Peel Advises Cow-Calf Producers To Plan Beyond 2015

By Derrell S. Peel, Oklahoma State University Extension Livestock Marketing Specialist

The euphoria of high cattle prices in 2014 leads, for some cow-calf producers, to uneasiness and indecision in 2015. The question is how to best take advantage of the current market. The answer to that depends on several factors including;

1) The current status of the operation, i.e., is the operation at full capacity or is there room to grow?

2) The producer’s market expectations for the next several years.

3) For older producers: is there a time frame for retiring/exiting the business?

In other words, producers need to ask now where they want to be in 3-5 years. The answer to that question will reveal whether 2015 should be a year of liquidation; holding steady; or expanding the cow herd.

For some older producers, for whom retiring or exiting the business in the next few years is inevitable, the current market provides an opportunity to liquidate cattle assets at previously unheard of values. Hopefully, the decision to liquidate cattle is part of a business transition plan that is already developed and may or may not yet be activated. The decision about when to liquidate will be guided by the business transition plan and also by market expectations.

Should the herd be liquidated in 2015 or perhaps 2016? Is it better to wait to get another calf crop on the ground; or perhaps two more calf crops? There may be very good reasons not to liquidate the entire herd at one time. Now is the time to develop a plan that might include, for example, liquidating older cows in 2015 and saving younger cows and heifers until 2016 or, perhaps phasing the final liquidation into 2017. The point is to determine where you want to be and when and start implementing the plan in 2015.

Some producers may be holding steady for a variety of reasons. If the operation is a full capacity and expansion is not feasible or desirable, the focus should be on maximizing productivity. High prices and increased net returns is a signal to tweak management decisions to increase productivity and efficiency. The market is rewarding calf production and producers should consider any opportunities where spending a bit more on inputs might boost production or reduce the odds of death loss or lost productivity.

Some producers may have the capacity to expand the herd but are holding steady because they either cannot resist the returns from selling heifers now or cannot bear the thought of paying current prices for replacement heifers or cows. Evaluation of how much one can afford to pay or how much a heifer retained for breeding is worth depends critically on one’s market expectations for the next several years. Obviously, if current prices are not expected to persist for long, heifer and cow prices are judged to be too high. Current cattle prices are a signal for herd expansion that will persist until enough expansion occurs to satisfy market needs.

Herd expansion is likely to take several years and strong cattle prices may be expected over most of that time. Breeding female prices likely have not peaked and will, in any event remain strong in 2016 or beyond. The dilemma for these producers is that hesitation to expand now may turn into expansion desires in the next year or two. If that is possible or likely, it may make sense to expand sooner rather than later. Whether or not female prices are too high now is arguable but there is no doubt that at some point it will be too late to jump on the bandwagon. I expect that point is at least a year away and possibly two. Again, it is a question of how best to take advantage of current markets.

There are some producers holding steady at reduced herd size due to ongoing drought or because time is needed to allow forage resources to recover from drought damage. It is critical to manage forages for long term productivity and it takes management patience and discipline to maintain reduced stocking rates and allow forage recovery. Producers in this situation may be able to consider seasonal stocker enterprises to utilize limited available forage and generate some revenue while managing pastures for recovery. A herd rebuilding plan can be developed that will be triggered by drought and forage recovery thresholds and changing market conditions.