Consider early weaning and preconditioning
Early weaning of calves is a common drought management practice. Removing calves from cows at approximately 300 pounds or 75 days of age decreases cow nutritional requirements and gives producers the ability to stretch limited forage resources. Drought conditions in 2011 are forcing producers to wean calves early; many of which have already marketed at auction. Supply and demand principles are in evidence as an increased supply of calves is decreasing market price. Noble Foundation consultants suggest that early weaning and preconditioning calves for at least 45 days can still result in profit. During preconditioning, calves are vaccinated, de-horned, bull calves are castrated, and all calves are fed for an additional 45 days post-weaning. Calculate your cost of preconditioning prior to retaining ownership of calves. For help with budgeting or developing a feeding program for preconditioned calves, please see Optimizing Weaned Calf Value or call your Noble Foundation consultant.
Take advantage of tax provisions
Producers who sell cattle due to drought should be aware of tax rules allowing for income deferment because of weather-related sales in excess of normal business practices. Producers commonly misinterpret IRS rulings to mean that a natural disaster declaration is required. This is not true in all cases. IRS Code Section 1033(e) allows producers to postpone gain on breeding livestock that were sold in excess of normal due to drought conditions as long as the same class of livestock is replaced within two years. Another option for producers is IRS Code Section 451(e). This section allows for a one-year deferment of income on all classes of livestock sold, but requires a natural disaster declaration. Producers are urged to see Tax Code Offers Some Flexibility During Drought and visit their trusted tax professional.
Shop for feed and hay supplies
Weather reports suggest the drought will persist; therefore, consider having excess feed on hand if you desire to maintain cow numbers throughout the drought.
Deciding how much hay and feed you will need to provide adequate nutrition for your livestock is the easy part; locating it, especially hay, will be the challenge. Feed prices remain volatile and hay supplies are tight. Shop alternative feeds and lock in prices when possible. For more information on shopping alternatives, please see Managing Feed Costs in the August 2011, Ag News and Views.
Hay directories are available through the Noble Foundation; the Oklahoma Department of Agriculture, Food & Forestry; and the Texas Department of Agriculture. However, do not limit yourself to Oklahoma and Texas suppliers. The right deal can overcome shipping costs.
Cull cattle
Sell all open, old or injured cows. It is not economical to maintain these females - particularly when resources such as pasture, feed and hay are costly and in short supply. The immediate advantage to removing animals from the herd is that grazing pressure on pastures will be decreased and less money will be spent on supplemental feed. Additionally, cull cow prices have remained relatively strong. Selling cull cows now can provide immediate assistance for producers who are in a difficult cash flow situation.
Drought may also provide the opportunity to make improvements to your cow herd. Consider tightening up your calving season by selling late calving cows. Calves born later in the calving season are typically lighter weight at weaning and less uniform than the calves born earlier in the calving season. Cull cow marketing reports are available through the Agricultural Marketing Service.
Evaluate cow herd liquidation costs
Many producers may be tempted to liquidate the cow herd during persistent drought conditions. However, before selling the cow herd, compare the cost of maintaining a cow through the drought and winter months to the cost of purchasing replacement females next spring. To do so, calculate the cost of feed and hay on a per-cow basis from now until spring. Add this feed cost to the current value of cows sold. If the sum of feed cost and cow value is greater than the cost of buying cattle next spring, then liquidate the cow herd now and take advantage of tax benefits associated with drought-related sales. If you decide to maintain ownership of the cow herd, be prepared to maintain cow numbers for approximately six to eight months. It is not advantageous to begin feeding cattle through the drought only to sell them in the fall at seasonally low prices.
Factor in water hauling costs
During a drought, water quickly becomes a concern for livestock producers. Hauling water is an alternative for producers whose water source has diminished. However, this is a large, unexpected expense. Refer to the calculations in "liquidating the cow herd" before hauling water, as the choice to keep or sell the cow herd involves similar considerations. When making this decision, the cost of water would be included with feed and hay costs. Again, if the sum of feed, hay, water and cow value is greater than the cost of purchasing cows next spring, then liquidate the cow herd and take advantage of tax benefits associated with drought-related sales.