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Creeping cost basis magnifies inputs

“In the course of the cattle cycle, breeding-female inventories will increase, causing calf prices to fall,” says Stan Bevers,

"In the course of the cattle cycle, breeding-female inventories will increase, causing calf prices to fall,” says Stan Bevers, Texas A&M University Extension economist. “Few operators believe that input costs will fall as calf prices come down.”

For perspective, Bevers points to Standardized Performance Analysis (SPA) figures from the Southwest that show the total annual cost to maintain a breeding female in 2006 was $571.73. Meanwhile, the cost of a calf weaned that year was $121.26/cwt.

Similar ulcer-inducing examples can be found wherever you happen to run cows. It has plenty to do with skyrocketing feed prices, but it also revolves around other basics, including the amount of feed required by the factory.

For instance, logic says it’s reasonable that USDA’s average slaughter-cow weights should at least illustrate the trend in mature cow weights, even though both beef and dairy cows are included in the data.

By that measure, average cow-carcass weights increased 86 lbs. from 1994 to 2006 (536 to 622 lbs.). If you figure Commercial grading cows dress at 55-60%, and Canners at 40-46%, that means the live weight of those cows has increased 150-200 lbs. on average. To put these weights on par with their production peers, some argue you need to add another 80-120 lbs. (1.0-1.5 body condition scores).

Twig Marston, Kansas State University Extension beef marketing specialist says, generally speaking, every 100-lb. change in cow body weight changes the requirement for total digestible nutrients (TDN) by 0.65 lbs./day.

So, cows that are 150-200 lbs. heavier today require another 97.5-130 lbs. of TDN/year. That’s before you consider specific additional requirements for energy and protein.

Using a subset of the earlier SPA example, the largest part of the $571.73 annual cost was depreciation ($79.83), followed by purchased feed costs ($71.57) and hired labor and management ($58.78). Combined, those three items tallied 44.7% of the annual cost.

On the other side of the equation, even though calf and feeder-cattle prices have increased in recent years, herd efficiency – calves weaned per cow exposed – has remained fairly flat. In the Southwest SPA subset, it was 81.39%. Thus, each calf weaned actually cost $648.65.

Basics still offer opportunity

There are exceptions to any rule, and regional differences abound, but the same reality exists across the nation. That’s obviously one reason why reducing cow costs is harder than running smaller cows. The bigger issue is how efficient cows are, no matter their size.

According to Steve Swigert, a Noble Foundation agricultural economist in Ardmore, OK, financially successful cow-calf operations tend to utilize a combination of these proven practices:

  • Set specific financial and production goals that are measured and monitored.
  • Make wise purchase decisions to reduce investment in depreciable assets, such as machinery and vehicles.
  • Develop systems for total resource management, including wildlife.
  • Avoid hay production by buying hay.
  • Cut feeding losses.
  • Improve grazing utilization.
  • Monitor and control purchased feed expenses.
  • Don’t overstock grazing land.
  • Focus on reproduction (weaning percent based on exposed females) – the No. 1 production factor for cow-calf producers.
  • Control breeding seasons for best use of grazing.
  • Buy replacements and use terminal cross bulls if you are a small producer.
  • Stay clear of seedstock production. It loses money for most operations.
  • Use proven health practices to ensure sound herd health. Develop a written preventive health program, have it reviewed by a veterinarian and then follow it.
  • Evaluate opportunities to participate in cattle-marketing alternatives.
  • Don’t spend money to reduce IRS taxes if they aren’t sound investments that will increase after-tax equity. It doesn’t make sense to spend $1 to save 30¢.
  • For IRS compliance, make sure to keep the ranch bank account separate from your personal account.
  • Consider location when acquiring land for appreciation. Where land appreciation is concerned, non-cattle uses of land are more important than grazing cattle.
  • Use inventory and management accounting systems to accurately measure and monitor performance.

Bottom line, though increasing feed costs are as daunting as they are maddening, there are other cow costs that producers can control, such as shipping cows that aren’t getting the job done.