Economic Tidbits

To Liquidate or Not

Elliott Dennis, assistant professor and livestock marketing economist at the University of Nebraska-Lincoln, says the cattle markets are sending mixed signals to cow/calf producers regarding herd size. Several market factors point to herd liquidation like the ongoing drought, high feed costs, and high cull cow prices. Other factors, though, suggest herd growth might be considered like a strong export demand for beef, strong consumer demand, and higher futures prices for cattle.

This year is unique for producers says Dennis because the cattle market never before has faced a combination of higher input prices and drought conditions while in the midst of a downturn in the cattle cycle. According to Dennis, agricultural economists have studied two common drought mitigation strategies—partial liquidation or buying more feed—and their impacts on operations. The economists found that partial liquidation tends to provide better returns compared to purchasing feed to overcome scarce forage supplies. Also, partial liquidation tends to be less risky and creates potentially less financial stress.

Whatever a producer decides, Dennis says producers should consider the payoffs from their decisions occur over an entire cattle cycle, communicate their decisions to their lenders, and always remember price risk management. For more information, go to: https://cap.unl.edu/livestock/maximizing-profits-under-drought-conditions-higher-input-costs-and-national-herd.

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