In the briefest terms, his answer this year was dependent upon how much longer a producer intended to stay in the business or how badly he wanted to reduce risk.

“It appears like this would be a good year to sell cows if you were planning to liquidate your herd due to retirement or lifestyle changes or a desire to reduce risk exposure,” Mark told them. “Cow prices are not likely to drop substantially by next year because supplies will remain tight, but it will depend on what materializes in the fed-cattle and calf markets, which will be defined by beef demand and general economic conditions.”

On the other hand, Mark explained buying cows at this stage of the game could be profitable, depending on forage availability and cow carrying costs.

Since then, calf and feeder prices have grown faster than most analysts expected. Cow slaughter and placement of heifers on feed have continued at liquidation rates. Though replacement heifer and cow prices climbed during the winter and spring, especially in light of widespread, abundant forage, those prices reflected plenty of caution.

The Next Cattle Cycle Starts Here
Suppose for a minute that neither feed nor financial resources are a limiting factor. Imagine that you could expand your cow herd through increased heifer retention or procurement however you’d like. Even then, whether or not you should now is one of those answers unique to the goals of every operation and a world of variables.

Taking the broad view, cattle prices should increase for the next several years (see Beyond Record Cattle Prices). The industry should be on the cusp of a new cattle cycle (measured cyclical trough to cyclical trough), a cycle perhaps finally beginning this year if cow comes to a close.

Though the cattle cycle has gotten flatter over time, it still exists. When prices increase sufficiently, producers have the economic incentive to retain more heifers and grow the national factory. When prices decrease sufficiently, due to the increased supplies spawned by expansion, producers receive the economic disincentive to cull cows harder and retain fewer heifers. Finally, supplies from the liquidation decline to the point that prices begin to increase, and the cycle starts another lap.

Because of cow biology, heifers retained in response to the cyclical signal to expand, historically, produce calves marketed during the declining price phase of the cattle cycle and visa versa. That’s why some producers develop a counter-cyclical strategy of culling deepest when prices are the on the upswing, then retaining a higher level as prices decline.

Adjusting to the Cycle
In 2002, John Lawrence, an agricultural economist at Iowa State University summarized the findings of an analysis of four heifer retention strategies modeled for 1970-1999

Steady Size—retaining the same number of heifers each fall in order to maintain a steady herd size.

Cash Flow—selling enough heifers each year—in addition to steers calves, cull cows and bulls—in order to maintain a steady cash flow year-to-year.

Dollar Cost Averaging —retaining heifers worth the same total value each year; more heifers are retained when prices are lower; fewer heifers are retained when prices are higher.

Rolling Average Value—retaining heifers worth the previous 10-year average of the number of heifers retained in the Steady Size strategy

“The dollar cost averaging and rolling average strategies produced higher average annual revenue, returns over economic and cash costs and larger accumulated cash and herd net worth than the other strategies,” Lawrence explained. “These results hold for producers who have a fixed land base if a stocker enterprise can be used as a shock absorber for excess forages as the size of the cowherd fluctuates based on investment decisions.

“However, producers who retain and develop more heifers when calf prices are low and produce more calves and retain fewer heifers when calf prices are high, also have greater variation in returns. Producers who implement these strategies must be prepared financially to weather wider swings in cash flow.”

You can find Lawrence’s paper and all of the details at http://ag.arizona.edu/arec/wemc/cattlemarket/Profiting_from_Cattle_Cycle.pdf