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Drought Challenges Bring Opportunities

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Update February 2018

During drought conditions, there are many challenges for cattle producers. Grain and feed prices may skyrocket, hay could be in short supply, pasture conditions could very well be predominantly poor to very poor, and cattle prices historically drop significantly.

While regions miss out on chances of moisture, some ranches may receive rain providing opportunity. Prior to receiving any rain, many operations were understocked due to the drought, and some might have even been able to produce hay during the spring. Since most producers are grass-based and the cost of gains in the feed yards can be rather high in cases like this, the market is creating a situation where cattle weight gain on grass is very valuable.

Figure 1.
Medium and Large #1 Feeder Steer Prices (LMIC)

If a stocker operator can manage their available forage and add enough gain with grass (e.g., small grains pasture), the margins could be significant for that operation. Even if the calves are fed on-farm instead of grazed, there are margins for the producer if the cost of the feed doesn't go too high and gains of the cattle are good. For the cow-calf producer, margins are still there to wean, precondition their calves. This allows the cow-calf producer to avoid the $8 to $12 hundredweight discount of selling a freshly weaned calf, while enabling him to take advantage of the margin created by the additional gain of the calves. This will also allow for these calves to be sold outside of the time frame when many calves are coming to market from operations that are not able or willing to precondition the calf crop.

Each producer should analyze his or her individual ranch situation when making a marketing or purchasing decision. Analyze an opportunity before selling weaned calves for the cow-calf producer or buying weaned calves for the stocker producer because there will be opportunities in this market.

Figure 2.
Medium and Large #1 Steer Calf Prices (LMIC)

Steve Swigert
Agricultural Economics Consultant (Retired)