Vet’s Voice by Dave Barz: Cost of production, profit per cow
December 21, 2012
Winter has finally arrived in my area of South Dakota. We finally got several inches of snow, but along with it we endured subzero temperatures and 40 mile-per-hour winds. I don't think the snow is a sign the drought is broken, but at least we will have a white Christmas. Hopefully this will improve everyone's attitude and put us into the Christmas Spirit.
The end of the year also indicates another important time of the year – "Tax Time." At least once a year we are forced to quantify our operations. I realize financial institutions wish we would analyze on a quarterly basis and also project several years into the future. Most of us over 50 years old aren't very good at goals and future planning. We tend to be more reactionary and roll with the punches. Who projected the extent of the drought, the high feed costs, and its effect or the cow-calf producer? You may not prefer to think about your efficient use of dollars as your banker prefers, but also scrutinize the of performance data and its effect on your cost of production.
The most fundamental calculation is dollars returned per cow per year. This appears to be a very simple calculation but it requires understanding of complex interaction of performance statistics in your herd. Most producers don't include owner labor, owner management and equity capital in these calculations.
Feed costs are the largest portion of your cost of production. All feed costs should be based on market prices and not on cost of production. I suggest you list each feed stuff individually with pounds fed and cost/ton. Your roughages may be silage, alfalfa hay, grass hay, pasture and aftermath grazing (residue feeding). Also list your grains, creep, mineral and protein. When you place these costs in spread sheet form you will be able to minimize high cost feeds stuffs with suitable substitutes to minimize your costs. Another question to ask yourself is whether your cows are in the proper condition for calving and rebreeding from the rations you feed. Most producers believe they can feed their cows for about $1.00 per day. When you total your cost in our area, I believe most producers are at $2.00 per day. Many cow calf producers from other areas priced wintering their cows in local feedlots; the costs were around $2.00 per day.
Livestock costs are generally bulls and herd replacements, but also can include veterinary expenses and breeding expenses. It surprises most producers to generate cost of $150-$250 per cow. List your cost groups in spreadsheet form, purchase heifers, semen, bull purchases etc and then divide by the number of cows to calculate your costs.
Farm or ranch overhead is the other portion of this calculation. It includes insurance, interest, utilities, hired labor and machine and building depreciation. Your tax record will give you a good idea of these costs. They will vary significantly from operation to operation. Remember that you cost of production is for your herd only and not a standardized formula to compare ranches.
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When you compute your taxes, you will have all the receipts for your sales. They may be calves, cull cows and bulls, bred and pairs. If you take your sales and subtract your costs, you will be able to compute your profit per cow.
It is important for each producer to understand their cost of production. As we move into 2013, analyze your receipts and cost from last year, determine changes you can make to decrease cost of production, or increase selling value calves and culls. Set goals for changes in your management practices which will generate better ranch income. Share them with extension specialists, your veterinarian and of course your lender to determine their feasibility. Remember only if we know and understand our history can we make the changes that affect our future.