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Weather and Rising Prices Bring New Challenges

Posted Apr. 30, 2008

The ranching industry has become an even more challenging business lately due to unpredictable weather, rising costs and cattle cycles that no longer seem to follow a typical 10- to12-year trend.

Over the past several years, rainfall patterns have been anything but normal in southern Oklahoma. One of our worst years in terms of effective precipitation was 2006, and then 2007 was one of the best years for our state's rangelands. It started raining in April and didn't quit until August. But when it finally quit, IT QUIT, and few producers saw enough rainfall in September and October to grow significant winter pasture. Many of the ranches I visited in 2007 were lightly stocked due to the recent drought, which allowed the more desirable native grasses to regain their footing. I only hope 2008 will give us plenty of effective precipitation to continue a positive range condition trend. All the abnormal rainfall years we have experienced will be used to define our future "normal" expectations. During the period from 1980 through 1995, we redefined our expectations to the above average conditions and still think that period was normal. Many still believe that stocking rates should be as good as they were during that 15-year period.

The rising cost of inputs is also playing a major role in our decision-making processes. Fifteen years ago we could buy urea for less than $200 per ton. Today, we are paying over $500 per ton which equates to $0.55 per pound of nitrogen. Therefore it will cost about $37 to produce an additional 1 ton of forage or hay. Furthermore, what if your soil test report calls for 50 pounds of phosphorus with 18-46-0 approaching $1000 per ton? I dare not show you the math, but encourage you to sharpen your own pencil. Feed prices have also escalated. Commodity feeds have more than doubled over the past few years. Even 20 percent cubes recently priced at $200 per ton this past October are now costing $270 per ton or more. Diesel is approaching $4 per gallon as fuel prices continue to rise. I can remember paying half this just a couple of years ago. It's a good thing most government reports on core inflation don't include the rising cost of food and fuel or people might begin to panic. Or have we already begun?

Finally, the cattle cycle is not being discussed by our economists like in the past. Have the local and regional droughts extended high prices and how long will it last? I saw some 900-pound steers sell for $1,000 last December and was happy for the seller, but concerned for the buyer, hoping he had some cheap corn locked in. Will steers continue to sell for these prices? I seriously doubt it. In fact, this same class of cattle has fallen by $20 per cwt from December to April. We might be able to absorb the high cost of fertilizer, feed and fuel with a 900-pound steer selling for $1.10 per pound, but I can guarantee your profits will be drastically reduced as cattle prices come down.

What does all this mean for those of us in the cattle business? You better begin keeping meticulous records so you know exactly where you are spending your money and what enterprises are the most profitable. If it hasn't worked for you in the past, it is doubtful it will in the coming years either. For example, consider no-till farming to reduce fuel, labor and equipment costs. From a grass producer's perspective, it's time for you to critically evaluate the carrying capacity of your land and calculate if it pays to run more cows with additional inputs such as fertilizer, feed/hay and fuel. In other words, be conservatively stocked to understocked rather than pushing the envelope and expecting additional inputs such as feed/hay and fertilizer to bail you out when you don't grow the grass you expected.

This just might be one of those times when running fewer cows could actually mean greater profits. Continue to hope for the best, as all of you do, but be prepared for the worst!