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Addition by Subtraction

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Posted Sep. 9, 2009

There's an old adage that says "Buy low, sell high." For generations, livestock producers have ridden the ebbs and flows of the market, attempting to purchase cattle in the valleys and selling them - as best they could estimate - at the peaks.

Good markets, however, do not always align with farmers' and ranchers' yearly production models, leaving them no choice but to sell during depressed markets. Such is the case with culled cows. Culling is a process in which producers remove specific, nonproductive cows, including those that are determined to be "open" (not pregnant) and those that have exceeded their prime production years, from the herd to sell at market.

Culling is a vital management function in Oklahoma and north Texas. The Noble Research Institute Agricultural Division's service area - roughly a 100-mile radius around Ardmore, Okla., stretching from Oklahoma City to Dallas - is dominated by livestock operations, supporting more than 2.8 million head of cattle. According to Noble Research Institute economist Job Springer, culled cows represent between 15 and 30 percent of the income annually for regional cow-calf operations. "It is a much larger portion of their bottom line than most people realize," Springer said. "Unfortunately, producers usually cull cows during the worst markets."

Historically, producers cull cows from their herds in the fall at the time they wean spring-born calves. The substantive influx of cows saturates the market in the fall, reducing prices. "Based on these historic practices, farmers and ranchers have been resigned to conceding a significant amount of their annual revenue," Springer said. "For generations, this has been considered a cost of doing business in the cattle industry."

A new solution

In the past five years, the Noble Research Institute's Agricultural Division has established a research team to provide scientifically proven answers to questions generated from farmers and ranchers who work directly with the organization's agricultural consultants.

One of the recent studies focuses on determining if cull cows can be managed in a way to add value by retaining them on the farm until there is a higher market, usually in the spring. Adding Value to Cull Cows is a three-year study at the Noble Research Institute in partnership with Oklahoma State University's Department of Agricultural Economics.

While the study is taking place at the Noble Research Institute's Oswalt Ranch, the collected data is sent to OSU economic professors and graduate students for analysis. In fact, Zakou Amadou, an OSU student, is summarizing this data as his master's degree thesis. "The research collaboration of these great institutions is beneficial to producers by allowing a larger statewide audience to be reached and, therefore, more cattlemen potentially benefit from the research findings," said Jon Biermacher, Ph.D., assistant professor and agricultural economist. "Furthermore, the graduate students whom we work with gain valuable real-world research experience."

By using alternative management systems and varying the timing the cull cows are taken to market, the producers may be able to increase net revenues for their operations. "Cull cows are typically not given much thought beyond the usual process of herd owners removing them and hauling them to auction at the time of calf weaning. The study's primary goal is to help provide producers with economically viable alternatives for their cull cows," said Billy Cook, Ph.D., senior vice president and director of the Agricultural Division at the Noble Research Institute. "Many factors influence the decision on when to market cull cows. Our study may reveal the conventional practice is correct; however, we don't want to settle for the status quo if there is a better answer for our producers. The bottom line will dictate which option or combination of options is best."

The experiment, which is entering its third year, tests two management systems made up of cull cows from the Noble Research Institute's spring-calving herds. One management system feeds half the cull cows on hay and supplement in dry lot confinement, while the second management system utilizes standing native forages with much less supplemental feed.

Cook pointed out an obvious caveat to the concept of "holding" cull cows. Injured, unhealthy or generally unsound cows should be sold immediately upon culling. "There is no point in trying to keep unhealthy cows," he said. "To contribute toward profitability in the spring, cows must be healthy and in a thin to moderate body condition to give them the ability to gain a considerable amount of weight during the feeding period."

The first year of this experiment - conducted from October 2007 to November 2008 - data was collected on weight, estimated USDA grade, estimated USDA dressing percentage, cost and estimated market value during five intervals. "Retaining the cows past the typical culling date in October means the producer is going to incur added expense," Cook said. "We had to see how much it was going to cost and at what point in the process it became uneconomical to retain the cows."

One of the project's key factors centered on average daily gain (ADG). Simply put, the team evaluated whether the cows in either of the two management systems gained enough weight to justify recommending either method (dry lot versus pasture) over the current practice of selling cows when they are culled from the herd in the fall.

The initial results

The initial data suggests that holding culled cows about three months until the market rises is profitable. Many factors impact these early findings, though.

The level of profitability depends on what the cows are fed - native grass forages or low cost diets of hay and supplements - during the holding period. The study shows that ADG declined generally for both groups over the period they were retained. The forage-based cows gained less weight overall, but the spring market and the lower cost associated with feeding native forages resulted in net returns greater than would have been realized by selling open cows at the time of culling. "Cows that were on the dry lot system were not profitable for any of the feeding periods in the study," Biermacher said. "The cost of feed was higher than the value of holding them until spring and selling them at the higher seasonal price."

In addition to considering feeding protocols, the study allows researchers to better determine the time of year it is most profitable to sell cull cows.

"The data shows that for cows culled in October, net returns were positive for the cows fed native pasture and then sold at 111 days (February 12) and 134 days (March 6)," Cook said. "During the first year, the best option would have been to keep the cows on the native grass and then market them the middle of February. That does not mean this is a risk-free option. If the spring market is not as robust as the average, profitability might not be achievable in that year."

The completed study will either confirm that the current model is the most sound over the long term or it could provide a foundation for a justifiable alternative.

"I believe findings from this study will help producers across Oklahoma and north Texas with this key financial decision," Cook said. "In two years, we hope to provide producers with a new possibility for managing their cull cows, creating a knowledge resource that will help them find the right timing and management practices to sell high."