Is There A Cow Valhalla?

Does one region of the U.S. offer more profit potential to beef producers than another?

It's surely human nature that makes the grass across the fence seem so attractive at times. Producers in other parts of the country might look at public grazing in the West and figure there's no way you could lose money with all that cheap feed. Conversely, folks in the West might think the knee-high grass in some other parts of the country would go a long way toward solving their problems.

In reality, no one has any more or less geographic advantage than someone else in the cattle business, says Kevin Dhuyvetter, a Kansas State University agricultural economist.

“I don't believe any region offers more profit potential than another one. Profit potential exists everywhere,” he says. “Just because the cost to run cows is cheaper in one part of the country than another, doesn't mean everyone else flocks there.”

Dhuyvetter explains: “If there was some inherent reason I could make more money in one part of the country than another, the advantage would disappear quickly, because producers from other regions would be bidding on the land there, too.”

In other words, profit can be made, or money lost, in every part of the country.

Sure, it costs less on average to run cows in some areas compared to others. In fact, depending on the study you look at, costs can be significantly less.

For instance, cow-calf costs and returns calculated by USDA's Economic Research Service (ERS) indicate the cheapest part of the world for feed costs is the Mississippi Portal (Map 1). It comes in at $34.53 less/cow exposed than the national average. However, some of the higher-cost areas yield the most value of production, such as the Basin and Range area, which is $111.19 above the national average.

As any seasoned cattle producer knows, cost doesn't make profit. Taking a wide-angle view, Dhuyvetter explains many of the cost-and-revenue differences between geographic regions is explained by the type of cattle run in those localities, and the distance to market.

“The market tends to work pretty well,” Dhuyvetter says. He explains lower revenue potential drives costs down, just as increased revenue potential pushes them up.

So, there is no cow Valhalla.

Exploiting differences

Instead, there's equal opportunity to manage. To wit, an interesting and glaring by-product of Standardized Performance Analysis (SPA) has been the revelation of the vast cost-and-revenue differences existing among producers within the same state and region.

For example, in Southwest SPA (New Mexico, Oklahoma and Texas) data for 2004, the most-profitable producers (top 25%) based on net income had a grazing cost/cow of $76.01, compared to $113.50/cow for the least-profitable (bottom 25%). The most profitable grazed more feed acres/cow exposed (24.4) than the least profitable (18.3).

Keep in mind, this is in a part of the country the ERS study indicates has a comparative advantage for feed costs. Some producers represented by SPA in these states are exploiting the advantage, and some aren't.

In the Southwest SPA data, the most profitable producers weaned 456.3 lbs./cow exposed, vs. 401.5 lbs./cow for the least profitable. Net income/cow was $28.04 for the most profitable, and -$344.21 for the least profitable. Again, this is in a part of the country indicators similar to the ERS data suggest has an average advantage in value of production per cow.

Likewise, in a case study using North Dakota's Cow Herd Appraisal Performance Software (CHAPS) program, unit cost of production (dollars/cwt. of calf produced) was $117 for the highest-cost producers (top 33%), and $58 for the lowest cost (bottom 33%). Total costs averaged $307 on the low end, and $465 on the high end. Gross income/cow was $350 for the highest-cost producers, and $420 for the lowest cost.

Note that the lowest-cost producers in this study actually had a lower herd pregnancy rate (97%) than the high-cost producers (98%), and a percent more death loss (8%). Yet, the lowest-cost producers weaned off 29 lbs. more calf/cow exposed.

“Wherever you're located, you can be a good producer or a poor one in terms of being lower cost and higher return,” Dhuyvetter says. “Concentrate on being a good producer in your location through management. That far outweighs any regional differences.”

Regional cow-calf cost and revenue — deviation from national average
Basin And Range Northern Great Plains Praire Gateway Heartland Eastern Uplands Mississpi Portal Fruitful Rim
Total feed cost1 -$11.03 +$21.25 -$28.35 +$46.24 +$6.31 -$34.51 -$3.00
Value of production2 +$111.19 +$49.32 +$95.36 -$73.41 -$103.43 -$84.60 -$226.20
1Average for U.S. is $301.10, 2Average for U.S. is $595.05
Source: USDA Economic Research Service and Kansas State University
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