A Montana State University animal science graduate student e-mailed me recently with excellent questions about the management data needs of commercial cattlemen. One question was, “What are your top three or four recommendations to improve profitability of a beef cow herd?”
My Top Four Recommendations
For 10 years I've gone from kitchen table to kitchen table conducting cost-and-return analyses for beef cow herds in the U.S. and Canada. My top recommendation for enhancing profits is for the producer to answer the fundamental economic question, “What does it cost me to produce a hundredweight (cwt.) of calf?” In other words, “What is my beef cow herd's unit cost of producing (UCOP) a cwt. of calf?”
Profits also can be enhanced if a beef cow producer answers a second fundamental economic question, “Am I a high-cost or low-cost producer?” Answer this question by comparing your herd's UCOP, item by item, against the low-cost, average-cost and high-cost profiles from a set of benchmark herds for your county, state, region or the national Integrated Resource Management-Standardized Performance Analysis (IRM-SPA) benchmark herds.
Various states are now publishing state IRM benchmark summaries like the Northern Plains Benchmark Summary available at www.ag.ndsu.nodak.edu/cow. It's the second item under the IRM hot button. My latest Northern Plains Benchmark Data is available from me at [email protected]. See Figure 1 as an example.
If you measure up as a low-cost producer relative to your benchmark herds, continue what you're doing. Focus on fine-tuning your herd's economic performance, but I don't recommend any major changes.
If you're a high-cost producer, it's a different story. Why can others produce calves cheaper than you can?
If you continue to be a high-cost producer, there are two questions you need to answer. Are your costs so high that your cow herd is consuming financial equity? Or are your costs just high enough that you are earning lower economic returns from your family's resources than the benchmark herds are earning from their family resources?
Use your IRM-SPA financial analysis to answer the financial equity question. Just how long you can continue running a high-cost, equity-consuming, beef cow herd depends on the amount of financial equity you're willing to sacrifice.
Some high-cost producers have consumed equity for the last five years. And, I suspect that the higher calf prices projected for the next few years will not bail some of these high-cost producers out of financial trouble. I can almost assure you they won't survive the next cattle cycle if they remain high-cost producers.
If you're looking at reduced returns to your family's resources, remember those resources are unpaid family and operator labor, management and equity capital. Use your IRM-SPA economic analysis to answer this low economic returns question.
My third recommendation is that beef cow managers should not use “production proxies” for profit. By production proxies I mean such things as weaning weights, calf weight as a percentage of mature cow size, frame size, etc. as proxie indicators of profit.
An article a few years back reported that there are 72 genetic traits that can be measured and ranked for expected progeny differences (EPDs). The same article went on to suggest that, of those 72, only 10 to 12 actually influence profitability.
Current IRM databases are confirming that many of the production proxies used in the past aren't highly correlated with profits. For example, my IRM database suggests that gross income and profitability aren't highly correlated.
Yet, I hear discussion about developing an EPD for profit based on gross income. Increased gross income certainly does not ensure increased profitability.
In today's business world of computers, Farm Financial Standards, IRM, IRM-SPA Guidelines, and Quicken Accounting Software, the management tools are available to measure profits directly. You needn't measure profits through production proxies. Adopt these management tools and measure profit directly.
I don't infer that herd performance records aren't important. Records that identify and treat each cow as a single production unit with her own production records are absolutely critical for managing economic efficiency in your herd.
But, managing a beef cow herd by virtue of herd averages is no more economically efficient than marketing a pen of cattle based on pen averages. Yet, we continue to do both because that's how we've always done it.
First, use your IRM-SPA year-end analysis to decide the economic parameter you want to change through management. Then, select the appropriate herd production management tool or tools you believe will help you make the desired economic change.
Do not, however, assume that profits are related to one specific production trait. For example, weaning heavier calves doesn't assure generating more profits. Use your IRM analysis to confirm if producing heavier weaning weights did, or did not, lower your UCOP and increase profits.
The beef industry has spent the last 20 years proving that weaning weight, used as a single production proxy, doesn't work. On the other hand, production parameters used to accomplish desired economic changes in a herd are powerful management tools. It's how you use the production traits that make the difference. Production traits are poor proxies for profit.
My fourth recommendation is that beef cow producers must fully understand and take advantage of UCOP's management power. The management power in UCOP comes from it being a ratio of the herd's total production costs to total pounds of calf produced. Anything you want to talk about is either in the numerator or in the denominator.
I find many producers trying to run beef cows without knowing their UCOP. Because profit margins are shrinking each cattle cycle, knowing your costs of production is critical. It's getting harder for managers today to make a profit, but knowing your UCOP enhances your odds for doing so.
UCOP is a very powerful management tool. I wish more beef cow producers would use it.
Harlan Hughes is a North Dakota State University professor emeritus. He lives in Laramie, WY. Reach him at 701/238-9607 or [email protected].
|Economic Item||Benchmark Value|
|1. Number of beef cows in the beginning inventory||163|
|2. Total captial invested per beef cow||$2,007|
|3. Debt per cow||$316|
|4. Debt service per cow||$55|
|5. Accrual adjusted income per cow||$441|
|6. Summer grazing costs||$73|
|7. Winter feed costs per cow||$123|
|8. Total feed cost per cow||$199|
|9. Veterinary and medicine cost per cow||$17|
|10. Total livestock costs and cow lease payments||$73|
|11. Overhead costs||$39|
|12. Interest payment on borrowed capital||$22|
|13. Total costs of production per cow||$346|
|14. Unit cost of producing a cwt. of calf||$85|
|Source: Derived from IRM-FARMS data on 2000, 2001 and 2002 Central Plains herds.|