Ivan Rush: Examining cow-calf costs
Many cow-calf producers are pleased to see the relatively good calf prices being reported this year on video auctions and a few early calf sales. Unfortunately, all of the improvement in calf value is needed to offset what seems to be ever increasing costs.
The relatively good calf prices have many cow-calf producers asking if they should sell at weaning or maintain ownership for a period of time. Fortunately, several factors are in place now to reward producers for high-quality cattle so selling average commodity doesn’t have to occur.
Certainly data shows that there is a price difference for preconditioned calves which was not often the case 10-15 years ago. Calves with a reputation for fast and efficient gains are often sought after by past buyers and usually trade at some premium.
Perhaps one of the highest rewards for quality cattle is realized when selling finished cattle. Two significant benefits can be realized when finished cattle are sold. In the past couple years source- and age-verified cattle have realized from $15-$45 premium per head with some packers. Currently this may be one of the highest rewards for a small cost and some added paper work.
In addition currently there are nice premiums paid for cattle with superior carcasses. Premiums paid for prime and the cattle in the upper two-thirds choice plus those that have lean yield grade 2 carcasses see a sizeable premium. It is not uncommon to see premiums in the $75/head range and in a few cases even more. Of course you must assume some risk and have the cattle priced on the rail which some cattlemen strongly resist.
It is also recognized if cattle are sold on carcass value discounts for the poor quality carcasses and in many cases “outliers” such as too big, too small, too fat, dark cutters and standard grade can return far less than “average price” which everyone feels they deserve.
So marketing quality cattle can certainly can play a role in profitability. However I feel too many times we hope the market will reward us enough to exceed our costs. We can do very little as individuals to influence the average market price paid unless we are in a niche market.
Therefore the major factor in influencing profit is controlling the cost of producing the product. I realize this sounds like a broken record and is offensive to some as they feel they have their costs as low as they can go and perhaps they do. I once heard an executive of a major corporation state “show me a company or a business and I can cut costs 5 percent without negatively affecting income.” Whether he could do that or not is questionable, however most any operation can improve.
Kansas State economist Michael Langemeirer recently summarized costs and returns of 108 beef herds that sold calves and divided them into the low, medium and high one-third for profit operation. His report states the following:
“There was a $375 difference in net return to management per cow between the low one-third and high one-third profit groups for this enterprise in 2009. Of this difference, approximately 32 percent is accounted for by the difference in the gross income per cow, 21 percent is accounted for in the difference in feed costs, 5 percent is accounted for in the difference in summer pasture cost, and 15 percent is accounted for by the difference in labor cost. The remaining difference in net return (27 percent) was due to differences in interest, veterinarian expense, livestock marketing and breeding, depreciation, machinery, and other miscellaneous cost items.”
This report indicates at least two-thirds of the producers have the opportunity to make major improvements.
As mentioned earlier, the value of calves sold has a major impact (32 percent). This is due to both overall weight and price per pound sold. In Langemeirer’s data analysis, the high-profit herd sold the highest number of pounds of calf which was due to both reproductive rate and calf weight. There were no differences in weight of calves sold between the mid- and low-profit herds sold; just increasing weaning weight and rate does not necessarily assure higher profit.
The major factor on the cost side is accounted for in winter feed costs (21 percent) thus emphasizing that this is a big ticket item and must receive attention.
As much as we see summer pasture costs increase and we all discuss how outrageous the summer lease pasture costs – it only accounted for 5 percent of the profit. Labor, which includes both operator and hired labor, accounts for 15 percent of the profit. This continues to be a large factor and is one of the most frustrating parts of managing a cow-calf operation. I would suspect that if it was put on a “headache factor,” it would rank at the top along with government mandates and control.
All other costs such as interest, marketing cost, veterinarian, breeding, depreciation and other miscellaneous costs account for 27 percent combined, which is only slightly more than winter feed costs.
So often it seems we debate whether an added vaccination should be added or dropped from a health program or some other small ticket item which may cost a dollar – though important – it may not have a large impact on overall profitability. Of course if not using the product causes huge production losses, then it could have major consequences, emphasizing the need to use good science-based data in making decisions. If solid research data is not available, then one should question if huge production losses will occur without the product.
Many things should be considered in lowering winter feed costs which include grazing versus feeding harvested feed. Some have changed calving time to a later date and cut harvested feed considerably. However, unless calves are held to heavier weights after weaning then income will usually decrease. Leasing land with crop residues such as corn stalks has decreased winter feed costs for many producers. I will address corn stalk grazing in my next article. If protein is needed, price the cost of protein. Often alfalfa hay will be the cheapest source of protein, but at times labor and equipment costs may offset the lower initial lower cost. Byproducts from the alcohol industry often offer some lower prices especially if contracted in the summer.
In reviewing the data from different operations there is no one single and simple answer. In some operations good accounting programs itemize expenses and income very well for cow-calf operations and these values can be compared to other published average or bench mark numbers. Also studying trends in your own operation for the past 3-5 years may be meaningful. If good accounting programs are not utilized perhaps just reviewing the income and expenses on the schedule F form of your income taxes may be of some benefit.
Yes, most of us would rather be out with the cows, but we must also put some effort into managing the costs if we want to improve profits. Hope all goes well with you at weaning.
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