Thursday, April 24, 2014

Managing Drought Risk on the Ranch

Have a Plan for Drought

NRCS specialist and ranch manager on rangeland in Beaverhead County, MT.
NRCS specialist and ranch manager on rangeland in Beaverhead County, MT. Image: NRCS, G. Kramer.

It is difficult but important to decide when to take action when drought conditions occur.

While one specific strategy does not fit all ranch operations, there are principles that can help the individual producers make the best choices they can, given their understanding of the situation. The most effective responses to drought are those made early in the process, the more time you take before you make decisions the less options you will have available to you.

Principle #1 – what you do before a drought shapes the choices you have during drought

The financial choices you make from year to year and the type of operation you are running (cow-calf versus cow-calf-stocker or just stockers or recreation etc) and the financial health of your ranch are key determinants in surviving a drought period. Those that have a financially sound operation and manage their range and pasture resources are better prepared to face the financial stresses normally associated with drought conditions.

Some producers prepare for drought by limiting the percentage of breeding animals to 50-60% of their total stocking rate, bring in stockers, yearlings, or custom grazers when precipitation and forage are abundant, and work to limit their debt load. These producers are more likely to find solutions that mitigate the painful decisions with limited resources incurred under most drought conditions.

Principle #2 - think through the possible scenarios, have contingency plans

Harlan Hughes, a North Dakota State University Agricultural economist stated, “I argue, as you’re going through a drought, that’s the number one thing that you’ve got to have. You’ve got to have a good analysis of you business. Walk yourself through it and project some alternatives ahead of time, rather than try to experience them and say 'oh my gosh I did the wrong thing.'  We can’t undo that. But if we can anticipate, through some projections, strategy one works better than strategy two, then we try to focus on the management decisions needs to implement that strategy one.”

Running an operation is a difficult thing with so many things that need to be done, but if we don’t take time to look ahead consider the possible outcomes and make our very best choices we leave our fate to chance.

The most effective responses to drought are those made early in the process. The more time you take before you make decisions, the fewer options you will have available to you.

A key recommendation in building a plan is to carefully evaluate all options based on their cost of implementation and then use the combination of least cost options. In addition to the demand and supply management strategies one generally thinks about, insurance products and marketing tools should also be integrated where they can help mitigate risk.

Principle #3 – don’t wait until you are officially in a drought to act

Drought conditions occur over time, sometimes making it difficult to take immediate action. A viable plan will provide a method of making decisions in a timely manner and in a less stressful way.

A viable plan needs to have decision points. A series of smaller decisions can be effective in mitigating drought impact on the operation.

Producers who make adjustments may still take advantage of resources conserved early in the season. For example, pasture left for later season use may be used by the breeding herd.

Weaning calves or culling cows earlier in the season may result in higher returns, due to favorable markets that may not exist earlier in the season. Local markets may be more fragile during a drought if many producers suddenly decide to sell and create an imbalance in the market, creating an excess supply of certain classes of cattle and depressing prices.


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