Marketing versus production risk in your cattle operation

Environmental & Natural Resource Economics: The Austrian ViewOne reason I publish articles like this is to give me something to talk about. 

Anytime two ranchers get together the discussion will almost always turn to the weather and/or cattle prices. Then they will generally conclude that, they have no control over either of them. That is dead A Handbook for Ranch Managerswrong. They, to some degree, can control both.

You control drought by planning for it (including a drought reserve in your grazing plan). You control your market risk by using the futures and options markets. 

Planned Grazing: A Study Guide and Reference ManualAnd, way too much emphasis is put (and time wasted) on worrying about individual animal performance–calf crops, weaning weights, average daily gains, etc. when the emphasis should be on “turn off”–lbs of beef produced per unit land area (acre, section, etc). That it what makes the mortgage payment. 

Combat Shooter's HandbookYou do that by using high stock density, short graze periods and allowing time for the plants to fully recover before they are grazed a second time. (During the growing season, the goal is to not allow a single plant to receive a second bite. ) — jtl

By  via Canadian Cattlemen

cows at a mineral feeding trough

 

   Reconnaissance Marine MCI 03.32f: Marine Corps InstituteLast month, the 17th Western Canadian Feedlot Management School was held in Saskatoon and covered a wide range of topics from health and nutrition to issues like labour shortages. The school finished off with a session on economic conditions facing the industry. While nobody was complaining about current prices, there was an underlying feeling of caution, as the steam in fat cattle markets The Betrayed: On Warriors, Cowboys and Other Misfitsseemed to have disappeared and coupled with the recent drop in the Canadian dollar, attendees were reminded that markets are both cyclical and volatile and that one cannot always count on prices staying at record highs.

The last speaker was Joe Jackson with JGL Livestock of Moose Jaw, The Essence of Liberty: Volume I: Liberty and History: The Rise and Fall of the Noble Experiment with Constitutionally Limited Government (Liberty and ... Limited Government) (Volume 1)  The Essence of Liberty: Volume II: The Economics of Liberty (Volume 2) The Essence of Liberty: Volume III: A Universal Philosophy of Political Economy (Liberty: A Universal Political Ethic) (Volume 3) Sask. Mr. Jackson is a cattle buyer and risk management specialist with many years of experience in North American cattle markets. His message focused on market versus production risk and struck a chord with me. While not downplaying market risk, he essentially indicated that other than taking a position in the market (i.e. price insurance, hedging, forward contracting) to minimize your risk, markets are markets and that as an individual you don’t have a great deal of influence on current or future prices. On the other hand, he stressed that you do have a great deal of influence on production risk and whether you are a cattle feeder or cow-calf operator, beating the average will increase the economic return to the operation.

In thinking about his message, it seems to me that it carries more weight today with current economic conditions than ever before. Take for example the cow-calf sector. If we look at even the best operations we are hard pressed to find one with a weaning percentage greater than 90 per cent. Now I know that many of you reading this will argue that you can’t afford the extra costs associated with maximizing your calf crop and that you would rather be a profitable low-cost producer than accept the costs associated with a higher weaning percentage. I understand this argument, particularly when returns are low, but does it hold water at today’s prices? Consider the case of adopting a mineral feeding program.

Too often I encounter producers who are reluctant to feed mineral due to cost. Never mind that by not feeding a mineral they are inviting a major wreck. Let’s consider the cost argument by looking at a 300-head cow herd that weans 255 calves (85 per cent) at 475 pounds versus the same herd weaning 270 calves (90 per cent) at the same weight. A six-month mineral feeding program covering the last trimester of pregnancy and the breeding season would run approximately $6,750 with the mineral at $1,500 per tonne. If we run two scenarios, one at a calf sale weight of $1.50 per pound and the second at $2.50 per pound, the extra five per cent calf crop, if achieved, would return approximately $11,000 above the cost of the mineral at the higher sale price and $4,000 at the lower value. In both situations the mineral program pays for itself, however, the returns are that much greater under today’s market conditions.

Now mineral feeding or lack of it may not be an issue in your herd but I am sure there are numerous areas where you could look to determine if you are operating at full efficiency including your calving, vaccination and feeding programs, your haying operation, pregnancy checking, culling, breeding soundness exams for bulls, etc. The list can go on and on; suffice it to say that now is as good a time as any to review your herd management practices and look for areas to make improvements as the value of both the 2015 and 2016 calf crop are at stake.

Similar logic applies in the feedlot. Cattle feeders are well aware of the importance of feed conversion in determining the cost of gain, however, to emphasize Joe’s point, consider a pen of 300 steers that weigh 1,000 pounds and are consuming 23.5 pounds of dry matter (DM) and gaining 3.5 pounds per day. At $200 per tonne for a finishing ration (DM basis), feed costs are approximately $2.15 per day. In this situation, the feed conversion ratio is 6.7:1 and the feed cost per pound of gain is approximately $0.61. If we can drop the feed-to-gain ratio by 10 per cent to 6:1, either by decreasing DM intake or increasing daily gain or a combination of the two, we drop the cost of gain to $0.55, a difference of $0.06 per pound of gain.

Now, you do the math over 100 days for 300 or 3,000 or 30,000 steers and it quickly becomes evident that focusing on production risk pays big dividends. How realistic is it to improve feed conversions by 10 per cent? As with the cow-calf operator, there is a long list of management practices ranging from ration formulation, silage quality, bunk management, grain processing, implants, feed additives and pen conditions (crowding, mud, etc.) all of which individually or combined can add to or rob you of production efficiency. As per the speaker’s message, the ball is in your court when it comes to managing production risk!

Environmental & Natural Resource Economics: The Austrian View

edited by

Dr Jimmy T (Gunny) LaBaume

Is now available in both PAPERBACK and Kindle

BookCoverImageMurray N. Rothbard was the father of what some call Radical Libertarianism or Anarcho-Capitalism which Hans-Hermann Hoppe described as “Rothbard’s unique contribution to the rediscovery of property and property rights as the common foundation of both economics and political philosophy, and the systematic reconstruction and conceptual integration of modern, marginalist economics and natural-law political philosophy into a unified moral science: libertarianism.”

This book applies the principles of this “unified moral science” to environmental and natural resource management issues.

The book started out life as an assigned reading list for a university level course entitled Environmental and Natural Resource Economics: The Austrian View.

As I began to prepare to teach the course, I quickly saw that there was a plethora of textbooks suitable for universal level courses dealing with environmental and natural resource economics. The only problem was that they were all based in mainstream neo-classical (or Keynesian) theory. I could find no single collection of material comprising a comprehensive treatment of environmental and natural resource economics based on Austrian Economic Theory.

However, I was able to find a large number of essays, monographs, papers delivered at professional meetings and published from a multitude of sources. This book is the result. It is composed of a collection of research reports and essays by reputable scientists, economists, and legal experts as well as private property and free market activists.

The book is organized into seven parts: I. Environmentalism: The New State Religion; II. The New State Religion Debunked; III. Introduction to Environmental and Natural Resource Economics; IV. Interventionism: Law and Regulation; V. Pollution and Recycling; VI. Property Rights: Planning, Zoning and Eminent Domain; and VII. Free Market Conservation. It also includes an elaborate Bibliography, References and Recommended Reading section including an extensive Annotated Bibliography of related and works on the subject.

The intellectual level of the individual works ranges from quite scholarly to informed editorial opinion.

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About Land & Livestock Interntional, Inc.

Land and Livestock International, Inc. is a leading agribusiness management firm providing a complete line of services to the range livestock industry. We believe that private property is the foundation of America. Private property and free markets go hand in hand—without property there is no freedom. We also believe that free markets, not government intervention, hold the key to natural resource conservation and environmental preservation. No government bureaucrat can (or will) understand and treat the land with as much respect as its owner. The bureaucrat simply does not have the same motives as does the owner of a capital interest in the property. Our specialty is the working livestock ranch simply because there are so many very good reasons for owning such a property. We provide educational, management and consulting services with a focus on ecologically and financially sustainable land management that will enhance natural processes (water and mineral cycles, energy flow and community dynamics) while enhancing profits and steadily building wealth.
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