A statistical analysis of my Northern Plains 1990s beef cow Cost & Return Database suggests weaning weight explained only 20% of herd-to-herd variation in beef cow profits. So what's responsible for the other 80%?
The same analysis suggests unit cost of producing a cwt. of calf (UCOP) goes a long way toward explaining the missing 80%. The problem is most ranchers don't measure their herd's UCOP. As the old saying goes, “you can't manage what you don't measure.”
This month begins a series on measuring UCOP, focusing on my introductory system, IRM-FARMSez. For availability info, visit www.WesternEdgeConsulting.blogspot.com.
The following data is from my 2005 demonstration herd producing 2005 calves. The producer has granted me permission to use the data, but I'll withhold his name.
All UCOP numbers are based on the Jan. 1, 2005, figures for beef cow inventory numbers held for calving that year (Item A), and virgin replacement heifer calves (Item B) being held for future replacement heifers. Reproductive performance, according to National Integrated Resource Management (IRM) Standards, is based off females exposed during the previous bull turnout date in 2004 (Item C).
Item D is the number of live calves born, Item E is the number of live steer and heifer calves weaned, and Item F is the number of cows culled that year. Items G and H are cows and calves dying during the year, respectively.
This herd profile requires a rancher to count females twice/year — at bull turnout and on Jan. 1. Items I, J, K, L and M are calculated numbers.
The yellow boxes are the herd's input numbers needed to calculate its gross income. A total of 86 steer calves (557-lb. average, after shrink) were sold for $1.23/lb., minus sales commissions; 26 heifer calves were held back as future replacements; and the other 46 were sold (526-lb. average) for $1.17/lb. In addition, 21, 1,100-lb. cull cows were sold for 48¢/lb.; four, 1,000-lb. open heifers were sold for 80¢/lb.; and one, 1,800-lb. cull bull was sold for 56¢/lb.
A true economic profitability analysis accounts for both cash sales and inventory adjustments. This herd's beginning inventory was valued at $162,145, and its ending inventory at $166,140, providing a positive inventory adjustment of a $3,995. (The per-head dollar value of all inventory animals was held constant so this adjustment measures only changes in animal numbers.)
This positive inventory change was added to the annual gross income figure (Item 6), providing a total gross income of $106,520 (Item 7). This calculates out to $642 accrual-adjusted gross income/cow in the Jan 1. inventory (Item 8).
The beef cow profit center produced six different products — steer and heifer calves, cull cows, cull bulls, cull open heifers, and inventory adjustment. The key to calculating UCOP is to express the income from these six products with a single composite number. We generate this number by dividing total gross income/cow ($642) by the market price of a cwt. of steer calf ($123). Total gross income is expressed in terms of cwts. of steer equivalents (5.22, Item 9).
This 5.22 number is used throughout this system to calculate UCOP for this herd. Item 10 is the steer sale price of a cwt. of steer calf.
In this analysis, we use the going local pasture rent to calculate opportunity cost of cows grazing deeded pastures. Deeded pasture rent can be $/AUM times AUMs/cow, or $rent/acre times acres/cow. Public land costs are the total dollar value of all fees paid for public lands (Item 12b).
There are four flexible feed-cost fields for use in inputting the winter feeding program (Items 12b through 15). Farm-raised feeds fed to the cow herd should be valued on local market price of the feeds fed — not the cost of production. Item 16 is used to input the total tons of salt and mineral fed to the total herd, plus an average weighted cost/ton.
Items 16A and 16B summarize this herd's annual feed bill, which was $322/cow or $62/UCOP.
Many of the livestock costs can be obtained from your 1040F Income Tax Form. Be sure to pick up only the beef cow portion of these costs.
Item 17 (Figure 4) is the total beef cow herd's share of the vet and medicine bill. Breeding + AI (Item 18) is your total annual bull-depreciation costs with any artificial insemination costs added in. Marketing (Item 19) includes all marketing costs, plus trucking costs.
As the growing costs of replacement heifers are difficult to estimate, I rely on North Dakota research suggesting it costs about $250 to take a replacement-heifer calf from weaning through preg-check the next fall. I suggest using $250 to $300 for your heifer development costs. Preg-checked heifers are then transferred into the regular breeding herd.
Item 21a is for use at your discretion. Item 21b is for beef cow yardage costs and also for hired labor for the beef cow herd. Item 22 has two blanks — one for livestock supplies, the other for the beef-cow share of utilities. The fuel blank is for fuel costs for feeding the cow herd and checking pastures in the summer. Don't include fuel for harvesting farm-raised feeds, such as hay. Hay-fuel costs are included in the hay's market price.
Input blanks are available for annual interest on operating capital (Item 23), on borrowed capital for the breeding herd, beef cow equipment, etc. (Item 24), and on money borrowed to purchase pastureland (Item 25). Item 26 offers two blanks for miscellaneous costs.
This demo herd had $133 in livestock costs/cow or a $25.50 UCOP. The herd generated a $61.19 return above direct costs (feed + livestock costs). The breakeven market price to cover all direct production costs was $87.16/UCOP.
In order to better manage capital asset data requirements, all overhead costs are calculated as a percent of capital invested in each category (Figure 5).
Figure 6 presents the farm-management profession's suggested DIRTI-five thumb rules for rapidly calculating overhead costs. It stands for Depreciation, Interest, Repairs, Taxes and Insurance.
In this study, buildings' suggested DIRTI-five factor is 7%, beef-cow equipment is 13%, and a raised breeding herd is 1%. If no raised replacement heifers are added into the herd, depreciation on the cow herd must be accounted for, with a suggested annual DIRTI-five factor for the breeding herd being 11%.
Calculated profit & UCOP
Figure 7 presents the demo herd's UCOP summary. Items 31 and 32 present total income and production costs on a per-cow and UCOP basis, respectively. Item 33 depicts the $160/cow earned-net returns to the unpaid labor, management and equity capital on a per-cow basis, and $31 earned-net returns/UCOP.
Item 34 presents this herd's $92 UCOP, calculated such that it can be compared directly to the market price for steer calves weighing 557 lbs.
For a manual IRM-FARMSez version, visit http://ag.arizona.edu/arec/wemc/cattlemarket/Determining Econ Unit Cost.pdf. Professional assistance via a computer version is available through me at www.WesternEdgeConsulting.blogspot.com.
Harlan Hughes is a North Dakota State University professor emeritus. He lives in Laramie, WY. Reach him at 701/238-9607 or [email protected].
Click below to download Figures.