What benchmarking can tell you

Let's look at what benchmarking the act of comparing a beef cow herd's production and financial measures to those of a set of benchmark herds can tell a ranch manager. We'll use the average of my last six herds analyzed in 2004. There's nothing special about these herds; they were just the last six I analyzed in 2004. I prepared an IRM Costs & Return Analysis Summary for each herd and presented a

Let's look at what benchmarking — the act of comparing a beef cow herd's production and financial measures to those of a set of benchmark herds — can tell a ranch manager. We'll use the average of my last six herds analyzed in 2004. There's nothing special about these herds; they were just the last six I analyzed in 2004.

I prepared an IRM Costs & Return Analysis Summary for each herd and presented a summary analysis to each respective manager. The managers are now studying their reports looking for their business strengths and weaknesses. Benchmarking is how this is done.

The benchmark herds used here are the average numbers generated from 124 North Dakota beef cow herds participating in North Dakota's State-Wide Farm Business Management Association in 2004. North Dakota State University personnel publish an annual summary averaging management data from all 124 beef cow profit centers.

I presented these 2004 average production benchmarks last month (page 8). This month, I'll present the economic benchmarks. Let's look at each key production and economic benchmark.

Figure 1 is a summary of my recommended “Production Efficiency Measures” applied to the six study herds. The average of these herds will be used in this benchmarking demonstration.

• Number of beef cows in inventory: The Jan. 1, 2004, count of bred females held for calving in the six study herds averaged 562 females vs. an average of 149 for the benchmark herds. Clearly, the study herds' average number of cows was considerably larger than that of the benchmark herds.

• Calf death loss: Percent calf loss is based on the number of live calves born. The study herds met my 5%-or-less benchmark goal. When a herd meets or beats a benchmark value, it indicates business strength for the study herd.

• Average weaning weight (AWW): These six herds generated a 2004 AWW of 449 lbs. (range of 382-564 lbs.). This is 110 lbs. below my suggested benchmark AWW of 559 lbs. When a study herd falls below a benchmark value, it indicates a potential weakness in the study herd.

• Days calves on cows: The 172 days the calves were on the cows is well below my 195- to 200-day benchmark average. Lingering drought was likely partly responsible, plus the fact a couple of herds use May/June summer calving. Certainly, the lower number of days on the cows contributed to lower AWW.

• Percent calf crop: Benchmarking the percent calf crop of these six study herds indicates lower percent calf crop is the study herds' single biggest missed profit opportunity. The six herds' 83% average calf crop ( range of 77% to 87%) means they had 8% fewer live calves than the benchmark herds available at weaning. Missed opportunities for profit abound with an 83% calf crop weighing 449 lbs.

• Weight/day of age (lbs./day): Weight/day of age is a measure of calf growthiness. A proxy for average daily gain, it doesn't require producers to weigh calves at birth; calculate it by dividing calves' AWW by average age of the calves in days. I use this measure to assess the bullpower being used.

The average weight/day of age for these six herds was 2.6 lbs./day, compared to my benchmark average of 2.9 lbs. The range of the six herds was from 2.2 to 3.1 lbs./day of age, which suggests considerable variation in the bullpower being used among the six study herds.

• Pounds weaned/female exposed: This IRM-recommended production measure is calculated by dividing total lbs. of calf weaned by the number of females exposed to bulls. It's my favorite production measure.

The study herds averaged 378 lbs. of calf weaned/female exposed. This compares to 507 lbs. weaned/female exposed in the benchmark herds — a major weakness.

Economic efficiency

Figure 2 presents my economic benchmarks. Figure 4 shows recommended economic efficiency measures calculated for the study herds.

• Accrual-adjusted gross income (AAGI): Gross income in a beef cow herd comes from six sources — steer calves, heifer calves not held back for replacements; culled cows, bulls, and open heifers; and inventory change.

Gross income needs to also be an AAGI. This means cash sales must be adjusted for inventory change, which can be positive or negative.

The study herds generated an average 2004 AAGI of \$553/cow; benchmark herds generated \$637. The study herds grossed \$87 less/cow.

Figure 3 presents the various components of gross income identified in the North Dakota Farm Business Management (FBM) Beef Cow Profit Center Accounts. To be more consistent with my IRM-Financial And Reproductive Management (IRM-FARMS) model, I modified the FBM Summary by moving the cost of raised replacement heifers from the gross income component down to a cost of production component. The earned net income figure is unchanged by this adjustment. The modified average Adjusted Total Gross Income for these benchmark herds comes to \$637/cow.

• Total production costs per cow: On the other hand, these six herds did well in average total production cost at \$444/cow. The benchmark costs were \$447/cow. Total production costs per cow is another strength.

I wonder if these herd managers cut costs so much that it led to reduced gross income? Cost-cutting can impact percent calf crop.

• Earned-net income: The earned-net income of the six study herds was \$109/cow compared to the benchmark herds' average of \$190/cow. A \$109 average is certainly not record setting given the record cattle prices of 2004.

• Unit cost of producing a cwt. of calf (UCOP): The six study herds had a \$110 average UCOP — \$28 higher than the benchmark herds. UCOP is a ratio of total production costs divided by total pounds of calf produced. Benchmarking suggests the high UCOP is due to low reproductive performance not a bloated cost structure — an important point to know.

• Cost to produce \$1 of gross income: Calculated by dividing the total cost per cow by the AAGI, the cost to produce \$1 of gross income in the six study herds was 81¢. The benchmark herds' average was 70¢. Again, it's the lower production that's raising the cost per \$1 of gross income, not bloated production costs.

Conclusions

The key strengths of these six ranch businesses are the low percent calf death loss and lower total costs/cow. The key weaknesses are low percent calf crop and high UCOP.

Since costs/cow were similar for both groups, the higher UCOP for the six study herds must be due to their lower physical production leading to a lower AAGI.

It's obvious reproductive performance is a missing profit opportunity in these study herds. Their lower production led to their poorer economic performance. None of these six herd managers used herd performance records.

TAGS: Marketing