Impact of Weather and Herd Size Management on Beef Cow Profitability

Abstract

Producers often contemplate expanding or contracting production to take advantage of cyclical cattle price trends. This study quantifies profitability and risk implications of (1) constant herd size, (2) dollar cost averaging, and (3) price signal-based, anticipatory countercyclical expansion/contraction strategies. Weather simulation on forages with different calving season and land use intensity showed fall calving herds with added hay sales from greater fertilizer use and the countercyclical herd size management strategy to be most profitable regardless of weather or time period analyzed. Income risk was comparable to least fertilizer use. Overall, holding herd size constant led to little regret.

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“…Prices varied more than forage production and herd size changes across subperiods. For details, please see Tester et al (2019). Note that weather effects were modeled on a monthly basis such that good or bad weather at a particular time in a year could have deleterious or beneficial impacts (incl.)…”

“…Also annual herd size change calculations for different HSM strategies vary by period. While details of impacts of these model outcomes are reported in Tester et al (2019), Table 3 showcases typical results on profitability changes associated with calving season and the impact of weather. Fall calving is more profitable than spring calving given greater breeding failure rates associated with fescue toxicosis leading to fewer cattle sales with spring calving (Smith et al, 2012).…”

“…Including weather effects altered hay sales, positively so, and more so in spring-calving operations given different monthly seasonal nutrition requirements. Herd nutrition requirements vary with calving season due to timing of feeding needs for replacement heifers and differences in gestational cow nutrition needs (Tester et al, 2019- Tables 2 and 3). Adding herd size changes 1 for each year, using annual output and input prices, with different HSM strategies thus led to 1,650 2 annual, unique cow-calf 1…”

“…bales sold/ bought, HayP k is the annual price of hay in dollars per ton, CattQ k is the yearly number of calves, cull cows, and cull bulls sold that varies both by HSM and by calving season, CattP k is the nominal 4-500 lb. steer price 3 that varied by calving season (Table 2), FertM k and FertH k were binary (zero/one) variables denoting intermediate and highest fertilizer use (Table 1) in comparison to the least fertilizer use of the baseline, respectively, Weather k is a weather index indicating above/ below cattle cycle or period-specific annual forage production that averages to 1 for a particular cattle cycle or period (for details, see Tester et al, 2019), Season k is a binary variable for spring-or fall-calving season in a particular year, and ε k is the error term. Equation 2was then estimated for each of the three time periods, the 1990-2003 cattle cycle, the 2004-2014 cattle cycle, and finally pooled over both time periods as weather effects were modeled using matching time periods, and hence forage production could vary given an upward trend in weather effects that led to greater forage production over time.…”

“…In this study, we use historical prices and weather data from the last two U.S. beef cattle cycles (1990-2003 and 2004-2014) and investigate estimated changes in profitability as a result of changing the herd size over time using a cow-calf simulation tool, the Forage and Cattle Analysis and Planning tool (FORCAP) as developed by Popp et al (2014). Prior studies suggest that managing the well-known concept of the cattle cycle to sell when prices are high and buy when price are low could lead to enhanced cow-calf producer returns (Bentley and Shumway, 1981;Griffith, Burdine, and Anderson, 2017;Hamilton and Kastens, 2000;Lawrence, 2002;Rosen, 1987;Tester et al, 2019;Trapp, 1986). For this research, we rely on data from an analysis on herd size management (HSM) strategies most recently and intensively examined by Tester et al (2019), where HSM practices varied from: (1) a strategy of holding the herd size constant regardless of price and weather conditions; (2) a countercyclical price signal-based strategy expanding/contracting the herd size when the short-term price outlook was weak/strong and hence would allow for capturing more sales when prices rebound/selling fewer head when prices would return to lower levels; and (3) a cost-based herd expansion strategy leading to herd size expansion when replacement heifers are relatively cheap and selling more replacement heifers when prices are high.…”