Last month, we discussed why a beef cowherd’s cost of production is more important in time of high prices. Get ready for such high-profit opportunities in 2010 and 2011 calves.
Cost per cow (C/C) and cost per hundredweight of calf produced (UCOP) are two completely different economic concepts. The first ignores production, while the second takes production into account.
A low C/C herd isn’t profitable if gross income is low, but gross income is directly related to production. Conversely, the only way a rancher can have a low UCOP is to have high production; there is no shortcut to a low UCOP.
Last month, I presented some C/C benchmark numbers based on the average of 119 North Dakota herds. This month, we’ll discuss another set of benchmarks for these same 119 herds based on UCOP.
Figure 1 (page 8) presents 16 key production benchmarks generated for these 119 herds. Compare your herd’s production numbers to these benchmarks.
Click Hereto see a pdf of figure 1.
If your numbers beat the benchmarks, those are your herd’s production strengths. If your numbers lag the benchmark numbers, those are areas where added management attention is needed. In such cases, the key question is why your herd lags behind the benchmark herds in that production factor.
As production increases, your UCOP goes down; and, as UCOP goes down, profit goes up.
All these production benchmarks are important, but I focus on two in analyzing a beef cowherd – weaning percentage based on females exposed, and pounds weaned per female exposed. These tell me a lot about a herd’s production because they measure the production impact of everything that happens to a beef cowherd from bull turnout through weaning.
• These North Dakota benchmark herds had 90.5% of the females exposed to bulls wean a live calf. Percent calf crop is a typical weakness of most herds because most managers don’t even measure it based on females exposed. Measuring percent calf crop based on female numbers after culling isn’t of much management value, but that’s the number generally quoted to me.
• The second key production benchmark is the 498 lbs. weaned per female exposed. My experience is that low-UCOP herds produce over 500 lbs. of weaned calf per female exposed.
When we move to UCOP, things get a little more complicated, thanks to the fact a beef cowherd generates income from six sources – steer calves, heifer calves, cull cows, cull bulls, cull open heifers and inventory changes. In economic terms, we have an enterprise that generates joint products and we need to allocate the respective costs to all of these joint products.
This is impossible to do but I improvise by generating a composite product – similar to what animal breeders do with composites. I generate a composite production number by converting the total gross income per cow into a hundredweight steer income equivalent.
I do this by dividing total gross income per cow by the price of steer calves. The resulting number expresses the total gross income in terms of hundredweight of steer calf equivalent per cow. I call this composite number “hundredweight of steer equivalents.” I then use this number to calculate the UCOP for these benchmark herds.
For example, these benchmark herds generated an average of $606/cow gross income, and steer calves sold for an average of $105/cwt.
Divide $606 by $105 and these benchmark herds generated a gross income equivalent to 5.77 cwt. of steer calf equivalent per cow. Now, divide the production costs per cow by the 5.77 cwt. of steer equivalents and the resulting number is the UCOP.
Let’s now use this steer calf equivalent concept to focus on four key UCOP benchmarks. If the $595 total production cost is divided by 5.77, we get a $103 benchmarked total cost per cwt. of composite calf sold.
The non-feed benchmark becomes $29, the feed-cost benchmark becomes $51 and the replacement
female cost benchmark becomes $25/cwt. of composite calf produced, respectively. Figure 2 presents a worksheet for documenting these key costs.
One critical financial benchmark I emphasize with clients is the cost of generating $1 of gross income from the beef cowherd. This is calculated by dividing the $595/cow total costs by the $606/cow gross income. The result suggests it cost 98¢ to produce each dollar of gross income generated.
As we all know, 2008 was not a good year for most beef cow producers, documented by the $11 earned net income per cow average for these benchmark herds. Figure 3 presents a set of total herd benchmarks for both costs per cow and costs per hundredweight of calf produced.
I challenge you to use Figures 1, 2 and 3 to benchmark your herd and take additional advantage of today’s stronger calf prices. High-priced times are the time to intensify management.
Harlan Hughes is a North Dakota State University professor emeritus. He lives in Laramie, WY. Reach him at 701-238-9607 or [email protected]