerations in a Drought
Dealing With The Drought Summary
1.
2.
3.
4.
Keep in mind where we are in cycle – Better to do
good job with fewer cattle than HA job with a lot!
Cull all LIKELY non-productive mature cows (10yrs
plus, open etc.)–remember relation between nutrition
and putting a calf on the ground. Keep the productive
factory in place - 4 to 7 year old cows.
If they ain’t growing, they need to be going! Can wean
60 days plus.
Put emphasis on things will get you more NET money
–Marketing, Management records (vaccinations,
implants, feed products, etc.), Performance records. A
SHARP PENCIL.
Livestock Management & Marketing
Considerations in a Drought