No matter what type of cattle operation you own, this past year was a challenge. At the start of 2009, the national beef cow herd was estimated to be about 31.7 million head, the lowest inventory since 1963. Beef heifer retention was also down more than 2%, which is an indication that the national herd will continue to decline into 2010.
As the livestock industry tries to overcome the struggles of 2008, managing risk is key in 2009 and beyond.
"Cost minimization has always been a focus for producers, and it's a prerequisite to surviving tough times. When margins grow small, operations that are cost efficient have more ability to stay in business," says Darrell R. Mark, University of Nebraska-Lincoln.
Iowa State University economist John Lawrence agrees and says managers are forced to make difficult decisions during tough times. But he cautions that the simple answers probably won't work.
"You may have to sell off part of the enterprise to save the business for the future. Do your homework, consider the alternatives and act," Lawrence says.
For example, he notes that if you reduce your numbers, you also need to think about the ramifications to your herd and overall business.
"Increased cull sales can be a source of cash, but they limit your earning power in the future. Have a plan of how and when you will build back. If you decide to cull deeper than normal, rely on your records to cull the least-productive cows. The remaining herd will be better for it," he says.
Focus on what you can control, which is primarily marketing and costs.
"Producers need to be willing hedgers of small profit margins. It isn't likely that feeding margins, for example, will grow large enough to make up for $125+ per head losses in one turn of cattle. It will be necessary to lock in smaller profits," says Mark.
Defaults on cash contracting in the ag industry have increased in the past year, and Mark says to be aware of counter-party risks.
"Producers may need to rely more on futures hedging to protect prices, because futures margin accounts protect against default. However, this increases credit needs to fund margin accounts and possible margin calls," Mark says.
Do an assessment of your current operation to identify strengths and weaknesses in your feed program.
"Prioritize the top two to three things that are most important. Once you've identified those items, develop and implement an action plan to address priorities," Lawrence says.
Look outside the traditional rations at alternative strategies to better manage feed costs.
"Cattle producers need to carefully evaluate whether they can reduce feeding costs by using ethanol coproducts, like wet distillers' grains. Given the performance improvements from feeding coproducts and the fact they are usually priced lower than corn, feeding coproducts is generally necessary to maintain competitiveness," Mark says.
He says producers should calculate margins carefully using the actual costs for their own operation.