The drought of 2011 had long-lasting impacts on cow-calf producers in the U.S. Southern Plains. Between January 2011 and January 2012, beef cow numbers in Texas were down 13.1%, down 14.3% in Oklahoma and down 10.9% in New Mexico (Livestock Market Information Center, 2012), leading to a 3.1% reduction in the U.S. beef cow herd. Rebuilding herds poses many financial challenges to individual producers, particularly generating sufficient cash flow to rebuild. Large numbers of cull cows were marketing during the summer of 2011, depressing cull cow prices. So, many cull cows generated lower revenue than sales made earlier in the year. Combined with high feed prices, cash reserves for many producers are not sufficient to immediately rebuild herds. With reduced cow numbers in 2012, beef supplies are tight, leading to higher prices for replacement heifers. Now, cow-calf producers have to bid expensive replacement heifers away from feedlots. These factors combine to make rebuilding financially difficult. To advise producers on rebuilding, we have developed and analyzed financial impacts of herd rebuilding strategies for Oklahoma producers.
Analyzing rebuilding strategies is complicated by several factors, including the pre-drought financial position of the producer, degree and timing of herd liquidation, management skill of the producer, off-farm income, family living expenses, and uncertainty over future replacement heifer prices, calf sale prices, and production expenses. While our analyses do not accurately model any single producer, they provide a framework for producers to analyze the financial implications of their rebuilding strategies and suggest approaches that are more financially feasible than others.
Rebuilding Strategies and Scenarios
Producers who liquidated entire breeding herds in 2011 face the biggest cash flow demands associated with rebuilding. Their difficulties are compounded with a lack of cow-calf income in 2012. So, we focus our analysis on these producers with three land tenure positions: rent all land, owned land with land debt, and owned land without land debt. Land tenure positions are analyzed under three rebuilding strategies: slow rebuilding using stockers, fast herd rebuilding with cow/calf pairs, and leasing cows. We assume that pasture can only be stocked at 50% of historical levels in 2012, 75% in 2013 and 100% thereafter.
Our base herd is a 100-head (85 mature cows and 15 bred heifers) commercial cow-calf herd with 15 replacement heifers and three bulls as of January 1, 2011. The cows are assumed to be moderate-framed and 1100 pounds on average. All breeding stock, including replacement heifers and bulls, and calves are assumed to have been sold in July 2011. Two ranches are modeled, one with native pasture (1,000 acres) and one with introduced grass pasture (160 acres each of fescue and Bermuda, for a total of 320 acres).