Anyone who grew up in the Northern Plains knows all about prepping for storms. Sometime between late fall and early winter the first forecast of upcoming winter weather arrives. At that point, the process of getting ready begins. The sense of urgency depends on the amount of prior preparation.
The violent price swings in the cattle markets the last couple of months point to at least the possibility of changes in the business climate for the cow/calf producer. Of course this could be a temporary blip, but the days of higher prices every single week are most likely in the rear-view mirror for now. Just like when the forecast calls for snow, getting ready for tougher margins “just in case” is a prudent move.
More cows equal more calves, and consequently lower prices down the road. Whether that decline is relatively smooth or something more painful in the months and years to come remains to be seen. There are steps ranchers can take right now to prepare. This list is by no means exhaustive, but these are three areas to consider as part of the planning for tighter margins.
- Capture as much value as feasible. The ability of buyers to be selective increases in proportion with the number of cattle for sale. Although it is tempting to cut back in areas such as preventative health measures and genetics, doing so could leave ranchers on the outside looking in as buyers look for cattle with less risk of getting sick that will hit specified targets.
- Storm proof the balance sheet. Working capital and liquidity are wonderful insurance policies to deal with tougher economic conditions. The dollar value per head for the 2015 calf crop will be the second highest on record, giving ranchers an opportunity to solidify their finances.
- Focus on the big cost items. When margins get tight, every expense is scrutinized. Scrutiny is sound strategy, but the reality for most herds is that feed, depreciation (breeding stock and equipment), and labor (hired or family) make up the vast majority of the total costs to produce a calf. Focusing on those areas will make a much bigger impact than on smaller items like supplies or vet costs.
There is nothing wrong with hoping that unfriendly forecasts are wrong. However, it is much easier to hope for the best when we have already prepared for the worst. Starting that process now is much easier than waiting until the winds have already picked up.