Is sales price of cattle the main determinant of profitability?

Annual cow costs were the focus in last week’s Industry At A Glance. The focus was based on data from the Kansas Farm Management Association (KFMA), one of the largest farm management association programs in the country.

Most important, data derived from KFMA is very useful with respect to benchmarking and trends within the beef industry. Many of the participants represent mostly mid-size (including both diversified and full-time) operations and possess a long-standing track record enabling meaningful comparisons over time. 

As noted, last week’s discussion highlighted annual cow costs, both direct and indirect costs, categorized by profit segments:  low third, mid third and top third, respectively. Most pertinent to this discussion, the data emphasize that production and selling price obviously impact profit – but the largest component in segmenting the differences among these groups are differences in cow costs. In other words, the differences across other factors don’t impact profitability nearly as much as maintenance costs.   

For example, between 2005 and 2017, the average cow cost was $748, $858, and $1,046 for the top, middle and low profit groups, respectively. That represents a $298 difference between the high and low categories (or 40%). 

Meanwhile, the marketing rate varied only 2% among the three groups with the top third actually possessing the lowest rate (82% vs. 84% for the bottom third profitability group). And last, marketing weights were 593, 580, and 571 pounds for the top, middle and low groups, respectively.    

To further emphasize the importance of costs, this week’s illustration highlights average sales price across the groups. The average sales price stood at $138.70, $140.25, and $135.70 per cwt for the high, mid and low profit groups, respectively.  

In other words, there’s no real difference between the groups when it comes to selling price – at least not one which would explain the large differences in profitability (more on that next week).  

How do you perceive the importance of cow costs with respect to profitability? Simultaneously, what’s your perception of the importance of production variables as it equates to the bottom-line? Leave your thoughts in the comments section below.  

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