Playing the Game
The game’s the same, but the price required to play has changed.
I’m not a gambler. If a discussion pops up on playing blackjack or poker, I just nod my head in admiration, having no desire to play the games myself. I always describe myself as risk-averse – couldn’t bet my way out of a wet paper sack. But after remembering several of my own discussions this week, I’m re-evaluating my gambling tendencies.
My week started by selling a load of finished steers that were fed at our UW Sustainable Ag Research and Extension Center (SAREC) feedlot for essentially $1.52 per pound, which seems amazing. The math is impressive, with this one truck carrying approximately $92,000. Because we sell our steers on a grid, we essentially own them until they go through the plant. You find yourself checking the truck driver’s credentials and the WYDOT road report, crossing your fingers. While prices are good, ag economists and market analysts predict that prices will remain strong based on current cow inventories and domestic demand, as well as export opportunities for beef.
My momentary “gambler’s high” only lasted a few minutes, until I stopped to fill my pickup with diesel, paying over four dollars per gallon. The rest of the week continued to be a dose of reality, developing backgrounding and finishing rations, estimating feed costs of gain and also evaluating some projected cow/calf budgets.
Everyone involved in the production side of the beef industry gets daily reminders of the increasing costs associated with ranching. Bull prices, feed, fuel, fertilizer, grazing leases and equipment prices are all going up. My conservative estimates for southeast Wyoming cow/calf beef budgets using current prices and opportunity costs suggest that “typical” production costs are somewhere between $1,000 to $1,200 per weaned calf. That may seem high, but feed costs, pasture rental and even stalk grazing rates have all jumped significantly.
Despite high costs, there is still profit opportunity for cow/calf producers based on strong market forecasts for fall prices. The game’s still the same, but the cost of playing has jumped significantly. What does that mean as a manager? Annual budgets are bigger, more money is wrapped up in the herd, and overall risk is increased.
As I visit with producers across the state, there are three topics that continue to come into discussion.
The first item is understanding your actual costs. That doesn’t necessarily mean reducing your costs but understanding and managing your costs. Feed costs, especially purchased hay, supplement and mineral expenses, tend to be out-of-pocket expenses that we have to write checks for. The tendency is to reduce spending on these items, but rather than look at just cutting costs across the board, sample and analyze hay, evaluate pasture quality, determine what nutrients need to be supplemented and price and purchase those items to meet the animals requirements.
Understanding and minimizing risk will also continue to be important. Risk hits beef production in several different ways, in the form of price risk, weather risk, lack of forage, market or demand risk, etc. Diversifying your operation, developing grazing strategies and evaluating alternative marketing opportunities are all ways of minimizing exposure to risk.
Finally, planning with an eye toward the future is key. What is the long-term outlook for the beef industry, as well as the operation?
While beef consumption trends downward, domestic beef demand remains high. Worldwide demand remains strong, and our export opportunities will continue to increase.
Another example is animal health products. As Food and Drug Administration regulations continue to become more demanding, fewer and fewer new animal health products are being developed. Dewormers are a prime example of this. Management and husbandry practices to minimize disease risk will continue to trend upward.
These are just a couple of examples of developing strategies for the future.
While we may all be gamblers, any method of swinging the odds in our favor is always appreciated.