Give this article a quick read.
Now I don’t usually write a blog post and put it up right away. I usually wait a day or two and reread it, before posting and I try to put some thought into them. This article is almost a perfect reflection of what I talked about in my last blog
I wanna quickly go over some of the points that were brought up. First they said this is not a trend. This summer the big feedlot in the county where I live told the local paper, that they would close if it stayed dry and input prices stayed high. I drove by that yard two days ago. They had pens that never had cattle in them this summer, and you could see they had shipped some cattle out of other pens sometime in the last week or two. Time will tell if they repopulate. Will this be a trend? I talk to a lot of order buyers and feedlot owners weekly. Their greatest concern is if they will be able to find replacement feeders in the near future. We saw so many calves come to town already this summer that normally come in the fall, and winter months. For now it sounds like the bunk space is filled. And there was the mention of supply lag in heifer retention. That is a good point. Right now I know of a lot of people who sold their steers and are hanging on to their heifers to see what happens. There was the mention of “do we need all that bunk space?” I read a cattlefax article a couple years ago that said back then that we had 25% more bunk space than we had cattle! After the blizzards of 09/10 and the drought of 11/12 taking a huge toll on cow numbers I can’t imagine how over build the feeding sector is today.
If you are new to what I write you are about to find out I continually harp about skill. The number one factor in profitability is marketing skill. In the article he blames the drought for high input prices. Go back several years with me here. When fuel hit $3 for the first time I heard people in the salebarns whining that it would put them out of business. I made the retort that if $3 fuel was going to force them out they were already out the door they just didn’t know it yet. Funny how a guy in his late 20’s was right. Those producers still have cattle on the yard today, thing is they went broke and now are a grower yard for some big feedlot. So here is why I bring that up. There is a quote in there that says “We ship cattle from dry areas to wet”. Yes we do. With fuel at well over $4 where I live transportation is still cheap, compared to geographical spreads. I buy cattle in different areas. Sometimes a couple states away from here. I can get them home for $20/head. Thing is I bought them for $10 to $40 a hundred cheaper than I can buy them locally. I can pay the driver $500 to $2000 depending on how far he has to ship them and on a 50,000# to 56,000# load just look at how much money I saved! They said they were going to wait until the economics improved. It looks pretty good to me
I can just hear you now “Not so fast my friend. What about the drought raising the price of corn?” Corn is not the biggest input. You can not do anything about the price of corn. If you buy an 8 weight steer you will need to feed on 550# to get him to finish, roughly. Here’s a quick rule of thumb I use and it’s usually pretty accurate. Take the price of corn per bushel and divide it by 5.6 and you will be close to the cost of gain in a custom yard. So today that would be around $725 per steer. But an 8 weight steer will cost you around $1100 to buy. Funny thing a 1000# steer also costs $1100/head. Just to be sure my point is clear. We can’t do anything about the price of corn or fuel. We can control how much we spend on replacement animals and the type of animals we buy.
Look how much money we just saved by buying the right animals! That’s marketing. We don’t need to wait for economics to improve. The markets are blessing us with opportunities to profit right now!
Because this yard lacks the proper marketing skills their employees are forced to move or find other jobs. Not to mention the impact this will have on the local community. There will be millions of dollars that will leave the area. I’m talking everything from the fuel they buy, supplies, parts, payroll, meals, feed, taxes, and the list goes on and on.
They said they are going to remain competitive even in a drought. When you close the gates and step off the playing field that is a forfeit.