Page 36 - MWC 10-6-2022s

MAXIMIZING mon drought mitigation strat- The Midwest Cattleman · October 6, 2022 · P36
continued from page 35 egies (partial herd liquidation
or buying additional feed) af- ical data, each producer must and the lender about the need
fect an operation’s net present engage in some level of fore- for and possibility of extending
input prices and drought con- value given the cattle cycle casting market conditions and additional financing. It’s better
ditions while in a downturn of and the length of the drought. what they believe is best for to have a clear understanding
the cattle cycle. In 2004, the Ideally, we want high returns their operation. of these expectations before
cattle market began to expand with little variation. What making a management deci-
before being limited by higher they found was that partial Additional points of sion.
feed prices in 2007-2008. The liquidation of livestock tended consideration 3.Don’t forget about price
cattle market was still con- to provide better returns than Regardless of the choice risk management — Price risk
tracting when the drought oc- purchasing feed to overcome you make (i.e., retain cows + management continues to be a
curred in 2010-2012. Now in constrained forage supplies. buy hay or partially liquidate tool to help manage the vari-
2022, the market is contract- Moreover, partial liquida- cows + no hay) there are a few ation and level of profits. The
ing, experiencing a drought, tion tended to be less risky points to consider: current market has a signifi-
and facing high input prices. and created potentially less 1. Recognize payoffs will cant amount of price volatility.
Table 1 summarizes these financial stress than purchas- be made over an entire cattle Some of this has come because
market factors. ing feed. High feed input pric- cycle — Decisions on buying of the integration of the U.S.
additional feed or liquidating
Profit maximizing under es would further increase the part of the herd are paid out beef market into the global
drought value of partial liquidation. over an entire cycle due to the beef supply chain, increasing
We have a situation where These results were estimated biological lag in production. the total value of the beef car-
there is a drought, high input using historical weather and For example, the effect of a cass. However, as COVID-19
prices and the cattle market is price data. In other words, breeding decision is not known has demonstrated, it can have
in a downturn. Ag economists while this is what the results for approximately three years. unpredictable damaging ef-
have examined how two com- show on average using histor- The tendency with finances fects. In most years, there are

is to evaluate whether a deci- opportunities to offset some of
sion gained/lost our operation the total cash price risk. But
money over one year. this requires effort and time
2.Communicate the plan dedicated to watching mar-
to your lender — Regardless kets, having a plan, and then
of the decision made, clearly being willing to act.
communicating this plan to
your lender is important. This
helps set expectations for you