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Sharpen Management Skills to Capture Profits

January 4, 2014
By: Greg Henderson, Beef Today Editorial Director
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Sharpen your management skills to capture profits

These are good times for ranchers. In fact, the market outlook for this year is so good, "I can’t believe what I hear myself saying to cattle producers," says Derrell Peel, Oklahoma State University Extension livestock economist. "We expect record levels of profitability for cow-calf operators."

Peel and other economists always hesitate to project record-high prices or profits, but 2014 is no ordinary year. It’s probably a once-in-a-lifetime opportunity for ranchers. Smaller cattle numbers and lower feed costs are the fundamentals that paint the rosiest cattle outlook in memory.

"The markets are not our biggest worry," Peel says. "Prices are going to be good. Producers must focus on producing as much as possible to sell into this market. They can’t afford any death loss when calves are worth $1,000."

Do all you can. Glynn Tonsor, Kansas State University Extension economist, agrees—now is the time to capitalize on the market. "We’ve seen improvements in forage production and declining grain prices. That translates into improved cow-calf profitability in 2014."

Regarding those profit levels, Tonsor says the Livestock Marketing Information Center data suggest that returns over cash costs will exceed $300 per cow in 2014. "That’s double the returns we saw during the two most profitable in that data set—2004 and 2013," he explains. "Even if we add $100 per cow labor costs, that’s still a good profit."

Such shiny prospects for cow-calf producers, however, are not limited to just this year. Tonsor says he expects "an abnormally profitable environment" for ranchers over the next four or five years.

Beef, Madison Valley of MT

A bull market is not the time to cut corners on management. Rather, now is the time to minimize health problems and add value to your calves with preconditioning and weaning programs.

Manage for the market. Feeder cattle and calf prices are 25% to 30% higher than this past May. As spring nears, those prices are likely to go higher. Weaned calves were worth $900 to $1,000 per head this past fall, and they could sell for more than that by next fall. Now is not the time to cut corners on production practices.

"Producers must focus on managing their production and managing their costs," Peel says. "They must minimize death loss because those calves are so valuable."

Both Peel and Tonsor encourage cattle producers to maintain animal health programs for cows and calves. "Things that producers can manage, such as animal health programs, are worth even more in this environment," Peel says.

Adding value to calves through preconditioning and weaning programs is essential in today’s market as the risks are higher for buyers.

Stocker operators and feedyards will likely be forced to pay more for replacement animals this year, and with more money on the line, they’ll be searching for ways to minimize their production risks.

Paying higher prices for preconditioned and weaned calves just makes sound business sense for cattle buyers. They are more likely to shy away from the risks associated with calves that have been weaned on the road to the auction market.

Beef demand. While shrinking supplies of cattle and lower feed costs work in favor of cattle producers, many analysts are raising concerns about beef demand and rising retail beef prices. For instance, Darrell Mark, adjunct professor of economics at South Dakota State University, says beef consumption is likely to decline about 5% this year to about 53 lb. per person (retail weight equivalent). In 2015, beef consumption could drop to 52 lb. per person.

Declining beef consumption is a reflection of supplies, not necessarily demand. Still, reduced supplies have already spurred record-high retail prices. From January through October of 2013, the price of all fresh retail beef averaged $4.93 per pound.

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