The key to high beef cow profits is management power. That's what my 10-year analyses of Integrated Resource Management (IRM) cooperator herds suggests.
As a rule, the higher the level of management power, the higher the economic profit of the cowherd. That power is dictated by how well the production and economic performance of the beef cow profit center is measured and monitored.
The payoff is increased production efficiency and lower unit costs of production. And, it's a payoff that comes during a cattle cycle's high-priced years rather than the low-priced years.
My experience with my IRM cooperators has revealed 10 “critical success factors” that can guide all producers toward higher profits in the current cattle cycle.
Percent calf crop. Percent calf crop is calculated by dividing the number of live calves weaned by the number of females exposed at bull turn-out. While the number of live calves weaned is important, the most difficult number is to properly adjust the number of “females exposed at bull turn-out.”
A worksheet that standardizes these adjustments is available at www.ag.ndsu.nodak.edu/cow under the “Harlan's Handouts” hot button. The correct denominator in calculating percent calf crop is “Standardized Performance Analysis (SPA) adjusted females exposed.”
Let's apply this to my demonstration herd. The actual females exposed at bull turn-out was 191 head (156 mature cows and 35 yearling heifers). Of the mature cows, 13 were flagged earlier for culling and were just raising their current calf.
No exposed females were sold and no exposed females were purchased. The SPA adjusted females exposed was 178 (191-13) and the number of live calves weaned was 154. This generated an 87% calf crop (154/178 × 100).
Pounds weaned per SPA adjusted females exposed. This demonstration herd produced 87,058 lbs. of weaned calf this year. If these total pounds are divided by the number of SPA adjusted females exposed (178), this herd generated 489 lbs. of calf weaned/female exposed.
Now, let's look at the economic side of the beef cowherd. An economic analysis of the cowherd should be based on the Jan. 1 number of bred females held for calving. On January 1, 2000, this demonstration herd had 166 bred females.
Capital investment per cow. Capital investment in the beef cow profit center includes investments in the breeding herd, pasture land, beef cow facilities and beef cow equipment. Farming machinery investments, such as the hay baler and the tractor to pull the baler, are not included in beef cow investments.
My demonstration herd had a capital investment of $2,092/cow. This comes from $132,800 invested in breeding cows, $15,500 in replacement heifers, $14,000 in bulls, $150,000 in pastureland, $20,000 in building investments and $15,000 in livestock equipment.
Debt service (interest + principal) per cow. The demonstration herd had $508 of the per-cow capital investment financed with borrowed capital; in other words, 24% in debt. While this debt is above the Northern Plains Databank average debt of $276/cow, a majority of this debt is a long-term pastureland loan leading to relative low annual debt payments. Debt service/cow (interest and principal) for this demonstration herd totaled $56/cow for this herd.
Accrual income per cow. Gross accrual income generated by the beef herd is the sum of all cash sales, capital gains income and inventory changes from Jan. 1 to Dec. 31. My demonstration herd has a total accrual income of $81,939 or $495/cow based on cash sales of $77,503, capital gains income of $736 and an inventory increase of $3,700. This is a total accrual income of $495/cow in year 2000.
Total feed costs per cow. Feed costs per cow is broken down into pasture costs, aftermath grazing costs and winter (stored) feed costs. Pasture costs are based on the local pasture “rental rates.” Winter feed costs are based on the local market price of farm-raised feeds fed plus the value of purchased feeds.
This demonstration herd had a pasture cost of $77/cow, a winter feed cost of $188/cow and no aftermath grazing costs, for a total feed cost of $265/cow.
The ranch family's earned net returns. If the non-feed costs of $87/cow are added to the total feed costs, total costs becomes $352/cow for this demonstration herd. Subtracting the $352 total costs/cow from the $494 accrual income, indicates this herd generated an earned return of $141/cow to this ranch family's unpaid family and operator labor, management and equity capital utilized in the beef cow herd.
Return on capital invested. The IRM-SPA guidelines suggest we can use family living draw as a proxy for labor and management wage, allowing us to allocate the rest of the earned return to investment capital. Employing this recommended procedure, this demonstration herd earned a 4% return on capital invested in the beef cow profit center.
Unit cost of producing (UCOP) a cwt. of calf. After adjusting for non-calf income, this demonstration herd had a $71 UCOP a cwt. of calf. UCOP gets its analytical power from the fact that it is a ratio of the herd's total production costs divided by that herd's cwts. of calf produced. This UCOP is calculated so that it can be directly compared to the $99 average market price of steer calves sold in October 2000.
Management score. Management score is the difference between the market price of steer calves that year and the UCOP for that herd in the same year. The year 2000 management score for the demonstration herd is a +$28.
|Number||Critical Success Factors||Northern Plains 1999 Databank||Demo Herd Year 2000||% of 1999's Benchmark Herd's Average1|
|1.||Percent calf crop||86%||87%||101%|
|2.||Lbs. calf weaned/female exposed||478||489||102%|
|3.||Capital invested/beef cow||$2,018||$2,092||104%|
|4.||Debt service/cow (interest + principal)||$44||$56||127%|
|6.||Total feed costs/cow||$198||$265||134%|
|7.||Ranch family's earned returns||$129||$141||109%|
|8.||Return on capital invested||5%||4%||80%|
|9.||Unit cost of producing a cwt. of calf||$62||$71||115%|
|1Herd is databased against the 1999 database as the year 2000 database if not yet available.|
The limitation of this management score is that it can only be compared between herds from within the same year and can't be compared between years. Management power seems to directly impact management score.
Of these 10 success factors, UCOP (#9) is the single most important factor for operating a high-profit beef cowherd. The catch is that in order to manage UCOP, you have to first measure it.
Harlan Hughes is a Professor Emeritus at North Dakota State University. Retired last spring, he is based in Mankato, MN. Contact him at 701/238-9607 or [email protected].
Evaluating Market Alternatives For 2000 Calves
These planning price projections (Table 1) are based on both the futures market price and Western North Dakota sale barn prices for the current week. The price projections in Table 1 were used to evaluate five marketing alternatives for year 2000 calves shown in Table 2.
The “buy/sell margin” in Table 2 is the buying price of animals going into a lot subtracted from the selling price of animals coming out of the lot. Since selling price is normally less than purchase price, the buy/sell margin is normally negative. The negative buy/sell margin represents the marketing loss/cwt. on the purchase weight of the animals. The cost of gain (COG) represents the cost of the added weight while in the lot. Profit/head represents the combined marketing losses and profits from gain.
Table 1. Suggested planning prices
|Lbs.||Fall 00||Wk Mar 27||Mar 01*||Spring 01*||Fall 01*|
|*Projected Week of March 27, 2001|
Table 2. Traditional marketing alternatives
|1. Sell at weaning||N/A||$0.70||$149|
|2. Bck high ADG||-$17||$0.49||-$16|
|3. Fin bckg. steer||-$16||$0.46||$47|
|4. Grow and finish||-$9||$0.42||$83|
|5. Steers on grass||-$13||$0.45||-$13|
|6. Fin grass steer||-$8.07||$0.45||$77|
|The six marketing alternatives evaluated here are: 1) selling 565-lb. calves at weaning, 2) backgrounding 565-800 lbs. sold after first of the year, 3) finishing backgrounded steers 800-1,200 lbs., 4) growing and finishing 565-1,175 lbs., 5) steers on grass 625-800 lbs., and 6) finishing grass steers 800-1,250 lbs.|