8 drivers of profitability and how to manage them to make more money8 drivers of profitability and how to manage them to make more money
Making money with cattle is hard, but it’s possible and it’s possible to do it consistently. Here’s a review of what you can do to improve the bottom line.
November 28, 2017
Several analysts are suggesting that the cow herd will continue to increase slowly for another two to three years. This could be accompanied by an even greater growth in the amount of beef produced.
If the economy should continue to grow and cause demand for beef to grow, if exports continue to increase and carcass weights don’t increase too much; all combined it could save us from significant reductions in price. But, as a cautious manager, I wouldn’t bet on that.
The last Census reports that only 4% of beef cattle operations had 200 or more cows; and they accounted for just over 37% of all beef cows. Eighty-two percent of the operations had 49 or fewer cows and accounted for 30% of all beef cows. That leaves 14% of beef operations with 50 to 199 cows.
We need to understand that there will be downward pressure on cattle prices for the next several years. The full-time ranchers are competing with part-time ranchers that have other sources of income, thus making it difficult to compete. Those who are trying to be full-time ranchers with 200-400 head of cattle have a very tough road for profitability.
But I see successful examples of it all the time. Some have day jobs. Others do contract work. Some stack enterprises like adding sheep, goats, hogs or poultry to their cattle enterprise in such a way that what is waste to one becomes feed, fertilizer or parasite control to another.
While doing these things, the successful ones are trying to expand—often by adding livestock on leased land. There are crop farmers adding cattle to their farming operations and creating several synergistic effects to the combined enterprises.
Our job, then, is to put our products in our chosen marketplace at a price that is attractive to our customer and, at the same time, profitable to us.
So because of competition from other meats and from neighboring ranchers, we must direct attention to the major determinants of ranch profitability which are usually not very well recognized or understood:
Overheads: These are the costs associated with land and the structures and facilities attached to it plus people, along with the equipment and tools used to accomplish their work. On most ranches where I have worked, overheads are the low-hanging fruit.
Decisions to eliminate some overheads—employees, equipment, buildings, facilities—are usually intellectually quite easy, but emotionally very difficult. On small ranches, you simply can’t afford many overheads. They can’t be spread across enough units of production and income. Small ranches must be run very simply to be profitable; and it can be done.
Stocking rate: Stocking rate is affected by:
Cow size and milk production: You can simply run more cows if they are smaller and give less milk. Remember the conversion from grass to milk to pounds of calf is a very poor conversion.
There is more and more research showing that while smaller cows wean smaller calves, the calves are not proportionally smaller; so, the ranch will produce more pounds per acre with smaller cows giving less milk. None of these studies show the fertility differences between large, high-milk producing cows compared to smaller cows giving less milk. I am convinced, after hundreds of conversations with ranchers experiencing continually lower conception rates, that smaller cows will breed better on the same feed resource.
Grazing & pasture management: While few have done it, there is a growing number of livestock producers who have doubled carrying capacity and then stocking rate using improved grazing practices. I continue to read and hear that research indicates that grazing has no effect on carrying capacity or soil carbon.
While I don’t want to be offensive to anyone and admitting that I have not reviewed all of the studies, I must say those I have reviewed don’t prove anything. They are too small, don’t extend over enough years and don’t even come close to replicating what good graziers do.
I can tell you this—some good graziers have doubled and even tripled carrying capacity. Some have shown significant increases in soil organic matter which certainly has a strong correlation with soil carbon. Ranchers who have learned how to graze well and have continued over 10 or 15 years have experienced wonderful results.
And, what they do would be almost impossible and very expensive to test using good research and statistical methods because they seldom, if ever, graze the ranch the same way twice. So, find good graziers, learn from them how to graze well and don’t be afraid to do it.
Calving season: Calving in sync with nature can reduce or eliminate the need for fed feed. It can reduce the need for supplementation. It can also reduce the need for labor, facilities, and tools for calving. It is a lot easier to calve in a season when nature works with you and not against you.
Fed feed vs. grazed feed: Cows were made to walk and graze. Putting a machine between the mouth of a cow and her feed source costs money. If you do have to feed for short periods, work hard to determine the lowest cost way to do it.
For small farms or ranches, owning your own equipment is seldom the low cost way unless you also put up hay for others to spread equipment costs across more tons of hay. I have actually seen ranchers that have sold all their haying equipment (to eliminate the temptation to hay), grazed their hay land and purchased the hay needed for insurance in case of a tough winter. This results in a big reduction in overheads and an increase in carrying capacity, because of the purchased hay, thus spreading the remaining overheads across more units of production and income.
Realized herd fertility: There are two parts to “realized” fertility. There must first be a pregnancy. Then you need survivability until there is a live animal to sell. Moderating cow size and milking ability and capitalizing on the benefits of hybrid vigor can be powerful aids for improving herd fertility.
Then, as you adjust the calving season to be in sync with nature and replace fed feed with grazed feed, you will need to pay careful attention to supplementation to ensure good herd fertility. While the common question is, “How much and for how long?” I like to ask, “How little and for how few days or weeks?” Even with the viewpoint modified, you will probably find that a little supplement at the right time will make a big difference in herd fertility.
Heifer development or replacement cow cost: This is one of the best forward indicators of future profitability. Good research is showing that heifer development doesn’t have to cost as much as many people spend.
With the right calving and breeding season, heifers can be developed on pasture with minimal supplementation or on low cost diets to 50-57% of expected mature cow body weight. Heifers developed this way become better cows. I have talked to people in the last few weeks (fall 2017) that sold open heifers so well that they wished more had been open. They wouldn’t have been so happy if heifer development costs had been high.
Wise input use for profitable production: The direct costs of cattle production are almost entirely for feed, vet services and medications, and sales costs. A few operations have significant animal transport costs. Almost all else is overhead.
For every dollar you spend on direct inputs, you want to get more than a dollar return. Money spent for strategic supplementation can have a very nice return. Knowing when and how much is critical because supplementing too much for too long can be very detrimental to profit. Some expenditure on overheads for fencing materials and stock water development to accommodate better grazing could also make a very good return.
Marketing: In marketing you want to think of time, form and place. When is the best time to sell what I produce? How do I decide the best form—calves, yearlings, bred heifers, bred cows, etc.? Can I economically upgrade that? What is the best place—auction yard, video sale, direct sale, etc.?
We should think of ways to add value through herd health, market niche programs and in the way we develop replacement heifers. Once value has been added, our marketing approach should focus on retaining the value already built in. Value retention is very important in the sales of open and late bred cows and heifers.
You will notice that I did not include individual calf weaning weight in this list. It is pounds weaned per acre that is truly important. If you come to understand why the items on this list drive profitability and how you can manage them to best fit your location and management, individual weaning weight will fall about where it should. In the meantime, you will become a much better rancher.
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