Extension column: Costs continue to rise, How can we cut operating costs?
July 16, 2013
As we start off the summer months, it seems in many areas that range production is running nip and tuck with cattle grazing. More timely rains are needed in a large part of the high plains region to sustain good grazing for the remainder of the summer with current stocking rates. The drought monitoring map looks a little better for some regions but still a large part of the Nebraska Panhandle, part of Wyoming, and southwestern South Dakota, are showing severe to extreme drought – with an area in the Hyannis, Neb., area listed as exceptional (the worst level of drought).
I visited a commercial feedlot last week where they had 1200-1500 head of early weaned calves weighing around 300 pounds. They reported excellent health and consumption up till now which is what I often hear and experience with early weaned calves. In spite of heat and dust, they wean almost problem free, if fed properly. Yes, it costs to feed high quality rations, but it can lower grazing pressure on the pasture by 30 percent, plus allows the cow to gain considerable body condition and go into the fall and winter in excellent body condition.
It seems costs continue to go higher and higher everywhere affecting our costs of production. At times someone will exclaim how high and wonderful these cattle prices are, but I always respond that we need every bit of it to cover expenses. We know that cattle feeders have had large losses for an extended period of time and one must ask how much more equity are they willing to dip into? I am not optimistic that we can obtain and maintain fed cattle prices in excess of $125 per hundredweight for a prolonged period of time when our completion, poultry and pork, are priced at a much lower level.
With the feeling that we may have reached a plateau on fed cattle prices and assuming ethanol will keep corn prices at a relatively high level, it appears feeder cattle must be purchased to assure the cattle feeder a lower breakeven. This causes me to start thinking that if feeder prices can't go much higher, how can we cut operating costs especially at the cow-calf level as we have no one in our industry to pass our losses back to.
“...even though calculating annual cow costs are not what a lot of us like to do, several tools are available to assist in the task. It may be as simple as visiting web sites at your land grant university.”
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I have maintained for years that one of the least desirable "jobs" for most cow-calf producers is to work with the financial records. It is often stated that we can't manage what we can't measure, or in our case don't measure, which often times leaves a rancher with limited information to make financial decisions. Very few ranchers know what it costs to wean a calf. We do know at the end of the year if we have more or less money in the bank and usually base our purchasing decisions on partial budgets – "will it pay?" – or worse yet "it sounds like a good deal, do we have the money to buy it?"
I often hear people say it probably costs around $500 to run a cow a year. One must ask when you hear any costs figures, "What is included?" If only cash costs are included when calculating annual cow costs for a ranch that has the property paid for and the majority of the feed is grazed, then perhaps this is close to accurate. In contrast, if all costs are considered including ownership and depreciation of the cow and replacement heifer, which are real costs, then real or total cost are much higher.
A University of Nebraska website estimates all costs for seven different types of cow-calf operations that vary from operations grazing essentially year-round; to those that graze in the summer and fall and feed hay during calving up to green grass; to the most extreme where the cows are confined to the drylot almost year-round. Their annual cow cost estimates vary from $795 to $920 to keep a cow for a year. These figures assume summer pasture at $30 per cow-calf pair, winter pasture at $18, alfalfa hay at $200 per ton and grass hay at $155 per ton. Other costs were assumed in the range of what most are paying for products or services. Labor cost was assumed to be $96 per cow per year (eight hours per cow at $12 per hour) in most operations. Feed costs varied the most from operation to operation but for a ranch that grazed six months in the summer and grazed dormant forages three months in the fall and winter, then fed harvested hay and some supplement for three months during calving, the feed costs alone were close to $635. This amounted to about 82 percent of all cash costs or about 70 percent of all costs. The area that surprises many people is that ownership costs accounted for about $285. This involved ownership of a $1,250 cow at 7 percent, bull cost, plus depreciation of the heifer placed into the herd which was $150, assuming she was in the herd for five years.
"Annual cow costs" does not mean the cost of producing a calf. I guess it would be if you had a 100 percent calf crop, reproductive rate and the weight of the calf will impact the breakeven price for the calf. If we assume we wean a 90 percent calf crop from all cows exposed and the average calf weight was 550 pounds and our annual cow cost was $912, our breakeven on the calf would be $184 per hundredweight. If all cow costs could be lowered to $795 per year, which I believe is possible in many operations, a 90 percent calf crop weighing 550 pounds would give a calf breakeven price of $160 per hundredweight, which is closer to market projections.
So costs are high – what can we do?
Feed costs are the major costs so usually that is a place to start in most operations but of course if feed is cut to the point where reproduction is significantly affected, then we have probably gone too far. Assuming today's relatively high hay prices, the first thing a person should do is try to minimize the amount of harvested feeds fed. Grazing winter range, or for some grazing crop residues such as corn stalks, will usually offer opportunities to lower feed costs. It is critical to feed a balanced ration where costs are considered and minimized. I often hear, "we always feed this way and it seems to work." That undoubtedly is true but is it the least cost? I still see operations that feed alfalfa or high quality hay and a protein supplement. No one answer will fit all but everyone should find the least cost for a given level of cow condition and reproduction. Time contracting supplements in the summer can save money verses buying in the winter or spring when you need it. Mineral costs have increased considerably.
Ask the hard questions. Do you need an expensive mineral program year around? Are your annual mineral costs $10 or $50? Does it need to be $50?
In summary, even though calculating annual cow costs are not what a lot of us like to do, several tools are available to assist in the task. It may be as simple as visiting web sites at your land grant university. Extension staff will have access to these web sites and will be happy to assist you. I would be happy to direct you to those that I use.
I hope your breeding season has gone well, the grass is green and plentiful, and your calves are happy, happy, happy.