The risk of being in another drought is increasing day after day. It is not too soon to prepare ourselves and dust off those drought plans even if there are still chances for rain and better moisture conditions. Today we will focus on those proactive and reactive strategies that we can implement on our ranches.
4/5/2022 – Hale & Floyd County Beef Cattle Conference, Plainview
4/8/2022 – Owning Your Piece of Texas , Burnet
4/12/2022 – Ector County Input Cost Management Conference, Digital/Midland
4/20/2022 – Direct Beef Sales Webinar National Ag Law Center , Digital
4/26-27/2022 – Hemphill County Beef Conference, Candian
4/28/2022 – Young County Spring Ag, Graham
5/13/2022 – Direct Beef Sales Workshop, Amarillo
What We’re Reading
Cattle producers welcome Contract Library pilot program – Morning Ag Clips
First half 2022 price prospects – Corn & Soybean Digest
COTTON SPIN: A changing picture – Farm Progress
Dusting Out our Drought Management Plans
The risk of being in another drought is increasing day after day. The U.S. Seasonal Drought Outlook shows a period of drought until June 30th (Graph 1). It is not too soon to dust off those drought management plans even if there are still chances for rain and better moisture conditions.
Graph 1. NOAA – U.S. Seasonal Drought Outlook (April 1 – June 30, 2022).
Most cow-calf production in our area is highly dependent on rainfall. A drought management plan should contemplate more than one practice that will create synergies mitigating adverse economic impacts. Especially these days with very high input and feeding costs and considering that this La Nina weather event is forecasted to affect us until early summer (Graph 2). Today we will focus on those proactive and reactive strategies that we can implement on our ranches. We will talk about the impact of early weaning, early culling, pre-stocking hay, and those restocking strategies that we might want to consider in our plan in case we need them.
At the District 3 Agriculture Economics Website (https://vernon.tamu.edu/extension-projects/d3-agricultural-economics/), you will find the Drought Management and Restocking Options Decision Aids to help you analyze the impact of each alternative in your operation. This model will help you measure the short-term (1 year) and long-term production and economic impact.
Graph 2. CPC-IRI Official Probabilistic ENSO Forecast.
Measure and Past Performance Analysis
The first step for any good plan and analysis is measuring and analyzing our costs and past performance. As Peter Drucker said, “You can’t manage what you can’t measure.” We have several decision aids to help you analyze your operation productions costs and performance. The more we know, the higher the chances we have to accurately define the best strategies for our operation, how much they will cost, and the impact of drought on our ranch.
Analyze the impact of each strategy
Each drought management strategy will have a different economic impact on your ranch. Of course, it will also depend on how you operate your ranch and market conditions.
A drought will always have a negative economic impact. However, implementing a plan will reduce risk, decrease losses, and leave the ranch in a better financial position to recover after the drought. These strategies resulted in a $426 saving per breading cow unit (BCU) during year one.
Hay prices have increased during the last 20 years but have increased dramatically during drought. Future hay prices will increase due to lower production in the hay area and higher input costs. Around 49% of the total area that produces hay in the U.S. is already affected by drought (Graph 3).
Graph 3. Hay Areas in Drought (USDA)
Bringing hay from those areas not affected by drought does not look feasible considering the high transportation cost. Pre-purchasing hay might be a good alternative considering the increased risk of lower local production and higher prices. The economic savings from pre-purchasing expenses were 205$/BCU in our long-term model (Table 1).
Table 1. Estimated Hay Consumption of Total Herd from Best and Worst-Case Scenarios
Planning for an early culling of open or poor-performing cows during a drought could significantly impact our operation. Early culled cattle will usually have higher sales weight, reduced feed consumption across the ranch, and higher prices if a drought hits us. Most importantly, we will have more forage available for cattle in production and will require less hay. Holding onto a cow that is not performing or producing a calf could be extremely expensive under these circumstances. The sooner these decisions are made during a drought, the highest the bottom-line impact. The sooner we cull underperformed animals, the highest chances we have of having more forage available during the drought. Early culling showed a $107/BCU result on our model and had the highest (Table 2).
Table 2. Early Culling Impact
Early weaning at five months rather than the traditional later weaning is a tool that reduces costs and resource requirements. Savings were achieved from more minor feed needs and improved cow herd conditions for re-breeding, accounting for approximately $50/BCU of the positive difference (Table 3). These savings depends on the drought impact on the weaning weight, prices for lower conditioned calves, and feeding costs.
Table 3. Early Weaning Impact
Destocking our ranch and moving a portion of our herd from the ranch during the drought is an excellent strategy during those severe drought events. This strategy requires a lot of careful planning time. It requires you to discuss with your vet and your future destination vet to be sure how your cattle will behave in that environment and how they will behave when they come back.
In the long-term model, given a severe drought event, destocking showed the best average cash flow results over the next seven years, the best time to rebuild your livestock equity and restock the ranch. Evaluating this option should include all costs related to leasing land in a distant area, transportation, higher labor, feeding, and supplement. The benefits of this alternative relays on not having to sell your genetics and having to cull part of the herd in a distressed market.
A severe drought might require selling part of our herd. Restocking strategies should consider the business’s financial position, long-term profitability, cash flow, the time needed to rebuild your livestock equity lost during drought, and other productive variables such as forage productivity, genetics, or leasing alternatives.
In that case, the model will help you analyze and compare alternatives from restocking the herd with your own raised heifers, purchasing cows after the drought, and moving out the ranch cattle during the drought.
Results will depend on how you manage your operation, data, and costs. These analyses will help you be prepared and ready to make the best decision at the right time, given the information that you have, your experience, and future expectations.
The risk of being in another drought is increasing day after day. The sooner we get prepared for it, the higher chances we have of successfully implementing a strategy, saving costs, and increasing the chances of having a profitable business in the future.
Other pro-active strategies like USDA’s Pasture, Rangeland, Forage Insurance (PRF) are essential tools that can be implemented in many cases. USDA’s decision support tool calculates the estimated indemnity payments from the last 20 years (https://prodwebnlb.rma.usda.gov/apps/prf). PRF showed a positive net benefit in many cases, but most importantly, it generated significant payments in drought years when it was needed most.
This model assumed that you were using the right genetics, cow size, stocking rates, or having an appropriate grazing system. Those practices have a significant economic impact on your ranch. We assumed that we optimally managed the ranch in the model. Moreover, your financial position will play a substantial role in analyzing your drought management alternatives, associated risk and defining the best restocking strategies after the drought conditions are over.
Unfortunately, droughts always have a negative effect on our companies. Waiting for it to rain and solve our problems has not always been the best solution. We must prepare ourselves in the best way to weather the drought.