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Pondering The Question Of Profit Vs. Production

Profit or production? A lot of people are asking this question, and the debate is growing more intense.

Profit or production? A lot of people are asking this question, and the debate is growing more intense.

Cow-calf producers are facing rising input costs and decreasing prices. Efficiency is the focus, but unfortunately since measuring actual efficiency is so difficult, producers have been left with the concept of lowering maintenance requirements.

Meanwhile, feedyards, which are dealing with higher feed costs and reduced numbers, have focused on efficiency. But their efficiency focus is on a historically high outweight and a leaner compositional endpoint. The result is they’re demanding more growth and more muscle at the time when the cow-calf industry is reducing maintenance requirements and mature size. The conflict between these different directions quickly becomes obvious.

Perhaps we’re asking the wrong question. I'm a huge advocate of matching cows to the environment. In the arid plains of eastern Colorado where I live, it’s a lot easier to get too much mature size and too much milk for our environment than the converse.

However, I'm somewhat of a contrarian by nature, and it concerns me that many of the cattle that exhibit the "look" we’ve identified with efficiency are, in fact, some of the most inefficient when it’s actually measured. Then there’s the mantra that little cows are more efficient, which purports to be so obvious that it negates the need for explanation. After all, little cows wean a higher percentage of their body weight than bigger cows, so they have to be more efficient, right?

Again, the data isn't so clear. It turns out there are inherent problems with these ratios; merely controlling the numerator or denominator doesn't necessarily reflect profits. Since maintenance requirement and mature size aren’t linear (mature weight x .7 power) the relationship isn’t linear.

In fact, the data indicates no difference between a big cow and a little cow in terms of biological efficiency. A big cow requires more feed, weans more pounds of calf, while a little cow requires less feed and weans fewer pounds. There is no real advantage, except if one goes too far to the extreme and has a cow with too much maintenance demands for the environment and fails to reproduce. Ironically, an elephant is actually more efficient than a hummingbird, something to do with body mass and surface area, but the elephant requires more total feed than a hummingbird.

The reality is that production is also becoming far more important to profitability as fixed costs rise (total dollars is a critical factor). The genetic industry is finding itself in a similar debate as the nutrition industry; after all, we love the simple answer – make your cows smaller and be more profitable, or drink 12 glasses of cranberry juice a day and live to be 120 years old.

Unfortunately, the easy answers are usually wrong. It’s a complex system; differences in marketing windows, marketing strategies, management and resources can cause animals to re-rank dramatically. The cows most profitable in the Arizona desert aren’t the most profitable in Iowa, nor are the most profitable females in Montana necessarily the most profitable in Florida.

And perhaps more importantly, an all-grass rancher with an inherited land base who sells his calves at weaning will likely find his most profitable cow is far different than a neighbor who also farms, has access to crop residue and retains ownership. Complicating things further is the advent of value-based marketing where prices received are becoming more reflective of their value throughout the system; thus, the most profitable animal from a total systems approach is rarely the most profitable animal from a segment viewpoint.

We must also avoid the trap of assuming that margins are equivalent to profits (15% on $200,000 won't feed a family, 10% on $1.2 million is a pretty good living). Then there’s the little issue of risk management. A 1,500-lb. cow might be the answer in nine of 10 years for operation A, but what happens with $5/bu. corn? Or, 900-lb. fats might work if someone has some sort of niche market that demands portion size, but what happens if that market evaporates and they have to be sold on the open market?

Profitability, sustainability and enjoyment may be the simple goals, but they involve complex and intricate interactions. Perhaps we shouldn't be asking whether we should emphasize profit or production, but rather how we can combine efficiency, production and quality to maximize profits.