Cattle profits plummet in 2015
South Dakota ranchers saw a stark drop in return from cattle in 2015, as profits fell by almost 75 percent on average. "This was a year that will go down in the record books for the cattle producers," said Lori Tonak, farm business management ins...
South Dakota ranchers saw a stark drop in return from cattle in 2015, as profits fell by almost 75 percent on average.
"This was a year that will go down in the record books for the cattle producers," said Lori Tonak, farm business management instructor at Mitchell Technical Institute.
Cow-calf operations in the state made an average profit of $152.23 per cow in 2015. That's about 74.5 percent lower than the profit of $596.55 per cow earned in 2014.
Beef backgrounding operations, which raise cattle on pasture from weaning to slaughter or placement in a feedlot, also struggled. Backgrounders on average lost $33.02 per 100 pounds of beef - known as a hundredweight - which is a drop of more than 150 percent from a profit of $63.39 per hundredweight in 2014.
According to a statement from MTI's Farm/Ranch Business Management Program, the drop is attributed to a high market value for calves on the 2015 beginning balance sheet and a crash of feeder cattle prices in March 2015.
"Our instructors saw beginning balance sheet values that were much higher than those same cattle's sale prices, and that was after a 200-pound gain," Tonak said. "When you look at those decreased values in livestock and add in the cost of feed, I am amazed that the loss wasn't higher."
The price drop affected more than just beef producers.
Craig Roth, owner and operator of Roth Angus Ranch, a seedstock operation 12 miles west of Freeman, said he also saw a drop in profit after his most recent cattle auction in March, despite the fact most of his cows are not raised for meat.
"Their price dropped; so have ours. It's directly related," Roth said.
As a seedstock producer, Roth raises angus bulls, which he sells to cattle producers for breeding. However, when the beef producers make less profit, they have less expendable income and aren't willing to pay as much for breeding bulls.
At last month's auction, Roth Angus Ranch brought in $4,100 per bull on average. At 2015's auction, Roth's cows each sold for about $4,900.
Roth also cited low grain prices as a cause for concern, as many of his customers also grow row crops.
"It's kind of a tough industry. Everybody you talk to is feeling that crunch. It doesn't matter if they're in the grain side or the cow side," Roth said.
Cattle finishing operations, which raise cattle for a short time in a feedlot before they are slaughtered, saw an even deeper slide than backgrounders. Finishers lost $46.06 per hundredweight in 2015, compared to a profit of $67.58 in 2014.
South Dakota feedlots lost an average of $223.55 per head of cattle last year, Tonak said.
"We are still at the second- or third-highest markets in history, but what hit the producers in the industry so hard was the drastic drop in prices. Never before has the cattle market seen that type of decline in such a short period of time," Tonak said. "The drop was just so quick, there were few risk management protections that worked."
Hog farm operations also faced financial turmoil. Hog finishing enterprises made a profit of $9.38 per hundredweight of pork, compared to $56.03 per hundredweight the year before. Live hog prices received by producers fell from $89.63 per hundredweight to $56.18.
But Tonak said hog producers faced one variable cattle producers didn't: disease.
"Producers ramped up production in 2015 to fill the gap that could've been caused by the Porcine Epidemic Diarrhea virus," Tonak said. "Better control of that virus across the nation left the pork industry with an abundance of product, driving down prices."
The Farm/Ranch Business Management Program recommends ranchers control input costs, practice good herd management techniques and have a well-planned marketing strategy to increase profits.
Roth said his operation made a profit after this year's auction, but he is careful not to overspend and is not sure his next auction will be as favorable.
"I don't know if we're going to make a profit this year with high cash rent. We'll wait to see, I guess."
Since Roth focuses on breeding, he doesn't purchase cows, and having a closed herd helps him maintain more control over the financial aspects of his business. Still, he said he has plans to tweak his practices a little, though he would not disclose his ideas.