Tighten Your Belt and Plan Ahead

We have not seen a true bottom of a cattle cycle since 1996. That was 20 years ago.   While most cattlemen whined and complained about the low prices, a few took advantage of the situation.   There have always been more opportunities to advance in a down market than in an up market — but only for those who can break away from the status quo, herd-mentality way of thinking.

In 2012, we were receiving record-high prices for our calves.   This continued in 2013 and 2014 as prices steadily increased.   A 500-pound steer was selling for over $3.00 per pound in 2014.   WOW!   This was totally beyond any- thing we could have imagined.   Similar calves in 1996 were only worth 50 to 60 cents per pound.   That is a difference of at least $1200 per calf!

What goes up must come down.   Cattle prices started their descent in 2015.   At the writing of this article, a 500-pound steer was selling in the $1.55 per pound range.   Four years ago, we were very happy and satisfied with $1.55 because that was higher than calf prices had ever been.   The fact that $1.55 is half what we were selling calves for two years ago, however, has many producers very concerned.   I guess they thought prices would go up forever.

In the summer of 2014, Pharo Cattle Company started a series on “Whatcha Gonna Do with All That Money.”   Do you remember?   We knew cow-calf producers were going to have more disposable income than ever before.   We gave several suggestions on what could and should be done with that extra money.   We also warned that cattle prices would come down — and suggested producers use some of that extra money to get prepared for the future.

Many PCC subscribers and customers heeded our advice.   In spite of decreasing calf prices, their profit per acre is increasing.   That’s amazing!   Unfortunately, most cow-calf producers are not prepared for what is happening.   They are struggling — and cattle prices have not yet bottomed out.   I assume they foolishly spent most of their extra money on the wrong things.   They did not use the money to build a program and a cowherd that could increase their profit per acre.

It is not too late… for most cow-calf producers to make the necessary changes in their program and genetics.   In other words, it is still possible for them to increase profits — even with much lower calf prices.   Time, however, is of the essence!   They need to tighten their belts and start making the right decisions.   Those who are afraid to make the right decisions will eventually go out of business unless their cow-calf enterprise is being subsidized with outside money — which is often the case.

What has worked so well for the last 20 years will not work for the next 20 years.   We are headed for the bottom of a cattle cycle.   I don’t know where the bottom will be, but I’m afraid we still have a ways to go.   The really scary part in all of this is the fact that as calf prices continue to fall, the cost of inputs will most likely continue to rise.   Believe it or not, the cost for status quo producers to produce a calf has doubled in just the last 15 years.   They made more money — but they also spent more money.

Most cow-calf producers need to STOP doing things the way they have always been done.   It is time for change!   Those who are the quickest to adapt and change will be in the driver’s seat.   Those who are the slowest to change will get left behind or run over.   The fact that most producers would rather fail than succeed if success requires change will provide HUGE opportunities for many PCC subscribers and customers.   This excites me!   I don’t have much sympathy for people who are too lazy and/or too afraid to think for themselves.

Those who want to increase their sustainable profit per acre need to start thinking in terms of production per acre — instead of per animal.   They need to work with nature — instead of against nature.   They need to implement proper grazing management — and they need to produce cattle that fit their environment, instead of artificially changing the environment to fit their cattle.    Today’s tall, high-maintenance cattle will soon go the way of the dinosaurs.

 

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