Coping with Effects of High Feed Prices and Possible Drought in 2022
Presently, despite timely rains in certain areas of Nebraska, the threat of drought for the summer of 2022 is not dissipated. Prediction models of precipitation for May to July place most of Nebraska counties at leaning below normal probability with probability of temperatures likely above normal. Weather conditions and continued high grain and forage prices will result in greater annual cow costs in 2022.
On the other hand, feeder cattle prices will be moderated by two factors in 2022: sustained demand for beef under the current inflationary conditions and continued weekly slaughter totals supportive of current beef harvest. Despite pressure from corn grain price and persistent possibility of drought, feeder cattle sale prices for Medium and Large 1 steers weighing from 500 to 600 lb remain at or above $180/cwt. Fall price projections for steers of this weight class are par with or greater than current cash prices. This is good news for cow-calf producers. Greater cow maintenance costs expected for 2022 will need to be offset by greater feeder calf prices.
Therefore, how much can a producer pay to maintain a cow in 2022 while expecting to remain profitable or at least break even? Producers are encouraged to consider the implications of greater costs on decision-making carefully. If drought persists, the decision to cull some of the cows in the herd or to bear additional cow costs is an important one. Because of declining beef cow inventory, resulting lower supplies of feeder cattle will be reflected in greater feeder cattle prices in 2022 and well into 2025. Reducing the cow herd on the eve of higher feeder cattle prices will limit the opportunity to capitalize on greater profit potential in the near term.
Interactions Between Performance and Cost
Weaning weight and weaning rate (number of calves weaned from the total number of cows exposed) determine effective weaning weight (total pounds of calf weaned divided by total cows exposed). Thus, a herd of 100 cows exposed in the summer of 2021 weaning 90 550-lb calves in the fall of 2022 will yield a total of 49,500 lb at weaning or 495 lb weaned per cow exposed. At an annual cost of $750 to keep a cow, the feeder calf price required to breakeven would be $151.51/cwt ($750/495 lb).
Strategies to cope with effects of drought or high input costs in 2022 were developed using performance scenarios simulated at various annual cow costs. Figure 1 represents the results of these simulations. Operations weaning 500- or 562.5-lb calves at 80% or 90% weaning rate were simulated over a range of annual cow costs from $750 to $1,750. Weaning weight and rate values chosen represent a difference of 12.5% within each set (562.5 is 12.5% greater than 500 lb and 90% is 12.5% greater than 80%). Breakeven feeder calf prices were determined as illustrated above (annual cow cost divided by weaning weight * weaning rate).
As expected, breakeven feeder calf price responds linearly to increases in annual cow cost. When reviewing Figure 1, it is evident that the rate of response by breakeven feeder calf price is lower when performance (weaning weight or weaning rate) is better. At 562.5 lb weaning weight with 90% weaning rate, an increase in annual cow costs of $10/cow demands an increase in feeder calf price of $2.00/cwt to breakeven. At 500 lb weaning weight with 80% weaning rate, a $10/cow increase in annual cow cost demands an increase in feeder calf price of $2.50/cwt to breakeven. Herds with 562.5 lb weaning weight at 90% weaning rate at annual cow costs of $900/cow require $177.78/cwt to breakeven while herds with the same performance but with annual cow costs of $1,000/cow require $197.53/cwt to breakeven; a difference of $19.75/cwt. Based on observations made above, the former herd example might represent a profitable herd in 2022 but not the latter.
Using the line representing herds that wean 500 lb calves at 80% weaning rate in Figure 1 demonstrates the importance of maintaining performance considering high annual cow costs. In that simulation, herds with annual cow costs of $900/cow require $225/cwt to breakeven while those with annual cow costs of $1,000/cow require $250/cow to breakeven. This difference is $25/cwt. If feeder calf prices are expected to range between $180 and $190/cwt for 500-lb calves, even when considering a price slide for the lighter calves in the example, profitability for herds with poorer performance in 2022 may not be achievable.
Similarly, at a given annual cow cost, herds with better performance can withstand increases in annual cow cost better than those with poorer performance. At $1,000 annual cow cost, herds with 562.5 lb calves weaning 90% of cows exposed require $197.53/cwt feeder calf price to breakeven. At the same annual cow cost, herds weaning 500 lb calves at the same weaning rate require $222.22/cwt feeder calf price to breakeven. This represents a difference of $24.69/cwt for a 12.5% change in weaning weight. The same increase ($24.69/cwt) in feeder calf price is required to breakeven a 12.5% change in weaning percentage (from 90% to 80%) for a herd with $1,000 annual cow cost weaning 562.5-lb calves.
In contrast, at $1,000 annual cow cost, reducing weaning rate from 90% to 80% for herds weaning 500-lb calves or reducing weaning weight from 562.5 to 500 lb for herds with a weaning rate of 80% results in an increase in feeder calf price of $27.78/cwt to breakeven.
Both weaning rate and weaning weight have the same effect per unit change on breakeven feeder calf price. Yet, for herds with poorer performance the size of this effect is greater.
Although 2022 is likely not a year when costs may be reduced, various observations can be made from these simulations:
- For individuals who know their annual cow costs are below $1,000/cow and with weaning weights and rates expected above 500 lb and 85%, respectively, investing extra dollars in 2022 to keep herd size intact is a viable option
- Strategically focus on maintaining calf health, particularly in the early weeks after calving and immediately before weaning
- Consider strategies that enhance calf growth such as use of implants, particularly if access to quality pastures and creep feeding are management options
- Because of the significance of weaning rate on breakeven feeder calf price, ensuring reproductive success during the 2022 breeding season is also recommended
Interviews with the authors of BeefWatch newsletter articles become available throughout the month of publication and are accessible at https://go.unl.edu/podcast.