Overwhelmingly, annual cow costs are the single largest contributor to the differences between profit tiers.

Nevil Speer

February 27, 2020

2 Min Read
Cowherd Management
Nevil Speer

During the past several weeks, Kansas Farm Management Data (KFMA) has been highlighted as it relates to cowherd trends and average costs versus returns. The KFMA data is especially useful being it’s one of the largest programs in the country and simultaneously comprised of mostly mid-size operations. And lastly, it’s a long-running program with excellent consistency over time, thereby providing a good handle on the real trends occurring within participant operations.  

For all types of enterprises, KFMA provides a breakdown of operational performance based on profitability; that is, the operations are categorized into thirds according to their comparative position of profitability. This week’s graph highlights the difference between operations based on those rankings with respect to return to management.   

Overwhelmingly, annual cow costs are the single largest contributor to the differences between profit tiers – that’s because there’s generally very little difference in terms of sales price and overall revenue among the respective groups. Between 2004 and 2018 (15 years of data), the average cow cost was $758, $870, and $1,056 for the top, middle and low profit groups, respectively. That represents nearly a $300 per cow difference between the high and low categories. 

Related:2019 update: Gross income vs. cow costs

As noted previously, the total revenue variation is comparatively small—an average of only about $50 per cow over time. The outcome being that costs are the overwhelming driver when it comes to explaining profitability.  

With that in mind, the differences in return to management are significant. The high-profit group has averaged an annual return of about $70 per cow during the past 15 years. Meanwhile, the middle-third and lower-third groups have experienced negative returns to management: -$159 and -$451 per cow, respectively.  

Cowherd Management

Looking at it from a longer-run perspective is even more dramatic. The low-profit producers average herd size during the past 15 years is 95 cows; that size herd with an average loss of $451 per cow per year totals to a negative return to management of nearly $640,000. That’s a significant loss of equity over time. Meanwhile, the top tier generated positive returns to management totaling nearly $170,000—a difference in excess of $800,000!

What are doing to monitor your operation’s profitability? Are you carefully tracking your costs and benchmarking your financial performance in order to make some meaningful comparisons? 

Speer serves as an industry consultant and is based in Bowling Green, Ky. Contact him at [email protected]

Related:Cowherd trends: Are we stuck in neutral?

About the Author(s)

Nevil Speer

Nevil Speer serves as an industry consultant and is based in Bowling Green, KY.

Nevil Speer has extensive experience and involvement with the livestock and food industry including various service and consultation projects spanning such issues as market competition, business and economic implications of agroterrorism, animal identification, assessment of price risk and market volatility on the producer segment, and usage of antibiotics in animal agriculture.
Dr. Speer writes about many aspects regarding agriculture and the food industry with regular contribution to BEEF and Feedstuffs.  He’s also written several influential industry white papers dealing with issues such as changing business dynamics in the beef complex, producer decision-making, and country-of-origin labeling.
He serves as a member of the Board of Directors for the National Institute for Animal Agriculture.
Dr. Speer holds both a PhD in Animal Science and a Master’s degree in Business Administration.

Contact him at [email protected].

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