Lowering your breakeven - part II

This month, I'll share a primary database I use in benchmarking a ranch. The data is taken from the 2007 annual North Dakota Farm Business Management (FMB) Summary, which summarized the 2007 averages for 129 herds.

Each participating rancher works with an FBM fieldman who provides farm-management consulting services to the participating rancher. This fieldman prepares a year end beef-cow production summary with a corresponding beef-cow profit center business analysis.

North Dakota State University collects the data and publishes the averages. The tables summarize only the beef-cow profit center — not the total ranch business. The total ranch business, however, is also summarized and published as a benchmark database.

The total ranch business is broken down into its respective profit centers, with each treated as a stand-alone business, which is exactly what I recommend ranchers do.

The big picture

When analyzing a rancher's beef cowherd economic performance, I first look at the beef-cow profit center's big picture. That includes gross income per cow, as well as six, large cost categories (Table 1).

Gross income from all sources averaged $690/cow in 2007. Feed costs totaled $278/cow — pasture costs of $90 for summer grazing and $188 for winter feed. Feed costs accounted for 47% of the total annual cow costs of these herds. The opportunity cost of feed is used; thus, home-raised feeds are priced in at the going local market price, and pasture costs are based on local rental rates.

The other major five cost categories are vet and medicine ($17), livestock costs ($75), overhead ($74), and replacement female costs allocated to each cow in the January inventory ($147). The average total cost of running these cow herds in 2007 was $592/cow.

Profit is the earned net returns to the operator's unpaid labor, management and the family's equity capital. In 2007, that averaged $98/cow, which was down substantially from the high in 2005.

Herd performance data

Any herd's economic performance is heavily influenced by its production performance. Table 2 presents the North Dakota herd performance benchmarks.

I focus on two key production benchmarks in analyzing a beef cowherd. The first is the “weaning percentage” based on the percent of the exposed females in the previous breeding season that brought home a live calf this fall. This percentage is based on the “females exposed” and not the Jan. 1 inventory most ranchers use. These benchmark herds averaged 90.7% weaning percentage, which proves it can be done.

My second critical production parameter is “pounds weaned per female exposed,” which was 505 lbs. for these benchmark herds.

Cull sales from a beef cowherd typically runs 10-20% of the gross income from a beef cowherd. In 2007, these benchmark herds averaged 14% of their gross income from cull-animal sales.

Forage disappearance

Non-grazing forage costs can be significant — especially in the Northern Plains. Table 3 presents the average total winter forages fed to the beef cowherd on a per-cow basis.

I like to identify the total pounds of dry matter (DM) fed from each forage source; then express that disappearance in terms of tons of hay equivalent. That allows me to compare one herd to the next even if they feed totally different winter forage rations.

For example, these benchmark herds' winter feeds were corn silage, alfalfa hay and grass hay, with an average total DM fed of 6,650 lbs. This equals 3.69 tons of hay equivalents based on hay at 90% DM [(6650/.9)/2000].

Total annual feed costs/cow

Table 4 depicts annual feed costs per cow. The 3.69 tons of hay equivalent was valued at $146/cow, while pasture costs were $90. When the other feed costs are taken into account, the total feed cost was valued at $278/cow.

Livestock costs

Table 5 presents “livestock costs,” seven items that bring the total livestock costs on these benchmark herds to $75/cow.

The zero breeding fees need more explanation. These herds owned their own bulls, with bull depreciation included in the herd's total depreciation costs. However, I suggest separating out bull depreciation when analyzing your herd.

Key herd-analysis factors

Table 6 is a summary set of analysis factors for these herds. Since a beef cowherd generates income from six different sources — steer calves, heifer calves, cull cows, cull bulls, cull open replacement heifers and inventory change — I converted these six incomes into one composite income expressed as “hundredweight (cwt.) of steer equivalents” (HSE). The $690 gross income is divided by the price of steer calves so that the total gross income can be represented by HSE. That is, 6.18 cwt. of steer equivalent is equal to $690/cow.

Unit cost of production is calculated by dividing the total costs per cow ($592) by the 6.18 HSE [$592/6.18 = $95.73/cwt.] The calculated breakeven steer calf price for these benchmark herds in 2007 was $96. The actual average steer price received was $112/cwt. The earned net return per cow averaged $98/cow.

Another calculation I always encourage in an economic analysis is the cost of producing $1 of gross income, which in 2007 was 86¢. Calculate this by dividing the total costs per cow by the gross income per cow (i.e., $590/$690 = 86¢).

The difference between the cost to produce $1 of gross income and the actual $1 of gross income is the “profit margin.” These herds' profit margin was 14¢/cwt. of calf produced.

Clearly, as we progress further into the emerging biofuel era, beef-cow profit margins are going down. Your challenge is to ensure your herd's profit margin doesn't keep going down. You do this by benchmarking your herd's production and economic numbers, then using the data to identify your herd's strengths and weaknesses.

Capitalize on your herd's strengths and work on removing your herd's weaknesses and your profit margin will go up. It's almost that simple.

Harlan Hughes is a North Dakota State University professor emeritus. He lives in Laramie, WY. Reach him at 701-238-9607 or [email protected] [3].

Table 1. Beef-cow profit center cost categories
Per cow (129 herds)
Item ND-FBM Avg. Your herd
Gross income $690
Pasture cost $90
Winter feed costs $188
Total annual feed costs $278
Feed costs as % of total costs 47%
Vet & med costs $17
Livestock costs $75
Overhead costs $74.23
Replacement female costs $147.30
Total costs/cow $592
Earned net income $98
Table 2. Herd performance data
Per cow (129 herds)
Item ND-FBM Your herd
Number of cows 145
Pregnancy % 97.1%
Pregnancy loss 1.7%
Culling % 14.4%
Calving % 95.5%
Weaning % 90.7%
Calves sold/cow 0.94
Calf death loss 5.2%
Avg. weaning weight (lbs.) 557
Lbs. weaned/female exposed 505
Feed cost/cow $278
Avg. wt./beef calf sold 591
Avg. steer price/cwt. sold $112
Price slide at wt. sold -8.30
Calculated steer weaning price $112
Cull sales as % of gross income 14%
Table 3. Winter forages fed (per-cow basis)
Item Pounds Dry matter % Dry matter (lbs.)
Corn silage 1,735.14 35% 607
Alfalfa hay 409.22 90% 368
Grass hay 6,304.74 90% 5,674
Total 8,449.1 79% 6,650
Tons of hay equivalent 3.69 tons
Table 4. Annual feed costs/cow (2007)
Feed Pounds Price/ton Cost/cow
Corn silage 1,735.14 $19.42 $16.85
Alfalfa hay 409.22 $47.31 $9.68
Grass hay 6,304.74 $37.81 $119.20
Total hay equivalent 3.69 tons $39.45 $146
Corn grain (bu.) 0.86 $3.40 $2.92
Creep/starter 78.77 $174.43 $6.87
Protein, vit., minerals 92.23 $328.95 $15.17
Other feedstuffs 364.23 $45.03 $8.20
Complete ration 86.19 $120.90 $5.21
Pasture (AUMS) 6.59 $13.70 $90.29
Aftermath grazing 0.21 $16.81 $3.53
Total feed costs $278/cow
Table 5. Livestock costs
Per cow (129 herds)
Item ND-FBM avg. Your herd
Breeding fees, supplies $12
Fuel & oil $22
Repairs $24
Custom hire $0
Livestock leases $2
Marketing $5
Operating interest $10
Total $75
Table 6. Analysis factors for 2007 ND-FBM herds
Item Average Your herd
Gross income/cow All income from cow herd $690
Price of steer calves Price of steer calves only $111.61
Steer equivalents Total gross income/price of steer calves $6.18
Total costs/cow Direct + overhead + heifer replacement costs $592
Unit cost of production Total costs/steer equivalents $95.73
Non-feed costs LS costs + OH costs + Vet & med + Rpl hr $314
Total feed costs Summer + winter feed costs $271
Feed cost per cwt. of calf Total feed costs/by steer equivalents $43.93
Cost per dollar of gross income Total costs divided by gross income $0.86
Earned net income/cow Returns to unpaid labor, management & equity capital $98