A Few Thoughts by John Nalivka: The cost of running cows and your breakeven price
Decisions up and down the beef supply chain evolve around calculating costs and breakeven prices. That calculation in the feedlot involves the cost of feeder cattle plus the cost of gain divided by the finished weight to generate the breakeven price. The cost of feeder cattle, on average, accounts for about 67% of the total cost. When herds are liquidated and followed by subsequent tight cattle numbers and high feeder prices, that percentage increases. Since mid-2023, it has averaged 74% while the feedlot breakeven for the same period has averaged $180 / cwt. This compares to the tight cattle numbers from mid-2014 to 2015 when the cost of feeder cattle averaged 76% of total cost with a coinciding breakeven of $150 / cwt. It is no secret that the cost of feeder cattle has the greatest impact on the feedlot breakeven.
If you retain ownership of your calves, the current market for the weight of your cattle is your opportunity cost of retaining ownership and feeding those cattle versus selling them. The decision you make to own those cattle in the feedlot or to sell them is your consideration of the risk and how your capacity to manage that risk at that point – financially and otherwise.
Coming back to the ranch, this discussion of feedlot breakeven price is also an important consideration for decision-making. While it is straight-forward to calculate feedlot breakeven, it is just as important, though perhaps not as straight-forward, to know your breakeven price at the ranch for those calves. Furthermore, it may not seem imperative to know your breakeven and manage costs in a record-high market that is giving most ranchers plenty of financial breathing room. However, this is an ideal time to build a solid analysis and understanding of your business costs. Your breakeven cost may surprise you!
I know it is easy to become tired of hearing that you need to know your ranch costs in detail. However, as with any business, it is important if you are to manage market risk, and it does not have to be a difficult project. It begins with tracking your primary costs of production, i.e., fuel, labor, feed. Divide those costs by the pounds of beef produced on your ranch and you have a great start.
