Managing cow costs
As a new year rolls around, considering annual costs and how they’re figured can help producers improve their economic profile through creating a more realistic projection of the year ahead.
“You can’t manage what you don’t measure,” began SDSU Extension Beef Specialist Julie Walker of the importance of information and written documentation in managing costs during her presentation at the 2013 Range Beef Cow Symposium in December.
Going beyond the basics of separating costs into fixed and variable categories, Walker discussed specific mentalities that can warp cow costs and provide an inaccurate picture of the operation’s economic profile. She then discussed realistic adjustments to those mentalities to improve accuracy and profitability.
“Feed costs are the big one and will always be the big one encompassing 50-75 percent of your costs. It will never be 10 percent without lying. I had a producer once tell me his land was paid for so he didn’t have to pay for his grass, and to charge his taxes for his feed cost. Under no circumstances would that be considered a fair amount to put down for feed costs,” stated Walker of one major inaccuracy she has encountered.
In such an instance, the value to rent the property is one more accurate number to use for a feed value, or the physical value of the land as if a payment was still being made. Either figure would provide a better grasp on the cowherd’s profitability and the best use of the feedstuff in the future.
“Anyone feed hay? Rather than considering fair price your fuel costs and equipment depreciation, you should consider what you can sell it for,” continued Walker.
For those that store hay, considering investments into improved storage or feeding could result in reduced forage costs as well.
“What happens through improved hay storage? We typically see 20-40 percent of hay loss each year. Say we improve storage by covering it, or we change how we feed it to improve utilization. If we can improve by 20 percent on $100/ton hay, that’s an extra $20/ton. If each cow eats 2 2/3 tons of hay a year, that’s $55/cow in savings,” figured Walker.
Providing residue feed sources to the livestock component of the operation free of charge is another thing Walker sees portrayed inaccurately when figuring annual costs.
“Some producers say corn stalks are free because their corn paid for it. If that’s the case, then your corn should be credited for what you’re using for your cattle. It needs to be fair for all enterprises if you want an accurate picture to look at,” she explained.
Moving to replacement animal costs, Walker provided the example of running 250 cows and replacing 20 percent annually, or 50 head. If replacements were purchased as calves for $1,000 apiece, the annual amount each cow within the operation carried for replacement costs would equate to $200 on just the purchase price.
“What if you keep a cow one year longer and decrease replacement costs? In my scenario that equates to $12,000 more, possibly to use in increasing the longevity of my cows,” she noted.
Labor costs were another topic Walker encouraged producers to record and figure throughout the year to determine if they’re a benefit or a burden to the operation.
“This is not always easy to calculate because sometimes you do trades. I’ll catch my dad saying so and so came and helped and he gave him a quarter or half a beef. Those things add up quickly, and you need to know if they’re helping or hurting you,” she stated.
Being stuck in the same marketing rut based on tradition is often an error producers make, resulting in limited return to cover annual costs.
“So many producers spend more time worrying about which day they should sell than what their cattle are worth and how to maximize their value. Marketing is not just selling calves. You need to know the quality of your cattle and how to best capture their maximum value every year,” she stated of the importance of not only managing costs, but working to maximize return as well.
Continuing, Walker stated, “You also need to know more than your buyers do about your animals. If you sell at weaning do you know how those calves perform in the feedlot? Do they gain two or four pounds a day? Are they good or bad converters. Do you know what carcass quality they’re bringing? …your buyer will know that, and buy based on that knowledge.”
As producers consider Walker’s examples, and come up with their own ideas to improve operation efficiency or maximize return, recording those thoughts, ideas and projections is almost as important as the original idea itself.
“A lot of people will tell me they had an idea, or they worked it through in their head. I’ve done that too, and I rarely succeed without forgetting some little detail, which makes the numbers not quite what they should be. Or I forget. Write it down so you can go through and reassess it. It’s worth putting pencil to paper, or sitting at a computer to calculate ideas,” she noted.
Going forward, the knowledge provided by accurately figured annual costs and maximized returns will only increase in value.
“The cow/calf enterprise is a highly competitive, narrow margin business. Every day the margin seems to get smaller. Cattle producers are always looking for ways to save a dollar or get an additional dollar for their product. It’s worth putting pencil to paper and calculating your costs to figure out if you’re feeding your cows money or if they’re coughing up money for you. That’s the bottom line,” conclude Walker of the importance of looking at annual costs and returns, and taking the time to manage them to highest degree possible.