Most ranchers don't accurately calculate the gross income of their beef cow herds. A correct economic analysis should be based on the accrual-adjusted gross income, not just cash income, as is typically done.
Total gross income must include cash sales, plus inventory changes. Inventory change can be positive or negative depending on that year's situation, but ranchers tend to ignore them.
One herd could start the business year with 150 cows and end it with 165, while another might begin with 150 cows and end with 135. Positive or negative, such changes must be taken into account in that herd's annual gross income figure.
When I started my Integrated Resource Management (IRM) work with Northern Plains beef cow producers in the late 1980s, I was told getting the needed herd financial data from ranchers would be difficult. As it turned out, acquiring such financial data wasn't a problem, but getting accurate animal inventory numbers was another story.
I've built several different data collection tools to reconstruct breeding-herd inventory numbers, but still have problems getting accurate herd inventory numbers that balance out over the production year. One can easily double-check inventory numbers by taking the beginning inventory and adjusting for purchases, sales, death losses and animals transferred in and out.
An IRM Cost & Return Analysis requires two accurate beef breeding herd inventories — one at bull-turnout date, the other on Jan. 1 of each year. The bull-turnout count is used to calculate the reproductive efficiency of the herd measured in “percent calf crop.” The Jan. 1 inventory is used to calculate the herd's economic efficiency — measured as unit cost of producing a cwt. of calf (UCOP).
Both these efficiencies must be measured and monitored closely to run a high-profit beef cow herd, but many ranchers don't do it. You can't manage what you don't measure.
A demo-herd example
The demo 2005 beef cow herd depicted in Table 1 had 156 mature cows, 35 virgin heifers and eight bulls in its 2004 bull-turnout-date inventory — a total herd number of 199 head. After preg-checking and culling in the fall, the herd fell to 135 mature cows, 31 preg-checked heifers, 31 year 2004 heifer calves held for replacements, and eight bulls in the Jan. 1, 2005, beginning inventory — a total herd count of 205 head.
By the end of 2005, the herd had 144 mature cows, 26 preg-checked heifers, 32 heifer calves held as replacements, and eight bulls — a total herd count of 210 head.
In order to measure the changing herd numbers and not the dollar value of animals in the herd, per-head inventory dollar values are held constant. In fact, this rancher uses the same conservative per-head value all through a cattle cycle.
Another approach would be to change the per-head values on Dec. 32 each year. (Think about this date!) This allows a rancher to use current, but constant, per-head values at the beginning and end of each year. Again, the only inventory change is due to changing herd numbers.
In this example herd, the beginning inventory value was $162,145, and the ending inventory was $166,140 — a positive inventory change of $3,995. Adding this positive $3,995 into the herd's total cattle sales generates an accrual-adjusted gross income of $642/cow in the Jan. 1 inventory.
The Table 1 data is all that's really needed to calculate accrual-adjusted income, but there's more to this inventory story. As we need to know details about the buying and selling of the breeding herd throughout the year, I take my clients through a slight modification of the above procedure.
In order to calculate an ending inventory (EI), we need information on the breeding herd's death loss, number of cows culled, and breeding herd purchases and sales during the year. I generate a check equation that serves as another verification of this rancher's total inventory numbers. By comparing the calculated ending inventory numbers to the rancher's reported ending inventory, any discrepancies immediately surface.
Table 2 depicts my expanded inventory numbers on the same herd represented in Table 1. The first row is the bull-turnout-date female inventory numbers; the second row is the Jan. 1, 2005, female inventory numbers. All per-cow calculations in an IRM economic analysis are based on this Jan. 1 bred-female inventory number.
The third row shows two mature cows were to be culled and sold shortly after the first of the year and aren't included in the Jan. 1 inventory.
The rest of the input form represents inventory changes typical in a beef herd during the year. In the 2005 calendar year, this herd had one abort, two stillborns, and five calf deaths — a total loss of eight calves. At fall preg-check time, three cows and four replacement heifers were found open. Two mature cows died during the year.
Meanwhile, 21 mature cows and four open heifers were culled; no bred females were bought or sold. On Dec. 31, 2005, 32 heifers were held back as replacements.
Table 3 on page 14 presents the final 2005 inventory numbers generated for this demo herd. The ending inventory numbers are 139 cows, 31 preg-checked heifers, and 32 virgin replacements. The bottom line reports the 158 live calves weaned in 2005.
A check equation is presented at the top of Table 4. Total number of females exposed at bull turnout was 191 head. Current IRM Guidelines allow for some adjustment giving the SPA Adjusted Females Exposed of 178 head. This herd's pregnancy percentage was 93.26%, and calf death loss 5.19%, resulting in a 92.13% calf crop for the year.
This herd's accrual-adjusted gross income was $642/cow, with a reproductive efficiency of a 92.13% calf crop. Subtracting the $485 calculated economic cost/cow (presented in previous “Market Advisor” columns) this herd generated a $157/cow earned-net return to unpaid labor, management and equity capital — or $30/cwt. of calf produced. The UCOP was $93/cwt.
All these measures were possible by inventorying the cow herd twice — at bull turnout and on Jan. 1 of each year.
Harlan Hughes is a North Dakota State University professor emeritus. He lives in Laramie, WY. Reach him at 701/238-9607 or [email protected].
Click below to view the tables.
