small herd of Black Angus cattle, from the front
MARKETING STRATEGY: Cattle producers will need to look at cutting costs this year. They also need to look at investments that will improve the bottom line, like genetics and pasture renovation. Economists also suggest they take advantage of high prices — and lock them in.

Beef industry's new normal: Cut costs

Dailey Discussions: Beef producers need to look at cost saving measures to remain in business.

by Duane Dailey

When calf prices topped $3 per pound, it was hard to not make money in the beef business. Producers had to figure ways to spend unforeseen profits.

Those days are gone and not likely to return for a long time. Scott Brown, University of Missouri Extension economist, spelled it out at a recent meeting for livestock specialists.

"We're in an era of cost control," he said.

Prices are down, but not ultralow. We've been here before. But producer accepted high prices with zeal. They expanded their herds to produce many more high-price calves.

Oops! Reality returned. But shutting off the growing supply of beef is slow in the bovine breeding business. It takes years.

That's not like chickens, where an egg becomes a broiler in less than five weeks.

Brown had said at every farmer meeting, "Downside risks ahead." It was like a broken record.

He urged taking steps for risk management. That meant locking in some high prices. Sell high for future delivery, or other options.

Beef producers balked
Few producers bought that idea. It takes advance planning and doing something new.

Now, Brown says there's still downside risk, but it's neither as much nor as volatile. Management still pays, but easy pickings are gone.

Now, it's not looking at selling prices weeks ahead. Herd owners should look ahead to November 2017 feeder calf futures prices.

Brown admits producers have little control over calf prices. However, they control the cost side of farming. As he says, "It's time to cut costs."

At an Extension meeting, he urged helping producers learn to not cut costs that add value. MU College of Agriculture, Food and Natural Resources researchers offer many options for improved production and efficiency. Spending on proven technology adds value.

That's not just in the beef breeding side of an operation. It applies across the farm.

Better fescue helps beef
MU agronomists promote a moneymaker in replacing toxic tall fescue pastures. When the toxic tall fescue pastures are replaced with the new novel-endophyte fescues, conception rates go up, calves weaned go up, weaning weights go up. Cow milk goes up and cows lost to fescue foot drop to zero. All help income.

Pasture renovation takes time and money. But those are one-time costs that pay for years, says Craig Roberts, an MU agronomist.

On the breeding side, heifer development, such as Show-Me-Select from MU Extension beef specialist Dave Patterson, pays. As calving losses drop, production goes up. Prebreeding exams cull hopeless heifers. That cuts costs. Culled heifers can be fed and sold. If bred, they can die.

Breed only those with developed tract scores and a pelvic size large enough to pass a calf. Those are no-brainers. They take time and some money — but figure the value of saving a replacement heifer and her calf. That's a basic value in beef herds or dairy herds.

Paying attention to genetics improves quality of beef sold. Genetic tests can give more Prime beef. Quality at that level brings big premium prices at a packing plant. Selling on the grid gains income.

Genetic help abounds
Now, genomic testing goes far beyond calving ease and beef quality.

MU Extension geneticist Jared Decker brings a new world of added cow herd value. With genomics, it's possible to predict improved quality, but it also keeps cows in the herd longer. Genomics helps on the health side. That's another cost-cutter.

There's never been a time when so much technology adds to beef herd profitability and sustainability.

Cost-cutting doesn't mean buying cheap hay, cutting minerals or skimping on supplements.

Knowledge has value. That works on the income and cost side to protect the margin.

It's not just price of calves that counts. The margin between income and outgo keeps a farm alive.

Cost cuts are not just in the herd.

Cost-cutting across the farm
The sharpest cost cuts may come on family living. That may mean fewer new pickups, machinery or family fun events.

When calf prices were high, families took trips as never before. As farm income sinks, days away might not work.

The USDA cow census released in January showed Missourians increased the cow herd 3%, and they held more heifers. That means 3% more cows in 2017.

That equals more meat on the market, beyond what U.S. consumers demand. Exceeding demand hurts farm income.

Brown says it'll take about three years to work through that growing supply of calves, if we heed stop signals now. He adds that beef prices will drop even more if U.S. trade policy offends Mexico. Most producers don't know that our No. 1 beef customer is Mexico. That country also buys lots of pork and grain.

Canada and Japan are right up there in liking our corn-fed beef. Offending customers is no way to build markets for U.S. farm exports.

Meanwhile, every farm must work on cost-cutting.

It's the new normal.

Dailey is a retired MU Extension professor. He writes from his home in Columbia.

 

TAGS: Livestock
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