Managing Cow Replacement during the Cattle Cycle
Should you cull your beef cows the same way up the beef price cycle that you did on the way down? Data suggest that ranchers cull 14 to 15 percent of their cows on average during the entire period. Changing a beef herd's culling rate as the herd progresses through a ten-year cattle cycle can result in higher average net income for the complete cycle.
A cattle cycle can be broken into three phases: expansion, contraction and turnaround. Each phase has unique economic price relationships and profit opportunities, suggesting that optimum beef cow herd production strategy changes with the phases. Using a single herd production strategy for the cattle cycle can cost a beef cow manager substantial profits.
The key to developing profitable heifer retention strategies lies in the price cycle. The ten-year cattle cycle causes ten-year beef price cycles. As cattle numbers go down, beef prices go up, and vice versa. We typically spend approximately five years building beef cow numbers-for example, 1990 through 1995. We also spend approximately five years reducing cattle numbers-for example, 1996 through 2000.
Cattle cycles are caused by the biology of the beef cow. Once a producer gets the price signal to expand, it takes three years from the time he holds back additional heifers to produce more calves until those calves are finally slaughtered as added beef. By that time, the price signal is to reduce numbers.
So should you cull the same number of cows on the upward side of the price cycle as on the downward side? When beef cows are netting very little profit on the downward side of the beef price cycle or are even losing money, as in 1994 through 1996, you should cull and cull deeply. This could be a time when you remove the cows that are losing money and substitute low-priced replacement heifers. Perhaps you've been thinking about changing the genetics of your herd. This low-price phase might be just the time to do that because even the new genetics will be reasonably priced. This is the time to get your cow herd up to maximum production potential-however you define that for your herd. On the upward part of the beef price cycle, 1999 through 2002, do not hold back any heifers for replacement, and sell every calf born.
As you can see, there is an opportunity in the down market to replace cows that lose you money with heifers with better genetics. Then, when the beef industry returns to strong cattle prices, now through 2003, you can sell all calves born. You will probably need to cull some cows from 1999 through 2003, but reduce culling to an absolute minimum and just sell as many calves as possible when prices are high. Use this period to build up a cash reserve, preparing for the tough times that are projected to return from 2005?2007.
So what will the typical beef cow producer do? When he gets the price signal to expand, he will hold back additional heifers for his herd, wait to confirm the price signal with his 2000 calves, hold back 2000 heifers and breed them in 2001, and calve them yearly from 2002 until the price signal changes. He may even hold back some 2001 heifers, breed them in 2002, and calve them yearly throughout the price-decreasing phase of the beef price cycle. Heifer retention in 2000 and 2001 will drive beef production down in those years, and beef production will finally start increasing in 2002 and 2003 and will continue increasing through 2006 or until there is a strong liquidation signal. This is the cause of the cattle cycle.
Because of the nature of the ten-year beef price cycle, heifers born during the low-price period produce calves during the next high-price period. Heifers born during the high-price period produce calves during the next low-price period. Take, for example, the 1997 heifer calves. They were born in 1997, bred in 1998, and calved in 1999, and will continue to calve yearly through the peak of the calf price cycle.
Data suggest that heifer calves born in 1997 were the second most profitable replacement heifers held back. But if you did not hold back any 1997 heifer calves, you have an opportunity to hold back heifers in 2007. That is how the ten-year cattle cycle works.
Do you remember 1996, when nobody wanted your calves? Steer calves sold in the low $60s and heifers were discounted $10 to $12 from steers. Those heifers were born in 1996, bred in 1997, and calved in 1998 and 1999, and will continue to calve through the peak of the calf price cycle.
So if your goal is to improve net income over the total cattle cycle, try developing a countercyclical culling strategy. Cull deep when calf prices are low, generate cash flow from cull sales, and hold back low-priced heifer calves. Then, reduce culling when cattle prices are high and sell all calves born. Use periods of high prices to build a financial reserve for the next period of low prices in the beef cow business. Thanks to Dr. Harlan Hughes, North Dakota State University for information provided for this article.